Case Information

*1 @ffice of toe Plttornep General

Mate of Qexarr January 28.1993

ATTORNEY GENERAL Opiion No. DM-202 Honorable Jii Tallas

Chairman Re: Whether the Public Funds Investmeot Act, Committee on Fiicial Institution V.T.C.S. article 842a-2, authorizes cities, TexasHouseofRepresentatives counties, and certain other public entities to P. 0. Box 2910 invest public Iimds in mutual ibnds holding only Austin, Texas 78768-2910 adjustable rate mortgages that United States

agencies have issued (RQ-334) DearRepresentativeTallas:

You have requested an ioterpmtation of section 2 of the Public Funds investment Act of 1987 (the “PFIA”), V.T.C.S. article 842a-2. Section 2 states in perthalt part as foknvs:

(a) An incaporated city or town, a county, a public school district, a district or authority created under Article IlI, Section 52(b)(l) or (2), or Article XVl, Section 59, Texas Constitution, an iosdmtion of higher education as d&ed by Section 61.003 of the Education Code, a hospital district, a fksh water supply distric4 or any nonprofit caporation acting on behalf of any of thOSCUltiti~llUy,itlttC.COdanCeWithtlIiSAct,pIUCllaSC,sell,and invest its fuods and !bnds under its control in the following: (1) obligations of the United States or its agencies and iostrumentalities;l

‘~~~lcgiJnhm~acmion2(a)foortim& SeeActs1989,7111L~g.,ch 39. 8 1, at 3=-X; id. d’. 62% 0 1, U 2099-100; id. ch 693, 0 4, at X99-Zoo; id. cb. 730, 5 1, at 3333. one of Ik eodawms I3mcndsIbcFFIAtoinclodeinIklinof~nddivirionr allkidcinvcslpur6oamIotbcPFxA*adkuitaor~acltcdoImor~m,sstion 52@X1) or 0). or ktkk xvr, Section 59, of th Texas Caastitndon” (sn Acts 1989,71x1 LcS., ch. 39.P1.~32526);olu~IbcpFutoindudc=adirtricloppltborityEnattd~~~ SccIia’ 52@)(l) or (2). or Ardck XVI, Soztkn 59. Texas Coslrtitution” as well ~1 “a hospital d&& [sDdla~water~~“(srrid.ch.628.~1,it2099);onc~t\r~~~~~~

~gatioo~organinduoderArcidc~,seclion52,orArtidexvI.seaion59,oftbeT~ (sre id. ch 750, 8 1, at 3333); one amends the FFIA to &kdc yw] pablic f‘,~& connitution invaanau Pool c’ea@d under The Intalod Cooperation AC’ (A’lkle 4413(32c). [V.T.C.S.)” (see id. d1.693.P4,at3200). Bccauscoufprimarycmcemlurcismrrseuingrection2(d),wcneednot Izco~etluvsrkos-. Seeshults”. State, 6% S.W.2d 126,131 (Tex. App.-Dallas 1985, writ ref’d n&c.) (quoting Wright v. Limeter, 1% S.W.2d 82, 85 vex. 1946)) (stating rule that when XIS psged during same legisktive scssio& latter provision repeals former provision only if co- For the kIIer pmkk” arprcsJly ‘qcak former, or if pmvisions ue immcikbly vqqnant). plrposcrofthisopinion,wcwilluEcthc~ooofarbrcdion(a)~inthcna*mnt~ added Eubsstion (d). Acls 1989,‘IlR Leg. ch. 628.5 1, at 2099-100.

Honorable Jii Tallas - Page 2 (D&202)

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(d) In addition to the m deauii by Subsection (a)ofthissection.~entitylirttdinthat~b~onmsy.in acw~witlltllisAct,plrchase,sell,andinvutitsfilndsand fimdsunderitscwtrolin[aSecurhic3andExchangeCom- mission]-r@ter& no-load2 money market mutual ibnd with a dollar-weighted average poltfolio matmity of 120 days or kss whoseassetsc4msist~0ftheobligati~thatare de&bed by Subseuion (a) of this section aud whose w objcctivaaincludeseakingto~astablenetassetvalueof Sl per share. No entity listed in Subsection (a) of this section is allthhdbythisActtoimestinthe~emorethau20 percentofitsmonthlyaveragefimdbalanc+excludingbond proce&sinmoneymarketmutualtImdsdescriiinthis subsectionortohestitshdsorhndsunderitacontrol, excbIdingbondproceeds,inanyonemoneymarketmutualfundin anamomltthatexcccda10pacartoftlletotalassusofthe moneymarkumutualfbnd.

(h~tnote~ added.) You ask whethex section 2(d) of the PPIA authorizes the public andnonproMentitieslistedinsectionz(a)toimnsttbdrfiudsandfiradsuadatheir w~liamoneymarket~fiuds~l~onlyadjustablentemo~tht

United States agencies have issued. We conclude that it does, provided that the mutual fiud~therequircmmts~~~in~onz(d)aodthttbelistedenti~invests

in the mutual fimd only that portion of its money that section 2(d) permits.

