1     
SPECIE LEGAL TENDER AMENDMENTS

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Fred C. Cox

5     
Senate Sponsor: Scott K. Jenkins

6     

7     LONG TITLE
8     General Description:
9          This bill modifies the State Money Management Act by amending provisions relating to
10     specie legal tender.
11     Highlighted Provisions:
12          This bill:
13          ▸     provides definitions;
14          ▸     authorizes a public treasurer to invest public funds in specie legal tender;
15          ▸     grants the State Money Management Council rulemaking authority to make rules
16     governing quality criteria for a commercial specie repository; and
17          ▸     makes technical and conforming changes.
18     Money Appropriated in this Bill:
19          None
20     Other Special Clauses:
21          None
22     Utah Code Sections Affected:
23     AMENDS:
24          51-7-3, as last amended by Laws of Utah 2013, Chapters 204 and 388
25          51-7-11, as last amended by Laws of Utah 2015, Chapter 171
26          51-7-17, as last amended by Laws of Utah 2015, Chapter 164
27          51-7-18, as last amended by Laws of Utah 2004, Chapter 248
28     

29     Be it enacted by the Legislature of the state of Utah:
30          Section 1. Section 51-7-3 is amended to read:
31          51-7-3. Definitions.
32          As used in this chapter:
33          (1) "Agent" means "agent" as defined in Section 61-1-13.
34          (2) "Certified dealer" means:
35          (a) a primary reporting dealer recognized by the Federal Reserve Bank of New York
36     who is certified by the director as having met the applicable criteria of council rule; or
37          (b) a broker dealer who:
38          (i) has and maintains an office and a resident registered principal in the state;
39          (ii) meets the capital requirements established by council rules;
40          (iii) meets the requirements for good standing established by council rule; and
41          (iv) is certified by the director as meeting quality criteria established by council rule.
42          (3) "Certified investment adviser" means a federal covered adviser, as defined in
43     Section 61-1-13, or an investment adviser, as defined in Section 61-1-13, who is certified by
44     the director as having met the applicable criteria of council rule.
45          (4) "Commercial specie repository" means an institution that holds or receives deposits
46     of specie legal tender that is located within the state.
47          [(4)] (5) "Commissioner" means the commissioner of financial institutions.
48          [(5)] (6) "Council" means the State Money Management Council created by Section
49     51-7-16.
50          [(6)] (7) "Covered bond" means a publicly placed debt security issued by a bank, other
51     regulated financial institution, or a subsidiary of either that is secured by a pool of loans that
52     remain on the balance sheet of the issuer or its subsidiary.
53          [(7)] (8) "Director" means the director of the Utah State Division of Securities of the
54     Department of Commerce.
55          [(8)] (9) (a) "Endowment funds" means gifts, devises, or bequests of property of any
56     kind donated to a higher education institution from any source.
57          (b) "Endowment funds" does not mean money used for the general operation of a
58     higher education institution that is received by the higher education institution from:
59          (i) state appropriations;
60          (ii) federal contracts;
61          (iii) federal grants;
62          (iv) private research grants; and
63          (v) tuition and fees collected from students.
64          [(9)] (10) "First tier commercial paper" means commercial paper rated by at least two
65     nationally recognized statistical rating organizations in the highest short-term rating category.
66          [(10)] (11) "Funds functioning as endowments" means funds, regardless of source,
67     whose corpus is intended to be held in perpetuity by formal institutional designation according
68     to the institution's policy for designating those funds.
69          [(11)] (12) "GASB" or "Governmental Accounting Standards Board" means the
70     Governmental Accounting Standards Board that is responsible for accounting standards used
71     by public entities.
72          [(12)] (13) "Hard put" means an unconditional sell-back provision or a redemption
73     provision applicable at issue to a note or bond, allowing holders to sell their holdings back to
74     the issuer or to an equal or higher-rated third party provider at specific intervals and specific
75     prices determined at the time of issuance.
76          [(13)] (14) "Higher education institution" means the institutions specified in Section
77     53B-1-102.
78          [(14)] (15) "Investment adviser representative" [is as] means the same as that term is
79     defined in Section 61-1-13.
80          [(15)] (16) (a) "Investment agreement" means any written agreement that has
81     specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated
82     interest rate.
