HB2075 - 492R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 35-311, Arizona Revised Statutes, is amended to read:

START_STATUTE35-311. State board of investment; membership; powers and duties

A. A state board of investment is established consisting of the state treasurer, the director of the department of administration, the superintendent of financial institutions and two individuals the following three members who are appointed by the state treasurer: ,

1. One of whom shall have member who has verifiable expertise in investment management. and

2. One of whom shall represent member who represents a public entity with current deposits in a local government investment pool.

3. One member who has verifiable financial expertise and experience with endowment beneficiaries.

B. Members of the board who are appointed by the state treasurer after the effective date of this amendment to this section shall serve three‑year terms and shall be confirmed by the senate.

C. The state treasurer shall be chairman of the board. The board shall keep an accurate record of its proceedings. A certified copy of the record is prima facie evidence of the matters appearing in the record in any court. A meeting of the board may be called at any time by the chairman or a majority of the board members.

B. D. The state board of investment shall:

1. Hold regular monthly meetings.

2. Review investments of treasury monies.

3. Serve as trustees of the permanent state land funds and provide management of the assets of the funds consistent with the requirements of article X, section 7, Constitution of Arizona.

4. Serve as trustees of any endowments established pursuant to section 35‑314.03.

C. E. The state treasurer shall furnish to the board of investment at its regular monthly meeting a report of the performance of current investments and a report of the current investments as of the close of business of the preceding month. The state treasurer shall make these reports available for inspection by the public during normal working hours at the office of the state treasurer for a period of time of not less than two years after the date of the report.

D. F. The board of investment may order the state treasurer to sell any of the securities, and any order shall specifically describe the securities and fix the time period during which they are to be sold. Securities so ordered to be sold shall be sold for cash by the state treasurer at the current market price. The state treasurer and the members of the board are not accountable for any loss occasioned by sales of securities at prices lower than their book value. Any loss shall be charged against earnings received from interest or capital gains on the applicable treasury monies.

E. G. The board may establish standards in addition to those established by section 35‑317, subsection A for the qualification of agents acting pursuant to section 35‑317, subsection B. END_STATUTE

Sec. 2. Section 35-313, Arizona Revised Statutes, is amended to read:

START_STATUTE35-313. Investment of trust and treasury monies; loan of securities

A. The state treasurer shall invest and reinvest trust and treasury monies in any of the following items:

1. Obligations issued or guaranteed by the United States or any of its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities.

2. Collateralized repurchase agreements purchased from securities dealers that make markets in those securities listed in paragraph 1 of this subsection.

3. Bonds or other evidences of indebtedness of this state or any of the counties or incorporated cities, towns or duly organized school districts.

4. Commercial paper whose issuer is rated in one of the two highest rating categories for short‑term obligations by any two nationally recognized statistical rating organizations.

5. Bills of exchange or time drafts known as bankers acceptances which that are drawn on and accepted by a commercial bank.

6. Negotiable certificates of deposit issued by a nationally or state chartered bank or savings and loan association.

7. Bonds, debentures, notes or other evidences of indebtedness which that are issued by entities organized and doing business in the United States and which that carry as a minimum one of the Baa ratings of Moody’s investors service or one of the BBB ratings of Standard and Poor’s rating service or their successors.

8. Securities of or any other interests in any open‑end or closed‑end management type investment company or investment trust registered under the investment company act of 1940 (54 Stat. 789; 15 United States Code sections 80a‑1 through 80a‑64), as amended, if both of the following apply:

(a) The investment company or investment trust takes delivery of the collateral for any repurchase agreement either directly or through an authorized custodian.

(b) The investment policy of the investment company or investment trust includes seeking to maintain a constant share price.

9. Certificates of deferred property taxes as provided by section 42‑17309.

10. Treasurer's warrant notes issued pursuant to section 35‑185.01 or registered warrants of a county issued pursuant to section 11‑605, if the yield is equal to or greater than yields on eligible investment instruments of comparable maturities.

11. Shares in the treasurer's local government investment pools provided that investment policies of the pool seek to maintain a constant share price.

12. Subject to subsection D of this section, state transportation board funding obligations delivered pursuant to section 28‑7678.

13. Certificates of deposit purchased in accordance with the procedures prescribed in section 35-323.01.

B. In case of default or failure to honor a county treasurer's warrant, the state treasurer may withhold the first state shared revenues that would otherwise be distributed to the defaulting county in the amount necessary to honor the note including accrued interest to and beyond the date of default.

C. The state treasurer may contract to loan securities owned by the trust funds and operating monies deposited in the investment pools pursuant to section 35‑316, subsection B to the financial or dealer community through one or more of the entities listed in section 35‑317, subsection A, or authorized by the board of investment pursuant to section 35‑311, subsection E G, if the borrower transfers collateral to the state treasurer or acting agent of the state in the form of cash or securities specified in subsection A of this section. Collateral posted in the form of cash shall be in an amount equal to at least one hundred per cent of the market value of the loaned securities as agreed. Collateral posted in the form of securities shall be in an amount of no more than one hundred ten per cent of the market value of the loaned securities as established from time to time by the board of investment. The loaned securities shall be valued as to market value daily, and, if necessary, the borrower shall post additional collateral, as agreed, to ensure that the required margin is maintained. The state treasurer may collect from the borrower all dividends, interest, premiums, rights and other distributions to which the lender of securities would otherwise be entitled. The state treasurer may terminate the contract on not less than five business days' notice, as agreed, and the borrower may terminate the contract on not less than two business days' notice, as agreed.

