The Superintendent, or other person designated by Board resolution, shall serve as the investment officer of the School, shall recommend appropriate legally authorized and adequately secured investments, and shall invest School funds as directed by the Board, and in accordance with the School’s written investment policy and generally accepted accounting procedures.
All investments made by the School shall comply with the Public Funds Investment Act (Texas Government Code Chapter 2256, Subchapter A) and all federal, state, and local statutes, rules or regulations. Gov’t Code 2256.026
The investment officer is responsible for the investment of TSBVI’s funds consistent with the Board’s investment policy. In the administration of the duties of an investment officer, the person designated as investment officer shall exercise the judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, but the Board retains the ultimate responsibility as fiduciaries of the assets for TSBVI. Unless authorized by law, a person may not deposit, withdraw, transfer, or manage in any other manner the funds of the investing entity. Authority granted to a person to deposit, withdraw, invest, transfer, or manage an entity’s funds is effective until rescinded by the Board, or until termination of the person’s employment by the School. Gov’t Code 2256.005(f)
The School’s investment officer may use School employees or the services of a contractor of the School to aid the investment officer in the execution of the officer’s duties under Government Code 2256. If the Board contracts with another investing entity to invest its funds, that entity’s investment officer becomes the investment officer for TSBVI until the expiration of the contract. Gov’t Code 2256.005(f)
Gov’t Code 2256.003(c)
The Board may purchase, sell, and invest its funds and funds under its control in investments described below, in compliance with its adopted investment policies and according to the standard of care set out in this policy. Investments may be made directly by the Board or by a nonprofit corporation acting on behalf of the Board or an investment pool acting on behalf of two or more local governments, state agencies, or a combination of the two. Gov’t Code 2256.003(a)
In the exercise of these powers, the Board may contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control. A contract made for such purpose may not be for a term longer than two years. A renewal or extension of the contract must be made by the Board by order, ordinance, or resolution. Gov’t Code 2256.003(b)
The Board shall permit investment of School funds in only the following investment types, consistent with the strategies and maturities defined in this policy.
- Obligations, including letters of credit, of the United States or its agencies and instrumentalities; direct obligations of the state of Texas or its agencies and instrumentalities; collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the state of Texas, the United States, or their respective agencies and instrumentalities including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; and bonds issued, assumed, or guaranteed by the state of Israel. Gov’t Code 2256.009(a)
- Certificates of deposit as permitted by Gov’t Code 2256.010.
- Fully collateralized repurchase agreements permitted by Gov’t Code 2256.011.
- Banker’s acceptances as permitted by Gov’t Code 2256.012.
- Commercial paper as permitted by Gov’t Code 2256.013.
- Two types of mutual funds as permitted by Gov’t Code 2256.014: Money market mutual funds and no-load mutual funds.
- Public funds investment pools as permitted by Gov’t Code 2256.016-2256.017, 2256.019.
The School is not required to liquidate investments that were authorized investments at the time of purchase.
Gov’t Code 2256.017
SAFETY AND INVESTMENT MANAGEMENT
The investment officer shall observe financial market indicators, study financial trends, and utilize available educational tools in order to maintain appropriate managerial expertise. Investments shall be made in a manner that ensures the preservation of capital in the overall portfolio and offsets, during a 12-month period, any market price losses resulting from interest-rate fluctuations by income received from the balance of the portfolio. No individual investment transaction shall be undertaken that jeopardizes the total capital position of the overall portfolio.
LIQUIDITY AND MATURITY
Assets of the School shall be invested in instruments whose maturities do not exceed one year from the time of purchase, subject to the following exceptions:
- A shorter maturity is required by law.
- A longer maturity may be specifically authorized by the Board for a given investment, provided legal limits are not exceeded.
The School’s investment portfolio shall have sufficient liquidity to meet anticipated cash flow requirements, projected on a weekly, monthly, and annual basis. The School shall have procedures to determine cash flow requirements according to generally accepted financial and accounting procedures.
The investment portfolio shall be diversified in terms of investment instruments, maturity scheduling, and financial institutions to reduce risk of loss resulting from over concentration of assets in a specific class of investments, specific maturity, or specific issuer.