83          (b) "Investment agreement" includes any agreement to supply investments on one or
84     more future dates.
85          [(16)] (17) "Local government" means a county, municipality, school district, local
86     district under Title 17B, Limited Purpose Local Government Entities - Local Districts, special
87     service district under Title 17D, Chapter 1, Special Service District Act, or any other political
88     subdivision of the state.
89          [(17)] (18) "Market value" means market value as defined in the Master Repurchase
90     Agreement.
91          [(18)] (19) "Master Repurchase Agreement" means the current standard Master
92     Repurchase Agreement approved by the Public Securities Association or by any successor
93     organization.
94          [(19)] (20) "Maximum amount" means, with respect to qualified depositories, the total
95     amount of:
96          (a) deposits in excess of the federal deposit insurance limit; and
97          (b) nonqualifying repurchase agreements.
98          [(20)] (21) "Money market mutual fund" means an open-end managed investment
99     fund:
100          (a) that complies with the diversification, quality, and maturity requirements of Rule
101     2a-7 or any successor rule of the Securities and Exchange Commission applicable to money
102     market mutual funds; and
103          (b) that assesses no sales load on the purchase of shares and no contingent deferred
104     sales charge or other similar charges, however designated.
105          [(21)] (22) "Nationally recognized statistical rating organization" means an
106     organization that has been designated as a nationally recognized statistical rating organization
107     by the Securities and Exchange Commission's Division of Market Regulation.
108          [(22)] (23) "Nonqualifying repurchase agreement" means a repurchase agreement
109     evidencing indebtedness of a qualified depository arising from the transfer of obligations of the
110     United States Treasury or other authorized investments to public treasurers that is:
111          (a) evidenced by a safekeeping receipt issued by the qualified depository;
112          (b) included in the depository's maximum amount of public funds; and
113          (c) valued and maintained at market value plus an appropriate margin collateral
114     requirement based upon the term of the agreement and the type of securities acquired.
115          [(23)] (24) "Operating funds" means current balances and other funds that are to be
116     disbursed for operation of the state government or any of its boards, commissions, institutions,
117     departments, divisions, agencies, or other similar instrumentalities, or any county, city, school
118     district, political subdivision, or other public body.
119          [(24)] (25) "Permanent funds" means funds whose principal may not be expended, the
120     earnings from which are to be used for purposes designated by law.
121          [(25)] (26) "Permitted depository" means any out-of-state financial institution that
122     meets quality criteria established by rule of the council.
123          [(26)] (27) "Public funds" means money, funds, and accounts, regardless of the source
124     from which the money, funds, and accounts are derived, that are owned, held, or administered
125     by the state or any of its boards, commissions, institutions, departments, divisions, agencies,
126     bureaus, laboratories, or other similar instrumentalities, or any county, city, school district,
127     political subdivision, or other public body.
128          [(27)] (28) (a) "Public money" means "public funds."
129          (b) "Public money," as used in Article VII, Sec. 15, Utah Constitution, means the same
130     as "state funds."
131          [(28)] (29) "Public treasurer" includes the state treasurer and the official of any state
132     board, commission, institution, department, division, agency, or other similar instrumentality,
133     or of any county, city, school district, political subdivision, or other public body who has the
134     responsibility for the safekeeping and investment of any public funds.
135          [(29)] (30) "Qualified depository" means a Utah depository institution or an
136     out-of-state depository institution, as those terms are defined in Section 7-1-103, that is
137     authorized to conduct business in this state under Section 7-1-702 or Title 7, Chapter 19,
138     Acquisition of Failing Depository Institutions or Holding Companies, whose deposits are
139     insured by an agency of the federal government and that has been certified by the commissioner
140     of financial institutions as having met the requirements established under this chapter and the
141     rules of the council to be eligible to receive deposits of public funds.
142          [(30)] (31) "Qualifying repurchase agreement" means a repurchase agreement
143     evidencing indebtedness of a financial institution or government securities dealer acting as
144     principal arising from the transfer of obligations of the United States Treasury or other
145     authorized investments to public treasurers only if purchased securities are:
146          (a) delivered to the public treasurer's safekeeping agent or custodian as contemplated
147     by Section 7 of the Master Repurchase Agreement; and
148          (b) valued and maintained at market value plus an appropriate margin collateral
149     requirement based upon the term of the agreement and the type of securities acquired.
