SENATE BILL No. 643

 

 

June 23, 2005, Introduced by Senators BISHOP and VAN WOERKOM and referred to the Committee on Finance.

 

 

 

     A bill to amend 1976 PA 451, entitled

 

"The revised school code,"

 

by amending sections 622 and 1223 (MCL 380.622 and 380.1223),

 

section 622 as amended by 2001 PA 127 and section 1223 as amended

 

by 1997 PA 47.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 622. (1) The intermediate school board shall select

 

financial institutions for the deposit of school funds. The

 

intermediate school board shall keep a set of coded accounts to be

 

approved by the superintendent of public instruction and shall have

 

its books audited at least annually by a certified public

 

accountant. General operating funds, building and site funds,

 

cooperative education funds, special education funds, vocational-

 


technical education funds, and debt retirement funds shall be

 

maintained separately and shall not be commingled, except that the

 

intermediate school board, by resolution, may authorize the

 

treasurer to combine money from more than 1 fund for the purpose of

 

making an investment authorized by subsection  (2)(g)  (2)(i).

 

     (2)  The  Subject to subsection (6), the treasurer of an

 

intermediate school  district  board, if authorized by resolution

 

of the intermediate school board, may invest general operating

 

funds, special education funds, area vocational-technical education

 

funds, building and site funds, cooperative education funds, and

 

debt retirement funds of the intermediate school district.  

 

Investments shall be made subject to subsection (4) and shall be

 

restricted to any  These investments are restricted to 1 or more of

 

the following:

 

     (a) Bonds, bills, or notes  of the United States or

 

obligations of this state  issued directly by the United States

 

department of treasury.

 

     (b) United States department of treasury bonds, bills, or

 

notes for which the interest and principal have been separated and

 

sold individually as zero-coupon bonds.

 

     (c)  (b)  Certificates of deposit issued by a rated financial

 

institution.

 

     (d)  (c)  Commercial paper issued by a United States-domiciled

 

entity and rated prime at the time of purchase and maturing not

 

more than 270 days after the date of purchase or short-term

 

corporate obligations issued by a United States-domiciled

 

corporation and rated AAA at the time of purchase and maturing not

 


more than 270 days after the date of purchase.

 

     (e)  (d) Securities issued or guaranteed by agencies or

 

instrumentalities of the United States government.  Bonds or notes

 

issued directly from, or guaranteed by, an agency or government-

 

sponsored enterprise of the United States, in the same form as when

 

they were issued.

 

     (f)  (e)  United States government  or federal  agency or

 

government-sponsored enterprise obligation repurchase agreements,

 

reverse repurchase agreements, or government lending agreements.

 

     (g) Agreements to lend bonds, bills, or notes of the United

 

States, an agency of the United States, or a government-sponsored

 

enterprise of the United States. An agreement described in this

 

subdivision shall meet all of the following:

 

     (i) Require that all collateral held in the form of a United

 

States treasury bond or note or other United States agency bond or

 

note, or cash, must be maintained at a value equal to or greater

 

than 102% of the market value of the securities or cash that has

 

been lent. The agreement shall require the custodian of the

 

collateral to determine the value of the collateral at least once

 

per day on days when the New York federal reserve bank is open.

 

     (ii) If the transaction involves a reverse repurchase agreement

 

or a securities lending agreement, require that agreement to be

 

transacted through a qualified lending agent.

 

     (iii) Require that a qualified Michigan custodial bank serve as

 

custodian for that agreement.

 

     (iv) Require that all maturity dates for investments made from

 

cash received as collateral must not have a maturity date beyond

 


the final date agreed upon for return of the collateral.

 

     (v) If the transaction involves a government lending agreement

 

or reverse repurchase agreement, require that the intermediate

 

school district must provide at least 3 business days' notice to

 

all parties involved in the government lending agreement or reverse

 

repurchase agreement before selling or transferring its interest in

 

any bond, bill, or note lent during the term of the agreement.