MONITORING MARKET PRICES
Monitoring shall be done monthly and more often as economic conditions warrant by using appropriate reports, indices, or benchmarks for the type of investment. The investment officer shall keep the Board informed of significant declines in the market value of the School’s investment portfolio. Information sources may include financial/investment publications and electronic media, available software for tracking investments, depository banks, commercial or investment banks, financial advisers, and representatives/advisors of investment pools, or money market funds.
Investments of the expendable trust fund shall be consistent with this policy and shall have as their primary objectives safety, investment liquidity, and maturity sufficient to meet anticipated cash flow requirements. [See Policy CDC] The investment strategy of the expendable trust fund shall include the following priorities in order of importance:
- understanding of the suitability of the investment to the financial requirements of TSBVI;
- preservation and safety of principal;
- marketability of the investment if the need arises to liquidate the investment before maturity;
- diversification of the investment portfolio;
- yield; and
- investment ratings obtained monthly from approved broker-dealers or from other independent third parties. Investment pools must not be rated less than AAA or at an equivalent rating by at least one nationally recognized rating service.
All investment transactions, except mutual funds, shall be executed on a delivery versus payment basis. Gov’t Code 2256.005(b)
SAFEKEEPING AND CUSTODY
The cash, collateral, and investments of the School shall be held by an independent third party with whom the School has a current custodial agreement. The School shall retain clearly marked receipts providing proof of the School’s ownership, or the School may delegate to an investment pool the authority to hold legal title, as custodian, of investments purchased with School funds.
Selection of Broker
Prior to engaging in any investment transactions with a broker, the Board shall adopt a list of qualified brokers that are authorized to engage in investment transactions with the School. At least annually thereafter, the Board shall review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the School.
Gov’t Code 2256.025
Prior to handling investments on behalf of the School, broker/dealers must submit required written documents and annual audited financial statements to the School, and be in good standing with the National Association of Securities Dealers. Representatives of brokers/dealers shall be registered with the Texas State Securities Board and must have membership in the Securities Investor Protection Corporation (SIPC).
In order to get the best return on its investments, the School may solicit bids in writing, by telephone, or electronically.
A system of internal controls shall be established and documented, in writing, and must designate who has authority to withdraw funds. Also, they shall be designed to protect against losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the School. Controls deemed most important shall include:
- Separation of transaction authority from accounting and record keeping.
- Avoidance of collusion.
- Custodial safekeeping.
- Clear delegation of authority.
- Written confirmation of telephone transactions.
- Documentation of dealer questionnaires, quotations and bids, evaluations, transactions and rationale.
- Avoidance of bearer-form securities.
These controls shall be reviewed by the School’s internal auditor.
Not less than quarterly, the School’s investment officer shall prepare and submit to the Board, a written report of investment transactions for all funds covered by the Public Funds Investment Act for the preceding reporting period. This report shall be presented to the Board not less than quarterly, and within a reasonable time after the end of the period. The report must:
- Contain a detailed description of the investment position of the School on the date of the report.
- Be prepared jointly and signed by all School investment officers.
- Contain a summary statement of each pooled fund that states:
- Beginning market value for the reporting period.
- Ending market value for the period; and
- Fully accrued interest for the reporting period.
- State the book value and market value of each separately invested asset at the beginning and end of the reporting period by the type of asset and fund type invested.
- State the maturity date of each separately invested asset that has a maturity date.
- State the account, or fund, or pooled group fund, in the School for which each individual investment was acquired.
- State the compliance of the investment portfolio of the School as it relates to the School’s investment strategy expressed in the School’s investment policy and relevant provisions of law.
If the School invests in other than money market mutual funds, investment pools, or accounts, offered by its depository bank in the form of certificates of deposit, or money market accounts, or similar accounts, the reports shall be formally reviewed at least annually by an independent auditor, and the result of the review shall be reported to the Board by that auditor.
Gov’t Code 2256.023
The investment policy and the investment strategy shall be reviewed by the Board not less than annually.