150          [(31)] (32) "Reciprocal deposits" means deposits that are initially deposited into a
151     qualified depository and are then redeposited through a deposit account registry service:
152          (a) in one or more FDIC-insured depository institutions in amounts up to the relevant
153     FDIC-insured deposit limit for a depositor in each depository institution; and
154          (b) in exchange for reciprocal FDIC-insured deposits made through the deposit account
155     registry service to the qualified depository.
156          [(32)] (33) "Securities division" means Utah's Division of Securities created within the
157     Department of Commerce by Section 13-1-2.
158          (34) "Specie legal tender" means the same as that term is defined in Section
159     59-1-1501.1.
160          [(33)] (35) "State funds" means:
161          (a) public money raised by operation of law for the support and operation of the state
162     government; and
163          (b) all other money, funds, and accounts, regardless of the source from which the
164     money, funds, or accounts are derived, that are owned, held, or administered by the state or any
165     of its boards, commissions, institutions, departments, divisions, agencies, bureaus, laboratories,
166     or other similar instrumentalities.
167          Section 2. Section 51-7-11 is amended to read:
168          51-7-11. Authorized deposits or investments of public funds.
169          (1) (a) Except as provided in Subsections (1)(b) and (1)(c), a public treasurer shall
170     conduct investment transactions through qualified depositories, certified dealers, or directly
171     with issuers of the investment securities.
172          (b) A public treasurer may designate a certified investment adviser to make trades on
173     behalf of the public treasurer.
174          (c) A public treasurer may make a deposit in accordance with Section 53B-7-601 in a
175     foreign depository institution as defined in Section 7-1-103.
176          (2) The remaining term to maturity of the investment may not exceed the period of
177     availability of the funds to be invested.
178          (3) Except as provided in Subsection (4), all public funds shall be deposited or invested
179     in the following assets that meet the criteria of Section 51-7-17:
180          (a) negotiable or nonnegotiable deposits of qualified depositories;
181          (b) qualifying or nonqualifying repurchase agreements and reverse repurchase
182     agreements with qualified depositories using collateral consisting of:
183          (i) Government National Mortgage Association mortgage pools;
184          (ii) Federal Home Loan Mortgage Corporation mortgage pools;
185          (iii) Federal National Mortgage Corporation mortgage pools;
186          (iv) Small Business Administration loan pools;
187          (v) Federal Agriculture Mortgage Corporation pools; or
188          (vi) other investments authorized by this section;
189          (c) qualifying repurchase agreements and reverse repurchase agreements with certified
190     dealers, permitted depositories, or qualified depositories using collateral consisting of:
191          (i) Government National Mortgage Association mortgage pools;
192          (ii) Federal Home Loan Mortgage Corporation mortgage pools;
193          (iii) Federal National Mortgage Corporation mortgage pools;
194          (iv) Small Business Administration loan pools; or
195          (v) other investments authorized by this section;
196          (d) commercial paper that is classified as "first tier" by two nationally recognized
197     statistical rating organizations, which has a remaining term to maturity of:
198          (i) 270 days or fewer for paper issued under 15 U.S.C. Sec. 77c(a)(3); or
199          (ii) 365 days or fewer for paper issued under 15 U.S.C. Sec. 77d(2);
200          (e) bankers' acceptances that:
201          (i) are eligible for discount at a Federal Reserve bank; and
202          (ii) have a remaining term to maturity of 270 days or fewer;
203          (f) fixed rate negotiable deposits issued by a permitted depository that have a
204     remaining term to maturity of 365 days or fewer;
205          (g) obligations of the United States Treasury, including United States Treasury bills,
206     United States Treasury notes, and United States Treasury bonds that, unless the funds invested
207     are pledged or otherwise deposited in an irrevocable trust escrow account, have a remaining
208     term to final maturity of:
209          (i) five years or less; or
210          (ii) if the funds are invested by an institution of higher education as defined in Section
211     53B-3-102, a city of the first class, or a county of the first class, 10 years or less;
212          (h) obligations other than mortgage pools and other mortgage derivative products that:
213          (i) are issued by, or fully guaranteed as to principal and interest by, the following
214     agencies or instrumentalities of the United States in which a market is made by a primary