 

     (h)  (f)  Bankers' acceptances issued by a rated bank that is

 

a member of the federal deposit insurance corporation.

 

     (i)  (g)  Investment pools, as authorized by the surplus funds

 

investment pool act, 1982 PA 367, MCL 129.111 to 129.118, composed

 

entirely of instruments that are legal for direct investment by an

 

intermediate school district.

 

     (j)  (h)  Mutual funds composed entirely of investment

 

vehicles that are legal for direct investment by an intermediate

 

school district.

 

     (k) Debt obligations of this state or a political subdivision

 

of this state that at the time of purchase are rated at least AA as

 

determined by at least 1 recognized standard rating service and

 

having a final maturity date that is within 4 years of the purchase

 

date.

 

     (l) Obligations of a political subdivision of another state

 

that at the time of purchase are rated at least AA as determined by

 

at least 1 recognized standard rating service and having a maturity

 

date that is within 12 months of the purchase date or subject to a

 

redemption that is backed by a letter of credit and that is not

 

greater than 12 months from purchase.

 


     (3) The earnings of an investment shall become a part of the

 

fund from which the investment was made. When money of more than 1

 

fund of a single intermediate school district or money of more than

 

1 intermediate school district are combined for an investment pool

 

authorized by subsection  (2)(g)  (2)(i), the money shall be

 

accounted for separately, and the earnings from the investment

 

shall be separately and individually computed, recorded, and

 

credited to the fund or intermediate school district, as the case

 

may be, for which the investment was acquired.

 

     (4) An intermediate school district shall ensure that an

 

investment described in subsection (2) is held in custody or

 

safekeeping by a financial institution.

 

     (5) An intermediate school district shall not invest money in

 

an investment that is not specifically listed in subsection (2).

 

     (6)  (4) Notwithstanding subsection (2), additional funds of

 

an  An intermediate school district shall not  be deposited or

 

invested  deposit or invest money in a fund described in subsection

 

(2) in a financial institution that is not eligible to be a

 

depository or custodian of surplus funds belonging to this state

 

under section 6 of 1855 PA 105, MCL 21.146.

 

     (7)  (5)  Assets acceptable for pledging to secure deposits of

 

funds under this act are limited to any of the following:

 

     (a) Assets considered acceptable to the state treasurer under

 

section 3 of 1855 PA 105, MCL 21.143, to secure deposits of state

 

surplus funds.

 

     (b) Any of the following:

 

     (i) Securities issued by the federal home loan mortgage

 


corporation.

 

     (ii) Securities issued by the federal national mortgage

 

association.

 

     (iii) Securities issued by the government national mortgage

 

association.

 

     (c) Securities considered acceptable to the intermediate

 

school board and the financial institution.

 

     (8)  (6)  As used in this section:  , "deposit"

 

     (a) "Deposit" includes purchases of or investment in shares of

 

a rated Michigan credit union.

 

     (b)  (7) As used in this section, "financial  "Financial

 

institution" means a state or nationally chartered bank or a state

 

or federally chartered savings and loan association, savings bank,

 

or credit union whose deposits are insured by an agency of the

 

United States government and that maintains  a principal office or 

 

at least 1 branch office located in this state.  under the laws of

 

this state or the United States.

 

     (c) "Government-sponsored enterprise" means a privately held

 

corporation with a public purpose that is created by federal

 

statute.

 

     (d) "Qualified lending agent" means an entity that is

 

regulated by the United States securities and exchange commission

 

and that manages or controls agreements described in subsection

 

(2), or similar agreements, with market values of at least

 

$5,000,000,000.00.

 

     (e) "Qualified Michigan custodial bank" means a financial

 

institution that has expertise in serving as a custodian for

 


securities lending and reverse repurchase agreements.

