Senate Bill 1352

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)

    By Senators Rossin and Sullivan





    35-545A-98

  1                      A bill to be entitled

  2         An act relating to investment of public funds

  3         (RAB); repealing s. 215.455, F.S., relating to

  4         the loan of securities; amending s. 215.515,

  5         F.S.; deleting provisions relating to review of

  6         charges for investment services of the State

  7         Board of Administration; amending s. 215.47,

  8         F.S.; revising list of eligible securities;

  9         authorizing the loan of securities or

10         investments under specified conditions;

11         amending s. 215.835, F.S.; prescribing

12         rulemaking authority of the Division of Bond

13         Finance and State Board of Administration;

14         amending ss. 159.825, 218.407, F.S.;

15         prescribing rulemaking authority of the State

16         Board of Administration; creating s. 218.412,

17         F.S.; providing rulemaking authority to the

18         State Board of Administration; providing an

19         effective date.

20

21  Be It Enacted by the Legislature of the State of Florida:

22

23         Section 1.  Section 215.455, Florida Statutes, is

24  repealed.

25         Section 2.  Section 215.515, Florida Statutes, is

26  amended to read:

27         215.515  Investment accounts; charges for services.--

28         (1)  The Board of Administration shall make reasonable

29  charges for all investment services performed for any agency,

30  the judicial branch, or any fund in accordance with the

31  provisions of ss. 215.44-215.53 or other provisions of law.

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1  The agency, fund, or judicial branch shall pay the charges,

  2  and such sums as may be necessary for this purpose are hereby

  3  appropriated from earnings on investments held by such agency,

  4  fund, or the judicial branch. The amount to be paid by each

  5  agency, fund, or the judicial branch shall be determined in

  6  such proportion as the service rendered to each agency, fund,

  7  or the judicial branch bears to the total service rendered to

  8  all agencies and funds and the judicial branch.

  9         (2)  The charges established and any revisions thereof

10  shall be reviewed by the Department of Management Services.

11  The review, and any recommendations of the Department of

12  Management Services accompanying the review, may be considered

13  by the board prior to the adoption of the charges or revision

14  thereof by the board.

15         (2)(3)  The State Board of Administration

16  Administrative Expense Trust Fund may be invested by the board

17  to the extent that such investment is consistent with the cash

18  requirements and investment objectives of the board.

19         Section 3.  Section 215.47, Florida Statutes, is

20  amended to read:

21         215.47  Investments; authorized securities.--Subject to

22  the limitations and conditions of the State Constitution or of

23  the trust agreement relating to a trust fund, moneys available

24  for investments under ss. 215.44-215.53 may be invested as

25  follows:

26         (1)  Without limitation in:

27         (a)  Bonds, notes, or other obligations of the United

28  States or those guaranteed by the United States or for which

29  the credit of the United States is pledged for the payment of

30  the principal and interest or dividends thereof.

31

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  1         (b)  State bonds pledging the full faith and credit of

  2  the state and revenue bonds additionally secured by the full

  3  faith and credit of the state.

  4         (c)  Bonds of the several counties or districts in the

  5  state containing a pledge of the full faith and credit of the

  6  county or district involved.

  7         (d)  Bonds issued or administered by the State Board of

  8  Administration secured solely by a pledge of all or part of

  9  the 2-cent constitutional fuel tax accruing under the

10  provisions of s. 16, Art. IX of the State Constitution of

11  1885, as amended, or of s. 9, Art. XII of the 1968 revised

12  State Constitution.

13         (e)  Bonds issued by the State Board of Education

14  pursuant to ss. 18 and 19, Art. XII of the State Constitution

15  of 1885, as amended, or to s. 9, Art. XII of the 1968 revised

16  State Constitution, as amended.

17         (f)  Bonds issued by the Florida Outdoor Recreational

18  Development Council pursuant to s. 17, Art. IX of the State

19  Constitution of 1885, as amended.

20         (g)  Bonds issued by the Florida State Improvement

21  Commission, Florida Development Commission, Division of Bond

22  Finance of the Department of General Services, or Division of

23  Bond Finance of the State Board of Administration.

24         (h)  Savings accounts in, or certificates of deposit

25  of, any bank, savings bank, or savings and loan association

26  incorporated under the laws of this state or organized under

27  the laws of the United States doing business and situated in

28  this state, the accounts of which are insured by the Federal

29  Government or an agency thereof, in an amount that does not

30  exceed 15 percent of the net worth of the institution, or a

31  lesser amount as determined by rule by the State Board of

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1  Administration, provided such savings accounts and

  2  certificates of deposit are secured in the manner prescribed

  3  in chapter 280.

