1 | A bill to be entitled |
2 | An act relating to the investment of local government |
3 | surplus funds; amending s. 218.401, F.S.; revising the |
4 | purpose of the Investment of Local Government Surplus |
5 | Funds Act; amending s. 218.403, F.S.; providing |
6 | definitions; amending s. 218.405, F.S.; authorizing the |
7 | State Board of Administration to contract with a |
8 | professional money management firm to administer the trust |
9 | fund; establishing objectives of the trust fund; providing |
10 | for trustee certification; providing for distribution of |
11 | certain interest upon a contingency; amending s. 218.407, |
12 | F.S.; requiring the distribution of certain enrollment |
13 | materials to potential investors; specifying the contents |
14 | of the enrollment materials; requiring the signed |
15 | acceptance of a disclosure statement by the authorized |
16 | local government official prior to investing in the trust |
17 | fund; requiring surplus funds to be invested in pooled |
18 | investment accounts; amending s. 218.409, F.S.; revising |
19 | administration of the trust fund; providing standards of |
20 | care, including level of prudence, ethics and conflicts of |
21 | interest, and internal controls; providing for annual |
22 | review and approval of investment policy and controls; |
23 | providing for reports; revising the use and disclosure of |
24 | reserves; requiring investments to be made in pooled |
25 | accounts; requiring establishment and approval of an |
26 | account balance information system; providing |
27 | transparency; requiring monthly reports to certain persons |
28 | and groups; providing criteria of the report; requiring |
29 | marking to market calculation and reporting; providing |
30 | criteria; providing for additional reporting; authorizing |
31 | limiting withdrawals from or contributions to the trust |
32 | fund under certain circumstances; providing criteria for |
33 | use of interest by board; requiring an annual financial |
34 | audit; requiring the audit to be reported to certain |
35 | persons and groups; requiring certification report by |
36 | trustees; creating the Participant Local Government |
37 | Advisory Council; providing for appointments, membership, |
38 | and meetings; providing for administrative location of the |
39 | council; providing powers and limitations of the council; |
40 | requiring biennial reports by the council to certain |
41 | persons and groups; amending ss. 218.411 and 218.412, |
42 | F.S.; conforming terminology; providing an effective date. |
43 |
|
44 | Be It Enacted by the Legislature of the State of Florida: |
45 |
|
46 | Section 1. Section 218.401, Florida Statutes, is amended |
47 | to read: |
48 | 218.401 Purpose.--It is the intent of this part to |
49 | promote, through state assistance, the maximization of net |
50 | interest earnings on invested surplus funds of local units of |
51 | government, based on the principals of investor protection, |
52 | mandated transparency, and proper governance, with the goal of |
53 | thereby reducing the need for imposing additional taxes. |
54 | Section 2. Section 218.403, Florida Statutes, is amended |
55 | to read: |
56 | 218.403 Definitions.--The following words or terms, when |
57 | used in this part, shall have the following meanings: |
58 | (1) "Board" means the State Board of Administration. |
59 | (2)(1) "Chief Financial Officer" means the mayor, manager, |
60 | administrator, clerk, comptroller, treasurer, director of |
61 | finance, or other local government official, regardless of the |
62 | title of his or her office, charged with administering the |
63 | fiscal affairs of a unit of local government. |
64 | (3)(2) "Current expenses" means expenses to meet known |
65 | cash needs and anticipated cash-flow requirements for the short |
66 | term. |
67 | (4) "GASB" means the Governmental Accounting Standards |
68 | Board. |
69 | (5) "GFOA" means the Government Finance Officers |
70 | Association. |
71 | (6)(3) "Governing body" means the body or board in which |
72 | the legislative power of a unit of local government is vested. |
73 | (7)(4) "Short term" means a maximum of 6 months of |
74 | operation. |
75 | (8)(5) "Surplus funds" means any funds in any general or |
76 | special account or fund of a unit of local government, or funds |
77 | held by an independent trustee on behalf of a unit of local |
78 | government, which in reasonable contemplation will not be |
79 | immediately needed for the purposes intended. |
80 | (9)(6) "Trust fund" means the pooled investment fund |
81 | created by s. 218.405 and known as the Local Government Surplus |
82 | Funds Trust Fund. |
83 | (10) "Trustees" mean the Trustees of the State Board of |
84 | Administration. |
85 | (11)(7) "Unit of local government" means any governmental |