Sectioo 270.2a-7 of pat 17. Cuk of Fakd Rc~&hs, arsMirbes tk coditiom a tcompanymostpatisfyloholditsolfouttoinvcmas~anIenaynIarltmmuturl rcsistncd’ fid. See 17 C.F.lL # 270.2a=l(b). ‘Forpuposcsofsxtion2oftt1c~.bond~i~ddi~~dt0u,~~ lheaakofhondsandr and funds maim&al fa dcht sewice puposcr.’ V.T.C.S. art. 842a-2. Q 2&X1).

HonorableJiiTaUas CD!+202)

TbelegishreeoactedtbePFL%inl987toeMblecertainaltitiestomske mvummts that previously had been prohii. See Acts 1987. 70th Leg.. ch. 889, 8 2, at 2985; see ako Tex. Const. art. III, 5 52(e). In 1989 the legishue amended the PFIA by, among other things, adding subsection (d), because, “[a]s impo~ as the Public Funds Imnstmaa Act was, it did not completely satis@ the need for diversifi- cation in tbe managemeot of public ihds or tbe need for spehhcd iovestment vehicles to deal with the arbitrage rebate requhmeots of the Tax Refom~ Act of 1986.” House Comm. ooFii Inshutions, Bill Analyh, C.S.S.B. 1342,716 Leg. (1989); see Acts 1989, 71st Leg., ch. 628. The legihure intended the ame&nents to libaalizethePFIAbypmmhdngthelistc!dentitiestoinvesttheirfundsandfimdsunder theircootrolinprimemoneymarkethstmmu&andim&mentsecur&s. SeeHouse Comm. on Fii Institutions, Bii Analysis, C.S.S.B. 1342, 7lst Leg. (1989); Hearings on S.B. 1342 Before the Senate Comm. 011 State Affairs, 71st Leg. (Apr. 12, 1989) (testimony of Senator Leedom, sponsor of S.B. 1342) (tape available from senate statrservices).

We understand that an “adjustable rate mortgage” is a mortgage in which the rate 00 the loan is reset paiodic.auy. cutain federal govemment agenci~ i”taest such as the Federal National Mortgage Assohtion (Fannie Mae). the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Gonmmart National Mortgage Corporation (Ginnie Mae), issue or guarantee adjustable rate mortgages. We note that a Aness who testified before the House Committee on Fii htitutions in 1989 did not include adjustable rate mortgages as an example of the iovestmm money market mutual hds typically made at that time. See Hearings on H.B. 1751 Befon the House Comm. on Fiicial hstitutioos, 7lst Leg. (Apr. 17, 1989) (testimony of W-on Evans, Director of Revenue and Taxation for the Cii of Dallas) (tape available corn House Committee Coordinator) (stating that money market mutual iimd might have investments in treasuy billq commd paper, and banked a6zpmms). Nevatheless, section 2(d) explicitly authorizes an entity listed in section 2(a) to invest aspecifiedportionofitsfUndsMdfUndsundaitscontrol”inmSEC-ngistaed,~ load money market mutual hod. . . whose (LFset co&si exch&&y of the ob&atims that are &scribed by Subsection (a) of this section.” Because subsection (d) descrii generally the money market mutual hnds in which the listed entities could invest, we do not believe that the legislature intended to limit such an entity to iovesting in mutual ikds that invested only in investments available in 1989. Thus, so long as the adjustable rate mortgages in which the money market mutual timd invests fal within one of the categories of obligations listed in section 2(a) of the ac& we believe that a listed entity may invest in that money market mutual tImd.

As stated above, section 2(a)(l) of the PFIA authorizes a listed entity to invest in an obligation of a United States agency. As you have described it, M adjustable rate mortgage that a federa government agency has issued or guaranteed constitutes an obligation that falls within the scope of section Z(a)(l). Accordingly, the plain language of subsection (d) authorizes a listed entity to invest a specified portion of its hnds and funds under its control in a money msrket mutual fund that includes in its *4 HonorableJiiTalh (DM-202)

pott6olio adjustsblo rate mortgages obligathg an rgayr of the hi+ govanmeat (so longasthemoneymarketmutualfuadcomplieswithtbeothrrtclutrancntr~~ section 2(d)).’

SUMMARY TbePublicFundshatment Act, V.T.C.S. mtide 84%2, autllorizes~wunticountieqandceftainotherpublicandwnprofh ensitiestoiUXSttkkfiUldSUldfilDdSUWktl.l&WllWOliU mutual funds hokling only adjustable rate mortgagu that obligate unitedstatesagdesprovideduuttbemutualfiudcomplic? withaectioo2(d)oftheact,mdpmvidedtlmttbeaaityimmts Iromonofitsmorreyintbemutualfiud~~oo2(d)pamitr. AttomyGamlofTexas WILL PRYOR

FiiAssimMtAttorneyoeneral

MARYKELLER

Deputy-Atlomeyou’eml

MADEL.ElNE B. JOHNSON

chair, opiioo committee