CS/HB 7095

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


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