  4         (i)  Notes, bonds, and other obligations of agencies of

  5  the United States Obligations of the Federal Farm Credit Banks

  6  and obligations of the Federal Home Loan Bank and its district

  7  banks.

  8         (j)  Obligations of the Federal Home Loan Mortgage

  9  Corporation, including participation certificates.

10         (k)  Obligations guaranteed by the Government National

11  Mortgage Association.

12         (j)(l)  Commercial paper of prime quality of the

13  highest letter and numerical rating as provided for by at

14  least one nationally recognized rating service.

15         (k)(m)  Time drafts or bills of exchange drawn on and

16  accepted by a commercial bank, otherwise known as banker's

17  acceptances, which are accepted by a member bank of the

18  Federal Reserve System having total deposits of not less than

19  $400 million.

20         (l)  Negotiable certificates of deposit issued by

21  domestic or foreign financial institutions denominated in

22  United States dollars.

23         (m)(n)  Short-term obligations not authorized elsewhere

24  in this section to be purchased individually or in pooled

25  accounts or other collective investment funds, for the purpose

26  of providing liquidity to any fund or portfolio.

27         (n)(o)  Securities of, or other interests in, any

28  open-end or closed-end management type investment company or

29  investment trust registered under the Investment Company Act

30  of 1940, 15 U.S.C. ss. 80a-1 et seq., as amended from time to

31  time, provided that the portfolio of such investment company

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1  or investment trust is limited to obligations of the United

  2  States Government or any agency or instrumentality thereof and

  3  to repurchase agreements fully collateralized by such United

  4  States Government obligations and provided that such

  5  investment company or investment trust takes delivery of such

  6  collateral either directly or through an authorized custodian.

  7         (2)  With no more than 25 percent of any fund in:

  8         (a)  Bonds, notes, or obligations of any municipality

  9  or political subdivision or any agency or authority of this

10  state, if such obligations are rated in any one of the three

11  highest ratings by two nationally recognized rating services.

12  However, if only one nationally recognized rating service

13  shall rate such obligations, then such rating service must

14  have rated such obligations in any one of the two highest

15  classifications heretofore mentioned.

16         (b)  Notes secured by first mortgages on Florida real

17  property, insured or guaranteed by the Federal Housing

18  Administration or the United States Department of Veterans

19  Affairs.

20         (c)  Interest-bearing obligations of the International

21  Bank for Reconstruction and Development, the Inter-American

22  Development Bank, the African Development Bank, the

23  International Finance Corporation, the Asian Development Bank,

24  the European Investment Bank, or the Nordic Investment Bank.

25         (c)(d)  Investments collateralized by first mortgages

26  covering single-family Florida residences, provided such

27  mortgages do not exceed $60,000, do not exceed 80 percent of

28  value, are not delinquent, and are originated by a lender

29  regulated by the state or Federal Government and the aggregate

30  of the collateral furnished is at least 150 percent of the

31  aggregate investment under this subsection.  The mortgages

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1  used for collateral shall be segregated by the lending

  2  institution so that such segregation may be confirmed by

  3  independent audit.  In the event any such mortgage used as

  4  collateral becomes more than 3 months delinquent, the lender

  5  shall immediately substitute therefor a mortgage of equal or

  6  greater value.