86 | entity within the state not part of state government and shall |
87 | include, but not be limited to, the following and the officers |
88 | thereof: any county, municipality, school district, special |
89 | district, clerk of the circuit court, sheriff, property |
90 | appraiser, tax collector, supervisor of elections, authority, |
91 | board, public corporations, or any other political subdivision |
92 | of the state. |
93 | Section 3. Section 218.405, Florida Statutes, is amended |
94 | to read: |
95 | 218.405 Local Government Surplus Funds Trust Fund; |
96 | creation; objectives; certification; interest; rulemaking.-- |
97 | (1) There is hereby created a Local Government Surplus |
98 | Funds Trust Fund to be administered by the State board of |
99 | Administration and to be composed of local government surplus |
100 | funds deposited therein by units of local government under the |
101 | procedures established in this part. The board may contract with |
102 | a professional money management firm to manage the trust fund. |
103 | (2) The primary objectives, in priority order, of |
104 | investment activities shall be safety, liquidity, and |
105 | competitive returns with minimization of risks. |
106 | (3) The trustees shall annually certify to the Joint |
107 | Legislative Auditing Committee that the trust fund is in |
108 | compliance with the requirements of this part and that the |
109 | trustees have conducted a review of the trust fund and |
110 | determined that the management of the trust fund is in accord |
111 | with best investment practices. |
112 | (4) After the effective date of the Fund B Surplus Funds |
113 | Trust Fund created under s. 218.417, the board shall distribute |
114 | the earnings from the securities that were part of the November |
115 | 2007 interest on a pro rata basis as those securities mature, |
116 | are sold, or have been worked out. In no event may the board or |
117 | a professional money management firm use the November 2007 |
118 | interest for any other purpose but to be distributed to the |
119 | participants owed such interest as described above. |
120 | (5) The board may adopt rules to administer the provisions |
121 | of this section. |
122 | Section 4. Section 218.407, Florida Statutes, is amended |
123 | to read: |
124 | 218.407 Local government investment authority.-- |
125 | (1) Prior to any determination by the governing body that |
126 | it is in the interest of the unit of local government to deposit |
127 | surplus funds in the trust fund, the board or a professional |
128 | money management firm must provide to the governing body |
129 | enrollment materials, including a trust fund profile containing |
130 | impartial educational information describing the administration |
131 | and investment policy of the trust fund, including, but not |
132 | limited to: |
133 | (a) All rights and conditions of participation, including |
134 | potential restrictions on withdrawals. |
135 | (b) The historical performance, investment holdings, |
136 | credit quality, and average maturity of the trust fund |
137 | investments. |
138 | (c) The applicable administrative rules. |
139 | (d) The rate determination processes for any deposit or |
140 | withdrawal. |
141 | (e) Any fees, charges, penalties, and deductions that |
142 | apply to the account. |
143 | (f) The most recently published financial statements or |
144 | independent audits, if available, prepared under generally |
145 | accepted accounting principles. |
146 | (g) A disclosure statement for signature by the |
147 | appropriate local government official. |
148 | (2)(1) Upon review of the enrollment materials and upon |
149 | determination by the governing body that it is in the interest |
150 | of the unit of local government to deposit surplus funds in the |
151 | trust fund, a resolution by the governing body and the signed |
152 | acceptance of the disclosure statement by the local government |
153 | official, who may be the chief financial or administrative |
154 | officer of the local government, shall be filed with the State |
155 | board and, if appropriate, a copy shall be provided to a |
156 | professional money management firm of Administration authorizing |
157 | investment of its surplus funds in the trust fund established by |
158 | this part. The resolution shall name: |
159 | (a) The local government official, who may be the chief |
160 | financial or administrative officer of the local government, or |
161 | (b) An independent trustee holding funds on behalf of the |
162 | unit of local government, |
163 |
|
164 | responsible for deposit and withdrawal of such funds. |
165 | (3)(2) The State board or a professional money management |
166 | firm of Administration shall, upon the filing of the resolution, |
167 | invest the moneys in the trust fund in the same manner and |