The Board shall adopt a written instrument stating that it has reviewed the investment policy and investment strategies and that the written instrument so adopted shall record any changes made to either the investment policy or investment strategies. Gov’t Code 2256.005(e)
At least once every two years, the Board shall require the School’s internal auditor to perform a compliance audit of management controls on investments and adherence to the Board’s established investment policies. The School shall report the results of this audit to the State auditor. Gov’t Code 2256.005(n)
Each member of the TSBVI governing Board and its investment officer shall attend at least one training session relating to the person’s responsibilities under the Public Funds Investment Act (PFIA) within six months after taking office, or assuming duties.
Training must include education in investment controls, security risks, strategy risks, market risks, diversification of investment portfolio, and compliance with the Public Funds Investment Act. An investment officer shall attend a training session not less than once each state fiscal biennium and may receive training from any independent source approved by the TSBVI governing body. The investment officer shall prepare a report on this training and deliver the report to the TSBVI governing body not later than the 180th day after the last day of each regular session of the legislature.
Gov’t Code 2256.007(a),(c),(d)
STANDARD OF CARE
Investments shall be made with judgment and care, under prevailing circumstances that a person of prudence, discretion, and intelligence would exercise in the management of his, or her, own affairs, not for speculation, but for investment, considering the probably safety of capital and the probable income to be derived. Investments shall be governed by the following objectives in order of priority:
- Preservation and safety of principal;
- Liquidity; and
In determining whether an investment officer has exercised prudence with respect to an investment decision, the following shall be taken into consideration:
- The investment of all funds, rather than the prudence of a single investment, over which the officer had responsibility.
- Whether the investment decision was consistent with a board’s written investment policy.
Gov’t Code 2256.006
A School investment officer who has a personal business relationship with an entity seeking to sell an investment to the School shall file a statement disclosing that personal business interest. An investment officer who is related within the second degree by affinity, or consanguinity, as determined by Government Code Chapter 573 (regarding nepotism prohibition), to an individual seeking to sell an investment to the School shall file a statement disclosing that relationship with the Board and with the Texas Ethics Commission. Gov’t Code 2256.005
For purposes of this policy, an investment officer has a personal business relationship with a business organization if:
- The investment officer owns ten percent, or more, of the voting stock, or shares, of the business organization or owns $5,000, or more, of the fair market value of the business organization;
- Funds received by the investment officer from the business organization exceed ten percent of the investment officer’s gross income for the previous year; or
- The investment officer has acquired from the business organization during the previous year investments with a book value of $2,500, or more, for the personal account of the investment officer.
SELLERS OF INVESTMENTS
This policy shall be presented to any person seeking to sell an authorized investment to the School. For purposes of this policy, a business organization includes investment pools. The registered principal of the business organization seeking to sell an authorized investment shall execute a written instrument stating:
- The registered principal has received and thoroughly reviewed this policy; and
- The registered principal acknowledges that the business organization has implemented reasonable procedures and controls in an effort to preclude imprudent investment activities arising out of investment transactions conducted between the School and the organization.
The investment officer of the School may not buy any securities from a person who has not delivered to the School an instrument in substantially this form.
For the purposes of the provisions at Sellers of Investments above, “business organization” means an investment pool or investment management firm under contract with a district to invest or manage the district’s investment portfolio that has accepted authority granted by the district under the contract to exercise investment discretion in regard to the district’s funds.
Gov’t Code 2256.005(k),(l)
ELECTRONIC FUNDS TRANSFER
The School may use electronic means to transfer, or invest, all funds collected, or controlled by the School.
Gov’t Code 2256.051
Amended: 5/31/90, 3/25/94, 5/26/94, 9/29/95, 1/24/97, 11/14/97, 3/30/99, 11/22/02, 1/30/04, 11/18/05, 11/18/11, 11/21/14, 11/20/15, 11/18/16, 11/17/17, 11/16/18, 11/19/21, 2/3/23
Reviewed: 1/24/02, 11/19/04, 1/26/07, 11/16/07, 11/21/08, 11/20/09, 11/19/10, 11/9/12, 11/8/13, 11/15/19, 11/20/20