  7         (d)  Mortgage securities that represent participation

  8  in or are collateralized by mortgage loans secured by real

  9  property.  Such securities must be issued by United States

10  government agencies or government-sponsored enterprises,

11  including the Government National Mortgage Association, the

12  Federal National Mortgage Association, and the Federal Home

13  Loan Mortgage Corporation.

14         (e)  Mortgage pass-through certificates, meaning

15  certificates evidencing ownership of an undivided interest in

16  pools of conventional mortgages on real property which is

17  improved by a building or buildings used for residential

18  purposes for one to four families when:

19         1.  Such real property is located in this state;

20         2.  Such mortgages are originated by one or more banks

21  or savings and loan associations organized under the laws of

22  this state, by national banks or federal savings and loan

23  associations having their principal place of business in this

24  state, or by a lender that is approved by the Secretary of

25  Housing and Urban Development for the participation in any

26  mortgage insurance program under the National Housing Act and

27  has its principal place of business in this state, or by any

28  combination thereof; and

29         3.  Such mortgages are transferred or assigned to a

30  corporate trustee acting for the benefit of the holders of

31  such certificates.

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1         (f)  Obligations of the Federal National Mortgage

  2  Association.

  3         (e)(g)  Group annuity contracts of the pension

  4  investment type with insurers licensed to do business in this

  5  state, except that amounts invested by the board with any one

  6  insurer shall not exceed 3 percent of its assets.

  7         (f)(h)  Certain interests in real property and related

  8  personal property, including mortgages and related instruments

  9  on commercial or industrial real property, with provisions for

10  equity or income participation or with provisions for

11  convertibility to equity ownership; and interests in

12  collective investment funds. Associated expenditures for

13  acquisition and operation of assets purchased under this

14  provision shall be included as a part of the cost of the

15  investment.

16         1.  The title to real property acquired under this

17  paragraph shall be vested in the name of the respective fund.

18         2.  For purposes of taxation of property owned by any

19  fund, the provisions of s. 196.199(2)(b) do not apply.

20         3.  Real property acquired under the provisions of this

21  paragraph shall not be considered state lands or public lands

22  and property as defined in chapter 253, and the provisions of

23  that chapter do not apply to such real property.

24         (g)(i)  General obligations backed by the full faith

25  and credit of a foreign government which has not defaulted on

26  similar obligations for a minimum period of 25 years prior to

27  purchase of the obligation and has met its payments of similar

28  obligations when due.

29         (h)(j)  A portion of the funds available for investment

30  pursuant to this subsection may be invested in rated or

31

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    Florida Senate - 1998                 SB 1352 (Corrected Copy)
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  1  unrated bonds, notes, or instruments backed by the full faith

  2  and credit of the government of Israel.

  3         (i)(k)  Obligations of agencies of the government of

  4  the United States, provided such obligations have been

  5  included in and authorized by the Florida Retirement System

  6  Total Fund Investment Plan established in s. 215.475.

  7         (j)(l)  United States dollar-denominated obligations

  8  issued by foreign governments, or political subdivisions or

  9  agencies thereof, supranational agencies, or foreign

10  corporations, or foreign commercial entities.

11         (3)  With no more than 80 percent of any fund in common

12  stock, preferred stock, and interest-bearing obligations of a

13  corporation having an option to convert into common stock,

14  provided:

15         (a)  The corporation is organized under the laws of the

16  United States, any state or organized territory of the United

17  States, or the District of Columbia; or

18         (b)  The corporation is listed on any one or more of

19  the recognized national stock exchanges in the United States

20  and conforms with the periodic reporting requirements under

21  the Securities Exchange Act of 1934.

22         (c)  Not more than 75 50 percent of the fund may be in

23  internally managed common stock.

24

25  The board shall not invest more than 10 percent of the equity

26  assets of any fund in the common stock, preferred stock, and

27  interest-bearing obligations having an option to convert into

28  common stock, of any one issuing corporation; and the board

29  shall not invest more than 3 percent of the equity assets of

30  any fund in such securities of any one issuing corporation

31  except to the extent a higher percentage of the same issue is

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  1  included in a nationally recognized market index, based on

  2  market values, at least as broad as the Standard and Poor's

  3  Composite Index of 500 Companies, or except upon a specific

  4  finding by the board that such higher percentage is in the

  5  best interest of the fund.  The board may only sell listed

  6  options to reduce investment risk, to improve cash flow, or to

  7  provide alternative means for the purchase and sale of

  8  underlying investment securities.  Reversing transactions may

  9  be made to close out existing option positions.