168 | subject to the same restrictions as are set forth in s. 215.47. |
169 | Except when authorized by the board, All units of local |
170 | government that which qualify to be participants in the Local |
171 | Government Surplus Funds trust fund shall after January 1, 1982, |
172 | will normally have surplus funds deposited into a pooled |
173 | investment account. |
174 | (4)(3) The provisions of this part shall not impair the |
175 | power of a unit of local government to hold funds in deposit |
176 | accounts with banking or savings institutions or to invest funds |
177 | as otherwise authorized by law. |
178 | Section 5. Section 218.409, Florida Statutes, is amended |
179 | to read: |
180 | 218.409 Administration of the trust fund; creation of |
181 | advisory council.-- |
182 | (1) Upon receipt of the items specified in s. 218.407 |
183 | resolution from the local governing body, the State board or a |
184 | professional money management firm of Administration shall |
185 | accept all wire transfers of funds into the trust fund. The |
186 | State board or a professional money management firm of |
187 | Administration shall also wire-transfer invested local |
188 | government funds to the local government upon request of the |
189 | local government official named in the resolution. |
190 | (2)(a) The trustees shall ensure that the State board or a |
191 | professional money management firm administers of Administration |
192 | shall administer the investment trust fund funds on behalf of |
193 | the participants. The board or a professional money management |
194 | firm and shall have the power to invest such funds in accordance |
195 | with a written investment policy. A fee may be charged on any |
196 | transaction that is not in accord with the close of business as |
197 | set by the board. The investment policy shall be updated |
198 | annually to conform to best investment practices. The standard |
199 | of prudence to be used by investment officials shall be the |
200 | fiduciary standards as set forth in s. 215.47(9), which shall be |
201 | applied in the context of managing an overall portfolio. |
202 | Investment officers acting in accordance with written procedures |
203 | and an investment policy and exercising due diligence shall be |
204 | relieved of personal responsibility for an individual security's |
205 | credit risk or market price changes, provided deviations from |
206 | expectations are reported in a timely fashion and the liquidity |
207 | and the sale of securities are carried out in accordance with |
208 | the terms of this part. |
209 | (b) Officers and employees involved in the investment |
210 | process shall refrain from personal business activity that could |
211 | conflict with the proper execution and management of the |
212 | investment program or that could impair their ability to make |
213 | impartial decisions. Employees and investment officials shall |
214 | disclose any material interests in financial institutions with |
215 | which they conduct business. They shall further disclose any |
216 | personal financial or investment positions that could be related |
217 | to the performance of the investment portfolio. Employees and |
218 | officers shall refrain from undertaking personal investment |
219 | transactions with the same individual with whom business is |
220 | conducted on behalf of the board. |
221 | (c) The board or a professional money management firm and |
222 | all employees have an affirmative duty to immediately disclose |
223 | any material impact to the trust fund to the participants. To |
224 | ensure such disclosure, a system of internal controls shall be |
225 | established by the board, which shall be documented in writing |
226 | as part of the investment policy. The controls shall be designed |
227 | to prevent the loss of public funds arising from fraud, employee |
228 | error, and misrepresentation by third parties, unanticipated |
229 | changes in financial markets, or imprudent actions by employees |
230 | and officers of the board or a professional money management |
231 | firm. The controls shall also include formal escalation |
232 | reporting guidelines for all employees. The guidelines shall |
233 | establish procedures to address material impacts on the trust |
234 | fund that require reporting and action. |
235 | (d) The investment policy shall be reviewed and approved |
236 | annually by the trustees or when market changes dictate, and in |
237 | each event the investment policy shall be reviewed by the |
238 | Investment Advisory Council and by the Participant Local |
239 | Government Advisory Council. |
240 | (3) The State board or a professional money management |
241 | firm of Administration may purchase such surety or other bonds |