215     reporting government securities dealer, unless the agency or instrumentality has become private
216     and is no longer considered to be a government entity:
217          (A) Federal Farm Credit banks;
218          (B) Federal Home Loan banks;
219          (C) Federal National Mortgage Association;
220          (D) Federal Home Loan Mortgage Corporation;
221          (E) Federal Agriculture Mortgage Corporation; and
222          (F) Tennessee Valley Authority; and
223          (ii) unless the funds invested are pledged or otherwise deposited in an irrevocable trust
224     escrow account, have a remaining term to final maturity of:
225          (A) five years or less; or
226          (B) if the funds are invested by an institution of higher education as defined in Section
227     53B-3-102, a city of the first class, or a county of the first class, 10 years or less;
228          (i) fixed rate corporate obligations that:
229          (i) are rated "A" or higher or the equivalent of "A" or higher by two nationally
230     recognized statistical rating organizations;
231          (ii) are senior unsecured or secured obligations of the issuer, excluding covered bonds;
232          (iii) are publicly traded; and
233          (iv) have a remaining term to final maturity of 15 months or less or are subject to a
234     hard put at par value or better, within 365 days;
235          (j) tax anticipation notes and general obligation bonds of the state or a county,
236     incorporated city or town, school district, or other political subdivision of the state, including
237     bonds offered on a when-issued basis without regard to the limitations described in Subsection
238     (7) that, unless the funds invested are pledged or otherwise deposited in an irrevocable trust
239     escrow account, have a remaining term to final maturity of:
240          (i) five years or less; or
241          (ii) if the funds are invested by an institution of higher education as defined in Section
242     53B-3-102, a city of the first class, or a county of the first class, 10 years or less;
243          (k) bonds, notes, or other evidence of indebtedness of a county, incorporated city or
244     town, school district, or other political subdivision of the state that are payable from
245     assessments or from revenues or earnings specifically pledged for payment of the principal and
246     interest on these obligations, including bonds offered on a when-issued basis without regard to
247     the limitations described in Subsection (7) that, unless the funds invested are pledged or
248     otherwise deposited in an irrevocable trust escrow account, have a remaining term to final
249     maturity of:
250          (i) five years or less; or
251          (ii) if the funds are invested by an institution of higher education as defined in Section
252     53B-3-102, a city of the first class, or a county of the first class, 10 years or less;
253          (l) shares or certificates in a money market mutual fund;
254          (m) variable rate negotiable deposits that:
255          (i) are issued by a qualified depository or a permitted depository;
256          (ii) are repriced at least semiannually; and
257          (iii) have a remaining term to final maturity not to exceed three years;
258          (n) variable rate securities that:
259          (i) (A) are rated "A" or higher or the equivalent of "A" or higher by two nationally
260     recognized statistical rating organizations;
261          (B) are senior unsecured or secured obligations of the issuer, excluding covered bonds;
262          (C) are publicly traded;
263          (D) are repriced at least semiannually; and
264          (E) have a remaining term to final maturity not to exceed three years or are subject to a
265     hard put at par value or better, within 365 days; and
266          (ii) are not mortgages, mortgage-backed securities, mortgage derivative products, or a
267     security making unscheduled periodic principal payments other than optional redemptions;
268     [and]
269          (o) reciprocal deposits made in accordance with Subsection 51-7-17(4); and
270          (p) specie legal tender of a commercial specie repository.
271          (4) The following public funds are exempt from the requirements of Subsection (3):
272          (a) the Employers' Reinsurance Fund created in Section 34A-2-702;
273          (b) the Uninsured Employers' Fund created in Section 34A-2-704;
274          (c) a local government other post-employment benefits trust fund under Section
275     51-7-12.2; and
276          (d) a nonnegotiable deposit made in accordance with Section 53B-7-601 in a foreign
277     depository institution as defined in Section 7-1-103.
278          (5) If any of the deposits authorized by Subsection (3)(a) are negotiable or
279     nonnegotiable large time deposits issued in amounts of $100,000 or more, the interest shall be
280     calculated on the basis of the actual number of days divided by 360 days.
