Texas Public Funds Investment Act
A few bad investments can bankrupt an individual or a corporation with a single downturn of the market. The Texas Public Funds Investment Act sets guidelines so public agencies in Texas don't place funds into risky investments that place public money --- and by proxy public services --- in jeopardy. It also establishes accounting and measurement standards to ensure public agencies meet the criteria set forth by the act.
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History
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The Texas State Legislature passed the Public Funds Investment Act in 1994 in response to financial crises in California caused when utilities companies invested heavily in risky funds. To ensure public funds in Texas wouldn't be placed in a similar situation, the act was drafted, defining the means and limitations public agencies must comply with before investing their funds.
Agencies Subject to the Act
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All local and state governments are bound by provisions dictated by the Public Funds Investment Act, as are nonprofit organizations that invest money on behalf of public agencies. Investment pools that use money from multiple state and local agencies are bound by the act as well. Retirement accounts and deferred compensation plans, registry funds and public colleges with holdings greater than $95 million are exempt from the act.
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Investment Plan
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All agencies covered by the Public Funds Investment Act must write an investment plan. This plan must address the safety of the investment, and include a system for monitoring prices of each investment. It must also list the types of funds into which the agency is entitled to invest. All investments must comply with this policy, and must not be speculative outlays, but investments made to maintain and preserve funds.
Investment Training
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All officers who deal with investments --- treasurers, chief financial officers and investment officers --- who work for a governmental agency must attend a training session provided by an independent agency. This training must be at least 10 hours long, and officers need to renew this training every two years. This training must cover how to identify security, market, investment and market risks, and it's essential that the curriculum cover diversification of the agency's investment portfolio.
Investment Requirements
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The Public Funds Investment Act places several requirements on investments made by public agencies. All investment pools must be continuously rated at AAA or AAA-m by a nationally recognized ratings agency, while agencies that offer a gas utility are the only agencies allowed to enter into a hedge fund, and only on the basis of the utility in which they trade.
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