10         (4)  With no more than 80 percent of any fund, in

11  interest-bearing obligations with a fixed maturity of any

12  corporation or commercial entity within the United States.

13         (5)  With no more than 20 10 percent of any fund in

14  corporate obligations and securities of any kind of a foreign

15  corporation or a foreign commercial entity having its

16  principal office located in any country other than the United

17  States of America or its possessions or territories, not

18  including United States dollar-denominated securities listed

19  and traded on a United States exchange which are a part of the

20  ordinary investment strategy of the board.

21         (6)  With no more than 5 percent of any fund to be

22  invested as deemed appropriate by the board, notwithstanding

23  investment limitations otherwise expressed in this section.

24  Prior to the board engaging in any investment activity not

25  otherwise authorized under ss. 215.44-215.53, excluding

26  investments in publicly traded securities, options, financial

27  futures, or similar instruments, the board shall present to

28  the Investment Advisory Council a proposed plan for such

29  investment. Said plan shall include, but not be limited to,

30  the expected benefits and potential risks of such activity;

31  methods for monitoring and measuring the performance of the

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  1  investment; a complete description of the type, nature, extent

  2  and purpose of the investment, including description of

  3  issuer, security in which investment is proposed to be made,

  4  voting rights or lack thereof and control to be acquired,

  5  restrictions upon voting, transfer, and other material rights

  6  of ownership, and the existence of any contracts,

  7  arrangements, understandings, or relationships with any person

  8  or entity (naming the same) with respect to the proposed

  9  investment; and assurances that sufficient investment

10  expertise is available to the board to properly evaluate and

11  manage such activity. The Investment Advisory Council may

12  obtain independent investment counsel to provide expert advice

13  with regard to such proposed investment activity by the board,

14  and the board shall defray such costs.

15         (7)  For the purpose of determining the above

16  investment limitations, the value of bonds shall be the par

17  value thereof, and the value of evidences of ownership and

18  interest-bearing obligations having an option to convert to

19  ownership shall be the cost thereof.

20         (8)  Investments in any securities authorized by this

21  section may be under repurchase agreements or reverse

22  repurchase agreements.

23         (9)  Investments made by the State Board of

24  Administration shall be designed to maximize the financial

25  return to the fund consistent with the risks incumbent in each

26  investment and shall be designed to preserve an appropriate

27  diversification of the portfolio.  The board shall discharge

28  its duties with respect to a plan solely in the interest of

29  its participants and beneficiaries.  The board in performing

30  the above investment duties shall comply with the fiduciary

31  standards set forth in the Employee Retirement Income Security

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  1  Act of 1974 at 29 U.S.C. s. 1104(a)(1)(A) through (C).  In

  2  case of conflict with other provisions of law authorizing

  3  investments, the investment and fiduciary standards set forth

  4  in this subsection shall prevail.

  5         (10)  The board is authorized to buy and sell futures

  6  and options, provided the instruments for such purpose are

  7  traded on a securities exchange or board of trade regulated by

  8  the Securities and Exchange Commission or the Commodity

  9  Futures Trading Commission, unless the board by rule

10  authorizes a different market.

11         (11)  The board is authorized to invest in domestic or

12  foreign notional principal contracts.

13         (12)  The State Board of Administration, consistent

14  with sound investment policy, may pledge up to 2 percent of

15  the assets of the Florida Retirement System Trust Fund as

16  collateral for housing bonds issued by the State of Florida or

17  its political subdivisions under chapter 159, part V of

18  chapter 420, or chapter 421 as a supplemental income program

19  for the system. With regard to any collateral program, the

20  State Board of Administration is authorized to coordinate or

21  retain other governmental entities of the State of Florida or

22  private entities to administer this program, as well as

23  receive fees for the use of the designated collateral.

24         (13)  The State Board of Administration, consistent

25  with sound investment policy, may invest the earnings accrued

26  and collected upon the investment of the minimum balance of

27  funds required to be maintained in the State Transportation

28  Trust Fund pursuant to s. 339.135(7)(b).  Such investment

29  shall be limited as provided in s. 288.9607(7).

30

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  1         (14)  With no more than 5 percent of any fund in

  2  private equity through participation in limited partnerships

  3  and limited liability companies.