281          (6) A public treasurer may maintain fully insured deposits in demand accounts in a
282     federally insured nonqualified depository only if a qualified depository is not reasonably
283     convenient to the entity's geographic location.
284          (7) Except as provided under Subsections (3)(j) and (k), the public treasurer shall
285     ensure that all purchases and sales of securities are settled within:
286          (a) 15 days of the trade date for outstanding issues; and
287          (b) 30 days for new issues.
288          Section 3. Section 51-7-17 is amended to read:
289          51-7-17. Criteria for investments.
290          (1) As used in this section:
291          (a) "Affiliate" means, in relation to a provider:
292          (i) an entity controlled, directly or indirectly, by the provider;
293          (ii) an entity that controls, directly or indirectly, the provider; or
294          (iii) an entity directly or indirectly under common control with the provider.
295          (b) "Control" means ownership of a majority of the voting power of the entity or
296     provider.
297          (2) (a) A public treasurer shall consider and meet the following objectives when
298     depositing and investing public funds:
299          (i) safety of principal;
300          (ii) protection of principal during periods of financial market volatility;
301          (iii) need for liquidity;
302          (iv) yield on investments;
303          (v) recognition of the different investment objectives of operating and permanent
304     funds; and
305          (vi) maturity of investments, so that the maturity date of the investment does not
306     exceed the anticipated date of the expenditure of funds.
307          (b) A public treasurer shall invest the proceeds of general obligation bond issues, tax
308     anticipation note issues, and funds pledged or otherwise dedicated to the payment of interest
309     and principal of general obligation bonds and tax anticipation notes issued by the state or a
310     political subdivision of the state in accordance with:
311          (i) Section 51-7-11; or
312          (ii) the terms of the borrowing instrument applicable to those issues and funds, if those
313     terms are more restrictive than Section 51-7-11.
314          (c) A public treasurer shall invest the proceeds of bonds other than general obligation
315     bonds and the proceeds of notes other than tax anticipation notes issued by the state or a
316     political subdivision of the state, and all funds pledged or otherwise dedicated to the payment
317     of interest and principal of those notes and bonds:
318          (i) in accordance with the terms of the borrowing instruments applicable to those bonds
319     or notes; or
320          (ii) if none of those provisions are applicable, in accordance with Section 51-7-11.
321          (d) A public treasurer may invest proceeds of bonds, notes, or other money pledged or
322     otherwise dedicated to the payment of debt service on the bonds or notes in investment
323     agreements if:
324          (i) the investment is permitted by the terms of the borrowing instrument applicable to
325     those bonds or notes or the borrowing instrument authorizes the investment as an investment
326     permitted by the State Money Management Act;
327          (ii) either the provider of the investment agreement or an entity fully, unconditionally,
328     and irrevocably guaranteeing the provider's obligations under the investment agreement has
329     received a rating of:
330          (A) at least "AA-" from S&P or "Aa3" from Moody's for investment agreements
331     having a term of more than one year; or
332          (B) at least "A-1+" from S&P or "P-1" from Moody's for investment agreements
333     having a term of one year or less;
334          (iii) the investment agreement contains provisions approved by the public treasurer that
335     provide that, in the event of a rating downgrade of the provider or its affiliate guarantor, as
336     applicable, by either S&P or Moody's below the "A" category or its equivalent, or a rating
337     downgrade of a nonaffiliate guarantor by either S&P or Moody's below the "AA" category or
338     its equivalent, the provider must, within 30 days after receipt of notice of the downgrade:
339          (A) collateralize the investment agreement with direct obligations of, or obligations
340     guaranteed by, the United States of America having a market value at least equal to 105% of
341     the amount of the money invested, valued at least quarterly, and deposit the collateral with a
342     third-party custodian or trustee selected by the public treasurer; or
343          (B) terminate the agreement without penalty and repay all of the principal invested and
344     the interest accrued on the investment to the date of termination; and
345          (iv) the public treasurer receives an enforceability opinion from the legal counsel of the
346     investment agreement provider and, if there is a guarantee, an enforceability opinion from the
347     legal counsel of the guarantor with respect to the guarantee.