 

     Sec. 1223. (1)  If  Subject to subsection (8), if authorized

 

by resolution of the board of  a  the school district, the

 

treasurer of a school board may invest debt retirement funds,

 

building and site funds, building and site sinking funds, or

 

general funds of the district.  The investment shall be made under

 

subsection (7) and shall be restricted to  These investments are

 

restricted to 1 or more of the following:

 

     (a) Bonds, bills, or notes  of the United States; obligations,

 

the principal and interest of which are fully guaranteed by the

 

United States; or obligations of the state. In a primary or fourth

 

class school district, the bonds, bills, or notes shall be payable,

 

at the option of the holder, upon not more than 90 days' notice, or

 

if not so payable, shall have maturity dates not more than 5 years

 

after the purchase dates.  issued directly by the United States

 

department of treasury.

 

     (b) United States department of treasury bonds, bills, or

 

notes for which the interest and principal have been separated and

 

sold individually as zero-coupon bonds.

 

     (c)  (b)  Certificates of deposit issued by a rated financial

 

institution or share certificates of a rated state or federal

 

credit union that is a financial institution.

 

     (d)  (c)  Commercial paper issued by a United States-domiciled

 

entity and rated prime at the time of purchase and maturing not

 

more than 270 days after the date of purchase or short-term

 

corporate obligations issued by a United States-domiciled

 

corporation and rated AAA at the time of purchase and maturing not

 


more than 270 days after the date of purchase.

 

     (e)  (d) Securities issued or guaranteed by agencies or

 

instrumentalities of the United States government.  Bonds or notes

 

issued directly from, or guaranteed by, an agency or government-

 

sponsored enterprise of the United States, in the same form as when

 

they were issued.

 

     (f)  (e)  United States government  or federal  agency or

 

government-sponsored enterprise obligation repurchase agreements,

 

reverse repurchase agreements, or government lending agreements.

 

     (g) Agreements to lend bonds, bills, or notes of the United

 

States, an agency of the United States, or a government-sponsored

 

enterprise of the United States. An agreement described in this

 

subdivision shall meet all of the following:

 

     (i) Require that all collateral held in the form of a United

 

States treasury bond or note or other United States agency bond or

 

note, or cash, must be maintained at a value equal to or greater

 

than 102% of the market value of the securities or cash that has

 

been lent. The agreement shall require the custodian of the

 

collateral to determine the value of the collateral at least once

 

per day on days when the New York federal reserve bank is open.

 

     (ii) If the transaction involves a reverse repurchase agreement

 

or a securities lending agreement, require that agreement to be

 

transacted through a qualified lending agent.

 

     (iii) Require that a qualified Michigan custodial bank serve as

 

custodian for that agreement.

 

     (iv) Require that all maturity dates for investments made from

 

cash received as collateral must not have a maturity date beyond

 


the final date agreed upon for return of the collateral.

 

     (v) If the transaction involves a government lending agreement

 

or reverse repurchase agreement, require that the school district

 

must provide at least 3 business days' notice to all parties

 

involved in the government lending agreement or reverse repurchase

 

agreement before selling or transferring its interest in any bond,

 

bill, or note lent during the term of the agreement.

 

     (h)  (f)  Bankers' acceptances issued by a bank that is a

 

member of the federal deposit insurance corporation.

 

     (i)  (g)  Mutual funds composed entirely of investment

 

vehicles that are legal for direct investment by a school district.

 

     (j)  (h)  Investment pools, as authorized by the surplus funds

 

investment pool act, 1982 PA 367, MCL 129.111 to 129.118, composed

 

entirely of instruments that are legal for direct investment by a

 

school district.

 

     (k) Debt obligations of this state or a political subdivision

 

of this state that at the time of purchase are rated at least AA as

 

determined by at least 1 recognized standard rating service and

 

having a final maturity date that is within 4 years of the purchase

 

date.

 

     (l) Obligations of a political subdivision of another state

 

that at the time of purchase are rated at least AA as determined by

 

at least 1 recognized standard rating service and having a maturity

 

date that is within 12 months of the purchase date or subject to a

 

redemption that is backed by a letter of credit and that is not

 

greater than 12 months from purchase.