242 | as may be necessary for its officials in order to protect the |
243 | trust fund. A reserve fund may be established to fulfill this |
244 | purpose. However, any reserve must be a portion of the |
245 | management fee and must be fully disclosed, including its |
246 | purpose, in the enrollment materials at the time a unit of local |
247 | government considers participation. Further, any change in the |
248 | amount to be charged for a reserve must have a reasonable notice |
249 | period to allow any participant to withdraw from the trust fund |
250 | prior to the new reserve charge being imposed. |
251 | (4) All investments may be purchased jointly for the |
252 | participants in the trust fund. The board or a professional |
253 | money management firm shall may also purchase investments for a |
254 | pooled investment account in which all participants may share |
255 | pro rata, as determined by rule of the board, in the capital |
256 | gain, income, or losses, subject to any penalties for early |
257 | withdrawal. Any provisions for penalties, including their |
258 | purpose, must be disclosed in the enrollment materials. Any |
259 | change in the amount to be charged for a penalty must have a |
260 | reasonable notice period to allow any participant to withdraw |
261 | from the trust fund prior to the new penalty charge being |
262 | imposed The board shall determine the rate of return for the |
263 | pooled investment account. A system shall may be developed by |
264 | the board, and disclosed in the enrollment materials, subject to |
265 | annual approval by the trustees, to keep current account |
266 | balances current balance information and to apportion pooled |
267 | investment earnings back to individual accounts. |
268 | (5) The State board of Administration shall keep a |
269 | separate account, designated by name and number of each |
270 | participating local government. A maximum number of accounts |
271 | allowed for each participant may be established by the board. |
272 | Individual transactions and totals of all investments, or the |
273 | share belonging to each participant, shall be recorded in the |
274 | accounts. |
275 | (6)(a) The State board or a professional money management |
276 | firm of Administration shall provide a report, at a minimum |
277 | monthly semiannually or upon the occurrence of a material event, |
278 | request to every participant having a beneficial interest in the |
279 | trust fund, the board's executive director, the trustees, the |
280 | Joint Legislative Auditing Committee, the Investment Advisory |
281 | Council, and the Participant Local Government Advisory Council. |
282 | The report shall include: |
283 | 1. Reports of any material impacts on the trust fund and |
284 | any actions or escalations taken by staff to address such |
285 | impacts. The trustees shall provide quarterly a report to the |
286 | Joint Legislative Auditing Committee that the trustees have |
287 | reviewed and approved the monthly reports and actions taken, if |
288 | any, to address any impacts. |
289 | 2. A management summary that provides an analysis of the |
290 | status of the current investment portfolio and the individual |
291 | transactions executed over the last month. This management |
292 | summary shall be prepared in a manner that will allow anyone to |
293 | ascertain whether investment activities during the reporting |
294 | period have conformed to investment policies. Such reporting |
295 | shall be in conformance with best market practices show the |
296 | changes in investments made during the preceding period. The |
297 | report shall delineate, in a manner which is in accordance with |
298 | generally accepted governmental accounting procedures, those |
299 | funds on deposit, the manner in which the funds are invested, |
300 | and the interest earnings thereon. The State board or a |
301 | professional money management firm of Administration shall |
302 | furnish upon request the details of an investment transaction to |
303 | any participant, the trustees, the Investment Advisory Council, |
304 | and the Participant Local Government Advisory Council. |
305 | (b) The market value of the portfolio shall be calculated |
306 | daily. Withdrawals from the trust fund shall be based on a |
307 | process that is transparent to participants and will ensure that |
308 | advantages or disadvantages do not occur to parties making |
309 | deposits or withdrawals on any particular day. A statement of |
310 | the market value and amortized cost of the portfolio shall be |
311 | issued to participants in conjunction with any deposits or |
312 | withdrawals. In addition, this information shall be reported |
313 | monthly with the items in paragraph (a) to participants, the |
314 | trustees, the Investment Advisory Council, and the Participant |