D. The state treasurer shall invest operating monies in state transportation board funding obligations delivered pursuant to section 28‑7678 pursuant to the following:

1. The state treasurer shall liquidate investments of operating monies if necessary in order to invest in state transportation board funding obligations, except that if operating monies in the state general fund fall below an eight hundred million dollar average over the previous twelve consecutive months, the state treasurer is not required to purchase state transportation board funding obligations pursuant to this subsection.

2. Each series of state transportation board funding obligations shall bear interest at a fixed interest rate equal to the mean bid‑ask price of the United States treasury obligation with a maturity date closest to the maturity date of the state transportation board funding obligation as published most recently in the Wall Street Journal before the date the state treasurer receives a certificate from the state transportation board that states the board's determination to deliver an obligation to the state treasurer and the anticipated delivery date of the obligation. The delivery date shall be between fifteen and sixty days after the day the state treasurer receives the certificate.

3. The state treasurer shall provide written notice to the state transportation board and the director of the department of transportation when the operating monies fall below four hundred million dollars. If operating monies fall below two hundred million dollars, the state treasurer may call the investment in the state transportation board funding obligations in twenty‑five million dollar increments up to the amount that the operating monies are below two hundred million dollars. The state treasurer shall give the state transportation board and the director of the department of transportation at least fifteen days' notice of the call. END_STATUTE

Sec. 3. Section 35-317, Arizona Revised Statutes, is amended to read:

START_STATUTE35-317. State treasurer; duties; safekeeping of securities; interest; exemptions; responsibilities

A. The state treasurer is responsible for the safekeeping of all securities acquired by him under this article and those for which he is the lawful custodian. Securities may be deposited for safekeeping with any bank eligible to be the state servicing bank pursuant to section 35‑315 or any trust company or trust department of any bank qualified to do business in this state.

B. The state treasurer may at the expense of the state enter into an agreement with any of those entities listed in subsection A of this section or authorized by section 35‑311, subsection E G for the safekeeping and handling of securities. The agreement shall be entered into under terms and conditions which that secure the proper safeguarding, inventory, withdrawal and handling of the securities and lending of securities to the financial or dealer community pursuant to section 35‑313, subsection C. Access to deposits or withdrawals of the securities from any place of deposit selected by the officers shall not be permitted or made except as the terms of the agreement provide. The agreement need not require that securities be physically located in this state, if the securities are represented by safekeeping receipts issued for the account of the state treasurer by a federal reserve bank or any bank located in a reserve city whose combined capital and surplus on the date of the safekeeping receipt are ten million dollars or more.

C. The state treasurer shall regularly account for, itemize and inventory according to general public fund accounting practices all securities coming lawfully into his possession. Such practice shall be audited by the auditor general at the time of the regular audit as prescribed by law.

D. When securities acquired under this article mature and become due and payable, the state treasurer shall present them for payment according to their terms and collect the monies payable on them. The monies collected shall be treated as treasury monies subject to reinvestment under the appropriate section of this article.

E. Interest and appreciation realized on any investment authorized by this article shall be collected by the state treasurer and credited by him in accordance with general public fund accounting practices.

F. All interest realized on any investment of treasury monies not otherwise apportioned by law shall be credited to the general fund of this state.

G. The investment of treasury monies as provided in this article is exempt from the provisions of section 35‑142, subsection B and sections 35‑154, 35‑181.01, 35‑181.02, 35‑182 through 35‑185, 35‑185.01, 35‑185.02, 35‑186 through 35‑192, 35‑192.01, 35‑192.02, 35‑193, 35‑193.02 and 41‑732.

H. The state treasurer is responsible for the safekeeping, management and disbursement of any investment made and any interest received in compliance with this article.END_STATUTE

Sec. 4. Repeal

Section 41-3010.13, Arizona Revised Statutes, is repealed.

Sec. 5. Title 41, chapter 27, article 2, Arizona Revised Statutes, is amended by adding section 41-3020.13, to read:

START_STATUTE41-3020.13. State board of investment; termination July 1, 2020

A. The state board of investment terminates on July 1, 2020.

B. Section 35‑311 is repealed on January 1, 2021.END_STATUTE

Sec. 6. Terms of state board of investment members

A. Notwithstanding section 35‑311, Arizona Revised Statutes, as amended by this act:

1. The term of the member of the state board of investment who represents a public entity with current deposits in a local government investment pool ends January 1, 2012.

2. The term of the member of the state board of investment who has verifiable expertise in investment management ends January 1, 2013.

3. The term of the member of the state board of investment who has verifiable financial expertise and experience with endowment beneficiaries ends January 1, 2014.

B. The state treasurer shall make all subsequent appointments as prescribed by statute.

Sec. 7. Purpose

Pursuant to section 41-2955, subsection B, Arizona Revised Statutes, the legislature continues the state board of investment to review investment of state treasury monies and serve as trustees and managers of the permanent state land funds.

Sec. 8. Retroactivity

Sections 4 and 5 of this act are effective retroactively to July 1, 2010.