 

     (2)  An obligation purchased under this section, when received

 


by the treasurer, shall be deposited with the financial institution

 

having the deposit of the money of the particular fund from which

 

the obligation was purchased.  A school district shall ensure that

 

an investment described in subsection (2) is held in custody or

 

safekeeping by a financial institution.

 

     (3) A school district shall not invest money in an investment

 

that is not specifically listed in subsection (1).

 

     (4)  (3) Money in the several funds of a  A school district

 

shall not  be commingled  commingle money in the funds described in

 

subsection (1) for the purpose of making an investment authorized

 

by this section except  that  as follows:

 

     (a) The board of a school district may establish and maintain

 

1 common debt retirement fund for issues of bonds of similar

 

character.

 

     (b) The board of a school district, by resolution, may

 

authorize the treasurer to combine money from more than 1 fund for

 

the purpose of making an investment authorized by subsection (1)(h)

 

(1)(j).

 

     (5)  (4)  Earnings of an investment shall become a part of the

 

fund for which the investment was made. When money of more than 1

 

fund of a single district or money of more than 1 district are

 

combined for an investment pool authorized by subsection  (1)(h)  

 

(1)(j), the money shall be accounted for separately, and the

 

earnings from the investment shall be separately and individually

 

computed, recorded, and credited to the fund or district, as the

 

case may be, for which the investment was acquired.

 

     (6)  (5)  The treasurer of a school district, if authorized by

 


resolution of the board, may deposit upon approval of the employee,

 

funds accumulated under a deferred compensation program in a

 

federally insured financial institution authorized by law to do

 

business in this state. If authorized by a resolution of the board,

 

the treasurer of a school district, with the prior consent of the

 

employee, may use funds accumulated under a deferred compensation

 

plan to purchase from a life insurance company authorized to do

 

business in this state an annuity contract or life insurance policy

 

in the manner and for the purposes described in section 457 of the

 

internal revenue code.

 

     (7)  (6)  Security in the form of collateral, surety bond, or

 

another form may be taken for the deposits or investments of a

 

school district in a financial institution. However, an investment

 

under  section 622(2)(e) or section 1223(1)(e)  subsection (1)(f)

 

or section 622(2)(f) or in an investment pool that includes

 

instruments eligible for investments under  sections 622(2)(e) and

 

1223(1)(e)  subsection (1)(f) or section 622(2)(f) shall be secured

 

by the transfer of title and custody of the obligations to which

 

the repurchase agreements relate and an undivided interest in those

 

obligations must be pledged to the school district for these

 

agreements.

 

     (8)  (7) Notwithstanding subsection (1), additional funds of a  

 

A school district shall not  be deposited or invested  deposit or

 

invest money in a fund described in subsection (1) in a financial

 

institution  which  that is not eligible to be a depository or

 

custodian of surplus funds belonging to this state under section 6

 

of 1855 PA 105, MCL 21.146.

 


     (9)  (8)  As used in this section:  , "deposit"

 

     (a) "Deposit" includes purchase of or investment in shares of

 

a rated Michigan credit union.

 

     (b)  (9) As used in this section, "financial  "Financial

 

institution" means a state or nationally chartered bank or a state

 

or federally chartered savings and loan association, savings bank,

 

or credit union whose deposits are insured by an agency of the

 

United States government and which maintains  a principal office or

 

at least 1 branch office located in this state.  under the laws of

 

this state or the United States.

 

     (c) "Government-sponsored enterprise" means a privately held

 

corporation with a public purpose that is created by federal

 

statute.

 

     (d) "Qualified lending agent" means an entity that is

 

regulated by the United States securities and exchange commission

 

and that manages or controls agreements described in subsection

 

(1), or similar agreements, with market values of at least

 

$5,000,000,000.00.

 

     (e) "Qualified Michigan custodial bank" means a financial

 

institution that has expertise in serving as custodian for

 

securities lending and reverse repurchase agreements.