315 | Local Government Advisory Council. The review of the investment |
316 | portfolio, in terms of value and price volatility, shall be |
317 | performed with practices consistent with the GFOA Recommended |
318 | Practice on "Mark-to-Market Practices for State and Local |
319 | Government Investment Portfolios and Investment Pools." In |
320 | defining market value, consideration shall be given to GASB |
321 | Statement 31. Additional reporting may be made to pool |
322 | participants through regular and frequent ongoing multi-media |
323 | educational materials and communications, including, but not |
324 | limited to, historical performance, investment holdings, |
325 | amortized cost and market value of the trust fund, credit |
326 | quality, and average maturity of the trust fund investments. |
327 | (7) Administrative costs incurred in carrying out the |
328 | provisions of this part shall be deducted from the interest |
329 | earnings accruing to the trust fund. Such deductions shall be |
330 | prorated among the participant local governments in the |
331 | percentage that each participant's deposits bear to the total |
332 | trust fund. The remaining interest earned shall be distributed |
333 | monthly to participants according to the amount invested. Except |
334 | for administrative costs, the board or a professional money |
335 | management firm may not transfer the interest or use the |
336 | interest for any other purpose, including, but not limited to, |
337 | making up investment losses. |
338 | (8)(a) The principal, and any part thereof, of each and |
339 | every account constituting the trust fund shall be subject to |
340 | payment at any time from the moneys in the trust fund. However, |
341 | the executive director may, in good faith, on the occurrence of |
342 | an event that has a material impact on liquidity or operations |
343 | of the trust fund, for 48 hours limit contributions to or |
344 | withdrawals from the trust fund to ensure that the board can |
345 | invest moneys entrusted to it in exercising its fiduciary |
346 | responsibility or as otherwise provided by agreement between the |
347 | State Board of Administration and the investing unit. Such |
348 | action shall be immediately disclosed to all participants, the |
349 | trustees, the Joint Legislative Auditing Committee, the |
350 | Investment Advisory Council, and the Participant Local |
351 | Government Advisory Council. The trustees shall convene an |
352 | emergency meeting as soon as practicable from the time the |
353 | executive director has instituted such measures and review the |
354 | necessity of those measures. If the trustees agree with such |
355 | measures, the trustees shall vote to continue the measures for |
356 | up to an additional 15 days. The trustees must convene and vote |
357 | to continue any such measures prior to the expiration of the |
358 | time limit set, but in no case may the time limit set by the |
359 | trustees exceed 15 days. |
360 | (b) An order to withdraw funds or warrant may not be |
361 | issued upon any account for a larger amount than the share of |
362 | the particular account to which it applies; and if such order or |
363 | warrant is issued, the responsible official shall be personally |
364 | liable under his or her bond for the entire overdraft resulting |
365 | from the payment if made. |
366 | (9) The Auditor General shall conduct an annual financial |
367 | audit of the trust fund, which shall include testing for |
368 | compliance with the investment policy. The completed audit shall |
369 | be provided to the participants, the board, the trustees, the |
370 | Investment Advisory Council, the Participant Local Government |
371 | Advisory Council, and the Joint Legislative Auditing Committee. |
372 | As soon as practicable, but no later than 30 days after |
373 | completion of the audit, the trustees shall report to the Joint |
374 | Legislative Auditing Committee that the trustees have reviewed |
375 | the audit of the trust fund and shall certify that any necessary |
376 | items are being addressed by a corrective action plan that |
377 | includes target completion dates. |
378 | (10)(a) The Participant Local Government Advisory Council |
379 | is created. The council shall consist of 16 members. The |
380 | executive director of the board shall be an ex officio member of |
381 | the council. Of the 16 members comprising the council, 13 must |
382 | be current participants in the trust fund and 3 must have |
383 | significant accounting or investment experience. The Governor, |
384 | the Attorney General, and the Chief Financial Officer shall each |
385 | make four appointments, three from among the trust fund |
386 | participants and one with significant accounting or investment |
