HB 7095

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.

CODING: Words stricken are deletions; words underlined are additions.