HSB 633 (LSB 5867YC (3) 91)

HOUSE FILE _____ 

BY  (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON BLOOMINGDALE)

A BILL FOR

An Act relating to the investment of public funds, and making penalties applicable.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 12B.10, subsection 5, paragraph a, subparagraph (7), subparagraph division (a), unnumbered paragraph 1, Code 2026, is amended to read as follows:
   A joint investment trust organized pursuant to chapter 28E that is in compliance with section 12B.10D, provided that the joint investment trust shall be one of the following: 
    Sec. 2.  Section 12B.10, subsection 7, unnumbered paragraph 1, Code 2026, is amended to read as follows:
   Notwithstanding sections 12C.2, 12C.4, and 12C.6, and any other provision of law relating to the deposits of public funds, if public funds are deposited in a depository, as defined in section 12C.1, any uninsured portion of the public funds invested through the depository may be invested in insured deposits or certificates of deposit arranged by the depository that are placed in or issued by one or more federally insured banks, credit unions, or savings associations regardless of location for the account of the public funds depositor if all of the following requirements are satisfied:
    Sec. 3.  NEW SECTION.  12B.10D  Regulation of joint investment trusts.
   1.  A political subdivision of the state may invest up to twenty-five percent of the aggregate amount of its public funds in a joint investment trust authorized under section 12B.10, subsection 5, paragraph “a”, subparagraph (7). The twenty-five percent limit must be calculated based on the average of all of the political subdivision’s public funds over the previous two fiscal years.
   2.  A joint investment trust shall not directly or indirectly pay an individual, association, or entity not providing direct investment management, administrative, custodial, or other bona fide operational services to the trust.
   3.  Before depositing or investing public funds with a joint investment trust organized under chapter 28E, the governing body of the political subdivision shall execute a written acknowledgment stating all of the following:
   a.  That the participant understands and affirms that funds invested in the joint investment trust may not be deposits insured by the federal deposit insurance corporation, national credit union administration, or any other government insurance program comparable to those offered by a local financial institution.
   b.  That the participant understands and affirms that such funds are not collateralized or guaranteed by the state, a political subdivision, or any other entity.
   c.  That the participant acknowledges that the safety of such funds depends on the investment performance and management of the joint investment trust and is subject to loss of principal.
   4.  A violation of this section is a breach of fiduciary duty and may subject the trust, the public entity, and the public entity’s officers and elected officials to criminal and civil remedies, including administrative remedies, applicable for a violation of section 12B.10, including the penalties provided by sections 12B.14 and 12B.15.
    Sec. 4.  Section 12C.17, subsection 1, paragraph c, Code 2026, is amended to read as follows:
   c.  The securities shall be deposited with the federal reserve bank, the federal home loan bank of Des Moines, Iowa, a corporate central credit union organized under section 533.213 a securities broker-dealer registered as a member of the financial industry regulatory authority, or a corporate credit union whose activities are subject to regulation by the national credit union administration pursuant to a bailment agreement or a pledge custody agreement.
    Sec. 5.  Section 12C.17, subsection 4, Code 2026, is amended to read as follows:
   4.  Upon written request from the appropriate public officer but not less than monthly, the federal reserve bank, the federal home loan bank of Des Moines, Iowa, a corporate central credit union organized under section 533.213 a securities broker-dealer registered as a member of the financial industry regulatory authority, or a corporate credit union whose activities are subject to regulation by the national credit union administration shall report a description, the par value, and the market value of any pledged collateral by a credit union.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to the investment of public funds.
   The bill allows the uninsured portion of any public funds invested through a depository to be invested in insured deposits or certificates of deposit that are placed in or issued by a credit union.
   The bill provides that a political subdivision may invest up to 25 percent of its public funds in a joint investment trust authorized under Code section 12B.10(5). A joint investment trust shall not pay an individual, association, or entity that does not provide direct investment management, administrative, custodial, or other bona fide operational services to the trust. Before depositing or investing public funds with a joint investment trust, the governing body of the political subdivision must execute a written acknowledgment relating to the insurance and safety of the funds. A violation of these provisions is a breach of fiduciary duty and may subject the trust, the public entity, and the public entity’s officers and elected officials to criminal and civil remedies, including administrative remedies, and may result in a variety of criminal penalties for a fraudulent practice (Code chapter 714), a simple misdemeanor for official delinquency, and liability for any fine imposed and any damages sustained by a person. A simple misdemeanor is punishable by confinement for no more than 30 days and a fine of at least $105 but not more than $855.
   The bill removes corporate central credit unions organized under Code section 533.213 from the list of entities with which a credit union receiving public funds may deposit securities and allows a credit union which receives public funds to pledge securities owned by the credit union by depositing the securities with a securities broker-dealer registered as a member of the financial industry regulatory authority pursuant to a bailment agreement or a pledge custody agreement. Such a securities broker-dealer must report a description, the par value, and the market value of any pledged collateral by a credit union at least monthly and upon written request of an appropriate public officer.