348          (3) (a) As used in this Subsection (3), "interest rate contract" means interest rate
349     exchange contracts, interest rate floor contracts, interest rate ceiling contracts, or other similar
350     contracts authorized by resolution of the governing board or issuing authority, as applicable.
351          (b) A public treasurer may, with the approval of the state treasurer:
352          (i) enter into interest rate contracts that the governing board or issuing authority
353     determines are necessary, convenient, or appropriate for the control or management of debt or
354     for the cost of servicing debt; and
355          (ii) use its public funds to satisfy its payment obligations under those contracts.
356          (c) Those contracts:
357          (i) shall comply with the requirements established by council rules; and
358          (ii) may contain payment, security, default, termination, remedy, and other terms and
359     conditions that the governing board or issuing authority considers appropriate.
360          (d) Neither interest rate contracts nor public funds used in connection with these
361     interest rate contracts may be considered a deposit or investment.
362          (4) A public treasurer shall ensure that all public funds invested in deposit instruments
363     are invested with qualified depositories within Utah, except:
364          (a) for deposits made in accordance with Section 53B-7-601 in a foreign depository
365     institution as defined in Section 7-1-103;
366          (b) reciprocal deposits, subject to rules made by the council under Subsection
367     51-7-18(2); [or]
368          (c) if national market rates on instruments of similar quality and term exceed those
369     offered by qualified depositories, investments in out-of-state deposit instruments may be made
370     only with institutions that meet quality criteria set forth by the rules of the council; or
371          (d) specie legal tender of a commercial specie repository that meets the quality criteria
372     set forth by the rules of the council.
373          Section 4. Section 51-7-18 is amended to read:
374          51-7-18. Duties of council.
375          (1) The council shall:
376          (a) advise the state treasurer and other public treasurers about investment policies;
377          (b) cooperate with the commissioner of financial institutions by promoting measures
378     and rules that will assist in strengthening the banking and credit structure of the state;
379          (c) at least annually, review the rules adopted under the authority of this chapter that
380     relate to the deposit and investment of public funds;
381          (d) at least annually, distribute the rules and amendments to rules adopted under the
382     authority of this chapter that relate to the deposit and investment of public funds to all public
383     treasurers; and
384          (e) provide, at least semiannually, a list of certified dealers that meet criteria
385     established by this chapter and council rules.
386          (2) The council may:
387          (a) recommend proposed changes in statutes governing the deposit and investment of
388     public funds to the Legislature;
389          (b) make rules governing:
390          (i) the financial reporting requirements of qualified depositories in which public funds
391     may be deposited;
392          (ii) the conditions and procedures for maintaining and revoking a financial institution's
393     designation as a qualified depository;
394          (iii) the definition of depository capital;
395          (iv) the conditions for maintaining deposits at a permitted depository;
396          (v) the conditions and procedures for maintaining and revoking a primary reporting
397     dealer's or a broker dealer's designation as a certified dealer;
398          (vi) certified investment advisers who deal with public treasurers, including
399     establishing standards and requirements for the use, qualification, and regulation of certified
400     investment advisers;
401          (vii) the conditions and procedures for maintaining and revoking a federal covered
402     adviser's or an investment adviser's designation as a certified investment adviser;
403          (viii) the conditions and procedures by which public treasurers may deposit and invest
404     public funds;
405          (ix) quality criteria for corporate obligations;
406          (x) the conditions and procedures by which public entities may use interest rate
407     contracts authorized by Subsection 51-7-17(3); [and]
408          (xi) quality criteria for a commercial specie repository; and
409          [(xi)] (xii) other rules necessary to carry out its functions, powers, duties, and
410     responsibilities under this chapter.
411          (3) The council may not make rules requiring a qualified depository to pledge or
412     deposit any of its assets in order to secure a deposit of public funds, except that public deposits
413     in excess of the maximum amount shall be collateralized as provided in Subsections
414     51-7-18.1(5)(b) and (6).
415          (4) Subject to legislative funding, the state treasurer shall supply qualified staff to the
416     council.
417          (5) If any rule or act of the council would constitute an infringement upon the state
418     treasurer's constitutional duties and powers to have custody of and invest public money, the
419     conflicting rule or act is advisory and not mandatory.




Legislative Review Note
Office of Legislative Research and General Counsel