387 | experience. The President of the Senate and the Speaker of the |
388 | House of Representatives shall each make two appointments, both |
389 | from trust fund participants. In choosing members from trust |
390 | fund participants, the appointing official shall attempt to |
391 | choose participants with differing levels of participation in |
392 | the trust fund. The initial appointments to the council must be |
393 | made within 30 days after the effective date of this act. |
394 | Members shall serve 2-year terms. However, in order to establish |
395 | staggered terms, for the initial appointments, each appointing |
396 | official appointing four members shall appoint two members to a |
397 | 1-year term and two members to a 2-year term, and each |
398 | appointing official appointing two members shall appoint one |
399 | member to a 1-year term and one member to a 2-year term. A |
400 | member shall not serve more than three consecutive terms. |
401 | Members shall name the chairperson of the council. A member |
402 | whose term has expired shall continue to serve on the council |
403 | until such time as a replacement is appointed. The council shall |
404 | meet quarterly or upon the call of the chairperson. A majority |
405 | of the members constitutes a quorum for the conduct of business. |
406 | Members of the council shall serve without compensation. The |
407 | appointing official may only remove his or her appointee with |
408 | cause. If the entity represented by an appointee ceases to be a |
409 | participant in the trust fund, then the appointment is vacated. |
410 | Vacancies shall be filled for the remainder of the term and by |
411 | the original appointing official. |
412 | (b) The council is independent from but administratively |
413 | attached to the board. A volunteer executive director for the |
414 | council may be chosen by majority vote of the council. |
415 | (c) The council may: |
416 | 1. Provide the board with input regarding proposed |
417 | investment policies, internal controls, investment classes, |
418 | competitively bid contracts, and programs that may affect trust |
419 | fund participants. |
420 | 2. Consider requests from trust fund participants to |
421 | review the board's investment policies, internal controls, |
422 | investment classes, competitively bid contracts, and programs |
423 | that may affect trust fund participants. |
424 | 3. Review rules adopted by the board. The council may |
425 | provide input on any rule and offer alternatives that the |
426 | council believes reduce the impact on trust fund participants |
427 | while meeting the stated objectives of the proposed rule. |
428 | (d) The council does not have authority to: |
429 | 1. Interfere with, modify, prevent, or delay board action |
430 | or investment activities; |
431 | 2. Intervene in legal actions; or |
432 | 3. Subpoena witnesses to testify or to produce documents, |
433 | but it may request witnesses to voluntarily testify or produce |
434 | documents. |
435 | (e) The council shall prepare and submit a written |
436 | biennial report to the board, trustees, the Investment Advisory |
437 | Council, and the Joint Legislative Auditing Committee that |
438 | describes the activities and recommendations of the council. |
439 | Section 6. Section 218.411, Florida Statutes, is amended |
440 | to read: |
441 | 218.411 Authorization for state technical and advisory |
442 | assistance.-- |
443 | (1) The State board of Administration is authorized, upon |
444 | request, to assist local governments in investing funds that are |
445 | temporarily in excess of operating needs by: |
446 | (a) Explaining investment opportunities to such local |
447 | governments through publication and other appropriate means. |
448 | (b) Acquainting such local governments with the state's |
449 | practice and experience in investing short-term funds. |
450 | (c) Providing, in cooperation with the Department of |
451 | Community Affairs, technical assistance to local governments in |
452 | investment of surplus funds. |
453 | (2) The State board of Administration may establish fees |
454 | to cover the cost of such services, which shall be paid by the |
455 | unit of local government requesting such service. Such fees |
456 | shall be deposited to the credit of the appropriation or |
457 | appropriations from which the costs of providing the services |
458 | have been paid or are to be charged. |
459 | Section 7. Section 218.412, Florida Statutes, is amended |
460 | to read: |
461 | 218.412 Rulemaking authority.--The State board of |
462 | Administration may adopt rules as it deems necessary to carry |
463 | out the provisions of this part for the administration of the |
464 | Local Government Surplus Funds trust fund. |
465 | Section 8. This act shall take effect upon becoming a law. |