  4         (15)  The State Board of Administration is authorized

  5  to invest in domestic and foreign group trusts.

  6         (16)  Securities or investments purchased or held under

  7  this section may be loaned to securities dealers or financial

  8  institutions, provided that the loan is collateralized by cash

  9  or securities having a market value of at least 100 percent of

10  the market value of the securities loaned.

11         Section 4.  Section 215.835, Florida Statutes, is

12  amended to read:

13         215.835  Rulemaking authority.--The Division of Bond

14  Finance and the State Board of Administration may adopt rules

15  as it deems necessary to carry out the provisions and intent

16  of this act.

17         Section 5.  Section 159.825, Florida Statutes, is

18  amended to read:

19         159.825  Terms of bonds.--The ordinance, resolution,

20  indenture, agreement, or other instrument providing for the

21  issuance of taxable bonds may provide for any of the

22  following:

23         (1)  The bonds shall be in such denominations, in such

24  form, either bearer or registered, and payable at such place

25  or places, either within or without the United States, at such

26  time or times, as, in each case, the governing body shall

27  determine subject to any limitations on the maturity of bonds

28  set forth in the statutes under authority of which the bonds

29  are issued.

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  1         (2)  The bonds shall be payable in legal tender of the

  2  United States, in a foreign currency, in commodities, or in

  3  precious metals, as the governing body shall determine.

  4         (3)  The governing body may appoint, in connection with

  5  the bond issue, a cotrustee located outside of the boundaries

  6  of the United States or its territories or possessions so long

  7  as it shall also appoint a trustee otherwise meeting the

  8  requirements of the statutes under authority of which the

  9  bonds are issued.  The governing body may appoint, in

10  connection with the bond issue, a paying agent or a copaying

11  agent located outside the boundaries of the United States or

12  its territories or possessions.

13         (4)  Bonds shall bear interest at a rate not to exceed

14  an average net interest cost rate, which shall be computed by

15  adding 500 basis points to the 30-year Treasury Bond yield

16  published in The Bond Buyer immediately preceding the first

17  day of the calendar month in which the bonds are sold.  If the

18  interest rate on bonds bearing a floating or variable rate of

19  interest as calculated on the date of the initial sale thereof

20  does not exceed the limitation provided by this section, so

21  long as the basis, method, or formula for computing the

22  floating or variable rate does not change during the life of

23  the bonds, subsequent increases in the interest rate in

24  accordance with said basis, method, or formula shall not cause

25  the interest rate on the bonds to violate the limitation

26  provided by this subsection.  A certificate by the issuer of

27  the bonds as to the computation of the interest rate in

28  compliance with this requirement shall be deemed conclusive

29  evidence of compliance with the provisions of this subsection.

30  Such maximum rate does not apply to bonds rated by a

31  nationally recognized rating service in any one of the three

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  1  highest classifications, which rating services and

  2  classifications are determined pursuant to rules adopted by

  3  the State Board of Administration.

  4         (5)  Upon the request of a governmental unit, the State

  5  Board of Administration may authorize, for a specific issue or

  6  reissue of bonds, a rate of interest in excess of the maximum

  7  rate prescribed in subsection (4).  The governmental unit

  8  shall provide in its request:

  9         (a)  Relevant supporting data which shall include, but

10  not be limited to:

11         1.  The official statement or prospectus, if available,

12  or similar information relating to the sale of the bonds;

13         2.  The resolution or ordinance authorizing the

14  issuance of the bonds;

15         3.  Financial data relating to anticipated revenue,

16  debt service, and coverage; and

17         4.  The most recent financial statement of the

18  governmental unit.

19         (b)  Information relating to sale of the bonds,

20  including the amount of the discount, if any.  In making the

21  determination to exceed the maximum interest rate, the State

22  Board of Administration shall consider, but not be limited to

23  considering, comparable sales of other taxable bonds of other

24  governmental units and evidence that the objectives and intent

25  of the issuing of such bonds will be realized.  This paragraph

26  shall not apply to:

27         1.  Bonds which have been sold prior to June 30, 1987,

28  and which are delivered pursuant to said sale on or after June

29  30, 1987.

