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H.B. 103 Enrolled

             1     

STATE MONEY MANAGEMENT ACT AMENDMENTS

             2     
2014 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Rich Cunningham

             5     
Senate Sponsor: Curtis S. Bramble

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the State Money Management Act by amending provisions relating to
             10      the requirements for and reports on the investment of public funds.
             11      Highlighted Provisions:
             12          This bill:
             13          .    requires the state treasurer to include in the state treasurer's report at the end of each
             14      fiscal year on the State School Fund a comparison of the fund's internal rate of
             15      return with benchmark rates of return for the previous year, three years, and five
             16      years for the same asset classes; and
             17          .    requires the public treasurer to consider protection of principal during periods of
             18      financial market volatility when depositing and investing public funds.
             19      Money Appropriated in this Bill:
             20          None
             21      Other Special Clauses:
             22          None
             23      Utah Code Sections Affected:
             24      AMENDS:
             25           51-7-9.5 , as enacted by Laws of Utah 2002, Chapter 237
             26           51-7-17 , as last amended by Laws of Utah 2013, Chapter 388
             27     
             28      Be it enacted by the Legislature of the state of Utah:
             29          Section 1. Section 51-7-9.5 is amended to read:


             30           51-7-9.5. State School Fund report.
             31          (1) The state treasurer shall prepare a report at the end of each fiscal year on the State
             32      School Fund created in Utah Constitution Article X, Section 5.
             33          (2) The report shall include the following information:
             34          (a) the name of each asset within the fund and the fair market value of each asset as of
             35      June 30;
             36          (b) the amount and date of each contribution to the fund during the fiscal year;
             37          (c) a balance sheet for the most recently completed fiscal year and the previous fiscal
             38      year;
             39          (d) the fund's internal rate of return for the previous year, three years, and five years
             40      and a comparison of the fund's internal rate of return with benchmark rates of return for the
             41      previous year, three years, and five years for the same asset classes;
             42          (e) a summary of the asset allocation policy for the fund;
             43          (f) a description of the fund income, including amounts distributed and amounts
             44      retained; and
             45          (g) expenses in dollars and as a percent of fund assets.
             46          (3) The state treasurer shall submit the report to the Education Interim Committee by
             47      October 1 of each year.
             48          Section 2. Section 51-7-17 is amended to read:
             49           51-7-17. Criteria for investments.
             50          (1) As used in this section:
             51          (a) "Affiliate" means, in relation to a provider:
             52          (i) an entity controlled, directly or indirectly, by the provider;
             53          (ii) an entity that controls, directly or indirectly, the provider; or
             54          (iii) an entity directly or indirectly under common control with the provider.
             55          (b) "Control" means ownership of a majority of the voting power of the entity or
             56      provider.
             57          (2) (a) A public treasurer shall consider and meet the following objectives when


             58      depositing and investing public funds:
             59          (i) safety of principal;
             60          (ii) protection of principal during periods of financial market volatility;
             61          [(ii)] (iii) need for liquidity;
             62          [(iii)] (iv) yield on investments;
             63          [(iv)] (v) recognition of the different investment objectives of operating and permanent
             64      funds; and
             65          [(v)] (vi) maturity of investments, so that the maturity date of the investment does not
             66      exceed the anticipated date of the expenditure of funds.
             67          (b) A public treasurer shall invest the proceeds of general obligation bond issues, tax
             68      anticipation note issues, and funds pledged or otherwise dedicated to the payment of interest
             69      and principal of general obligation bonds and tax anticipation notes issued by the state or a
             70      political subdivision of the state in accordance with:
             71          (i) Section 51-7-11 ; or
             72          (ii) the terms of the borrowing instrument applicable to those issues and funds, if those
             73      terms are more restrictive than Section 51-7-11 .
             74          (c) A public treasurer shall invest the proceeds of bonds other than general obligation
             75      bonds and the proceeds of notes other than tax anticipation notes issued by the state or a
             76      political subdivision of the state, and all funds pledged or otherwise dedicated to the payment
             77      of interest and principal of those notes and bonds:
             78          (i) in accordance with the terms of the borrowing instruments applicable to those bonds
             79      or notes; or
             80          (ii) if none of those provisions are applicable, in accordance with Section 51-7-11 .
             81          (d) A public treasurer may invest proceeds of bonds, notes, or other money pledged or
             82      otherwise dedicated to the payment of debt service on the bonds or notes in investment
             83      agreements if:
             84          (i) the investment is permitted by the terms of the borrowing instrument applicable to
             85      those bonds or notes or the borrowing instrument authorizes the investment as an investment


             86      permitted by the State Money Management Act;
             87          (ii) either the provider of the investment agreement or an entity fully, unconditionally,
             88      and irrevocably guaranteeing the provider's obligations under the investment agreement has
             89      received a rating of:
             90          (A) at least "AA-" from S&P or "Aa3" from Moody's for investment agreements having
             91      a term of more than one year; or
             92          (B) at least "A-1+" from S&P or "P-1" from Moody's for investment agreements
             93      having a term of one year or less;
             94          (iii) the investment agreement contains provisions approved by the public treasurer that
             95      provide that, in the event of a rating downgrade of the provider or its affiliate guarantor, as
             96      applicable, by either S&P or Moody's below the "A" category or its equivalent, or a rating
             97      downgrade of a nonaffiliate guarantor by either S&P or Moody's below the "AA" category or
             98      its equivalent, the provider must, within 30 days after receipt of notice of the downgrade:
             99          (A) collateralize the investment agreement with direct obligations of, or obligations
             100      guaranteed by, the United States of America having a market value at least equal to 105% of
             101      the amount of the money invested, valued at least quarterly, and deposit the collateral with a
             102      third-party custodian or trustee selected by the public treasurer; or
             103          (B) terminate the agreement without penalty and repay all of the principal invested and
             104      the interest accrued on the investment to the date of termination; and
             105          (iv) the public treasurer receives an enforceability opinion from the legal counsel of the
             106      investment agreement provider and, if there is a guarantee, an enforceability opinion from the
             107      legal counsel of the guarantor with respect to the guarantee.
             108          (3) (a) As used in this Subsection (3), "interest rate contract" means interest rate
             109      exchange contracts, interest rate floor contracts, interest rate ceiling contracts, or other similar
             110      contracts authorized by resolution of the governing board or issuing authority, as applicable.
             111          (b) A public treasurer may:
             112          (i) enter into interest rate contracts that the governing board or issuing authority
             113      determines are necessary, convenient, or appropriate for the control or management of debt or


             114      for the cost of servicing debt; and
             115          (ii) use its public funds to satisfy its payment obligations under those contracts.
             116          (c) Those contracts:
             117          (i) shall comply with the requirements established by council rules; and
             118          (ii) may contain payment, security, default, termination, remedy, and other terms and
             119      conditions that the governing board or issuing authority considers appropriate.
             120          (d) Neither interest rate contracts nor public funds used in connection with these
             121      interest rate contracts may be considered a deposit or investment.
             122          (4) A public treasurer shall ensure that all public funds invested in deposit instruments
             123      are invested with qualified depositories within Utah, except:
             124          (a) for deposits made in accordance with Section 53B-7-601 in a foreign depository
             125      institution as defined in Section 7-1-103 ;
             126          (b) reciprocal deposits, subject to rules made by the council under Subsection
             127      51-7-18 (2); or
             128          (c) if national market rates on instruments of similar quality and term exceed those
             129      offered by qualified depositories, investments in out-of-state deposit instruments may be made
             130      only with institutions that meet quality criteria set forth by the rules of the council.


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