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  1         2.  Bonds issued to finance projects under part II,

  2  part III, or part V of this chapter or health facilities under

  3  part III of chapter 154.

  4         3.  Limit or restrict the rate of interest on bonds or

  5  other obligations of municipal utilities or agencies thereof

  6  issued or made pursuant to authority provided in part II of

  7  chapter 166 and s. 215.431.

  8         (6)  In connection with, or incidental to, the sale and

  9  issuance of bonds, the governmental unit may enter into any

10  contracts which the governing body determines to be necessary

11  or appropriate to achieve a desirable effective interest rate

12  in connection with the bonds by means of, but not limited to,

13  contracts commonly known as investment contracts, funding

14  agreements, interest rate swap agreements, currency swap

15  agreements, forward payment conversion agreements, futures, or

16  contracts providing for payments based on levels of or changes

17  in interest rates, or contracts to exchange cash flows or a

18  series of payments, or contracts, including, without

19  limitation, options, puts, or calls to hedge payment, rate,

20  spread, or similar exposure. Such contracts or arrangements

21  may also be entered into by governmental units in connection

22  with, or incidental to, entering into any agreement which

23  secures bonds or provides liquidity therefor.  Such contracts

24  and arrangements shall be made upon the terms and conditions

25  established by the governing body, after giving due

26  consideration for the credit worthiness of the counterparties,

27  where applicable, including any rating by a nationally

28  recognized rating service or any other criteria as may be

29  appropriate.

30         (7)  In connection with, or incidental to, the sale and

31  issuance of the bonds, or entering into any of the contracts

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  1  or arrangements referred to in subsection (6), the

  2  governmental unit may enter into such credit enhancement or

  3  liquidity agreements, with such payment, interest rate,

  4  security, default, remedy, and other terms and conditions as

  5  the governing body shall determine.

  6         (8)  Notwithstanding any provisions of state law

  7  relating to the investment or reinvestment of surplus funds of

  8  any governmental unit, proceeds of the bonds and any moneys

  9  set aside or pledged to secure payment of the principal of,

10  premium, if any, and interest on the bonds, or any of the

11  contracts entered into pursuant to subsection (6), may be

12  invested in securities or obligations described in the

13  ordinance or resolution providing for the issuance of the

14  bonds.

15         (9)  The State Board of Administration may adopt rules

16  necessary to administer this section.

17         Section 6.  Section 218.407, Florida Statutes, is

18  amended to read:

19         218.407  Local government investment authority.--

20         (1)  Upon determination by the governing body that it

21  is in the interest of the unit of local government to deposit

22  surplus funds in the trust fund, a resolution by the governing

23  body shall be filed with the State Board of Administration

24  authorizing investment of its surplus funds in the trust fund

25  established by this part.  The resolution shall name:

26         (a)  The local government official, who may be the

27  chief financial or administrative officer of the local

28  government, or

29         (b)  An independent trustee holding funds on behalf of

30  the unit of local government,

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  1  responsible for deposit and withdrawal of such funds and shall

  2  state the approximate cash-flow requirements of the local

  3  government for the surplus funds to be invested.

  4         (2)  The State Board of Administration shall, upon the

  5  filing of the resolution, invest the moneys in the trust fund

  6  in the same manner and subject to the same restrictions as are

  7  set forth in s. 215.47, as provided by rule of the State Board

  8  of Administration.

  9         (3)  The provisions of this part shall not impair the

10  power of a unit of local government to hold funds in deposit

11  accounts with banking or savings institutions or to invest

12  funds as otherwise authorized by law.

13         Section 7.  Section 218.412, Florida Statutes, is

14  created to read:

15         218.42  Rulemaking authority.--The State Board of

16  Administration may adopt rules necessary to carry out this

17  act.

18         Section 8.  This act shall take effect upon becoming a

19  law.

20

21            *****************************************

22                          SENATE SUMMARY

23    Provides authority for the State Board of Administration
      to adopt rules with respect to investment of public
24    funds.  Revises the list of investments that are
      permissible for public funds and revises the percentage
25    of public funds which may be placed in certain
      investments.
26

27

28

29

30

31

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