HB2399 HD1

SECTION 1. The legislature finds that the state treasury is invested in certificates of deposit and short-term treasuries or agencies having a duration (average maturity) of less than one year. Section 36-21, Hawaii Revised Statutes, authorizes government and government-related bond investments that are due to mature not more than five years after the date of investment. The legislature also finds that the Bloomberg U.S. Treasury 1 ‑ 5 Year Maturity Index has a duration (average maturity) of two and one-half years. The cash-like state treasury portfolio has under-earned and is expected to continue to under-earn the Bloomberg U.S. Treasury 1 ‑ 5 Year Maturity Index over market cycles.

Accordingly, the purpose of this Act is to:

(1) Amend provisions relating to the short-term investment of state moneys, including the types of financial instruments that state moneys may be invested in; and

(2) Require the department of budget and finance to submit an annual report to the legislature on the short-term investment of state moneys.

SECTION 2. Section 36-21, Hawaii Revised Statutes, is amended to read as follows:

"§36-21 Short-term investment of state moneys. (a) The director of finance may invest, through a private financial services firm and in compliance with the State's investment policy, any moneys of the State [~~which~~] that in the [~~director's~~] judgment of the director of finance are in excess of the amounts necessary for meeting the immediate requirements of the State [~~and where in the director's judgment will~~]; provided that the action, in the director's judgment, shall maximize the State's return on investments, net of investment fees and expenses incurred, while protecting capital and not impede or hamper the necessary financial operations of the State. Moneys invested pursuant to this section may be invested in:

(1) Any bonds or interest-bearing notes or obligations:

(A) Of the State (including state director of finance's warrant notes issued pursuant to chapter 40);

(B) Of the United States; or

(2) Federal Farm Credit System notes and bonds;

(3) Federal Agricultural Mortgage Corporation notes and bonds;

(4) Federal Home Loan Bank notes and bonds;

(5) Federal Home Loan Mortgage Corporation notes and bonds;

(6) Federal National Mortgage Association notes and bonds;

(7) Tennessee Valley Authority notes and bonds;

(8) Securities of a mutual fund whose portfolio is limited to bonds or securities issued or guaranteed by the United States or an agency thereof or repurchase agreements fully collateralized by any such bonds or securities;

(9) Securities of a money market mutual fund that is rated AAA, or its equivalent, by a nationally recognized rating agency or whose portfolio consists of securities that are rated as first tier securities by a nationally recognized statistical rating organization as provided in 17 Code of Federal Regulations section 270.2a-7;

(10) Federally insured savings accounts;

(11) Time certificates of deposit;

(12) Certificates of deposit open account;

(13) Repurchase agreements with federally insured banks, savings and loan associations, and financial services loan companies;

(14) Commercial paper with an A1/P1 or equivalent rating by any national securities rating service; [~~and~~]

(15) Bankers' acceptances with an A1/P1 or equivalent rating by any national securities rating service;

(16) United States dollar denominated obligations issued, assumed, or guaranteed as to the payment of principal and interest by supranational issuers rated AAA or equivalent by a nationally recognized rating agency;

(17) Federal agency or government-sponsored enterprise residential mortgage-backed securities rated AAA or equivalent by a nationally recognized rating agency;

(18) Federal agency or government-sponsored enterprise commercial mortgage-backed securities rated AAA or equivalent by a nationally recognized rating agency;

(19) Asset-backed securities rated AAA or equivalent by a nationally recognized rating agency; and

(20) Corporate debt with an AA or equivalent or better rating by a nationally recognized rating agency;

provided that [~~for~~] the combined exposure to the instruments listed in paragraphs (14) through (20) shall not be more than fifty per cent of the State's total short-term assets; and provided further that authorized investments with [~~stated~~] effective maturity dates, [~~the investment, as well as the underlying securities of those investments, are due to mature not more than~~] do not exceed five years from the date of investment. Income derived from those investments shall be a realization of the general fund; provided that income earned from moneys invested by the general funds, special funds, bond funds, and trust and agency funds on an investment pool basis shall be paid into and credited to the respective funds based on the contribution of moneys into the investment pool by each fund. [As used in this section, "investment pool" means the aggregate of state treasury moneys that are maintained in the custody of the director of finance for investment and reinvestment without regard to fund designation.]

(b) Except with respect to an early withdrawal penalty on an investment permitted by this section, the amount of such penalty being mutually agreed at the time of acquisition of such investment, no investment permitted by this section shall require or may in the future require payments by the State, whether unilateral, reciprocal, or otherwise, including margin payments, or shall bear interest at a variable rate which causes or may cause the market price of such investment to fluctuate; provided that such limitation shall not apply to money market mutual funds which:

(1) Invest solely in:

(A) Direct and general obligations of the United States of America; or

(B) Obligations of any agency or instrumentality of the United States of America the payment of the principal and interest on which are unconditionally guaranteed by the full faith and credit of the United States of America;

(2) Are rated at the time of purchase "AAAm-G" or its equivalent by Standard & Poor's Ratings Group; and

(3) Are open-end management investment companies regulated under the Investment Company Act of 1940, as amended, which calculate their current price per share pursuant to Rule 2a-7 (17 Code of Federal Regulations section 270.2a-7) promulgated under such act.

(c) Furthermore, the State shall not acquire any investment or enter into any agreement in connection with the acquisition of any investment or related to any existing investment held by the State, which would require or may in the future require any payment by the State, whether unilateral, reciprocal, or otherwise, such as swap agreements, hedge agreements, or other similar agreements. For purposes of this section, a swap or hedge payment is any payment made by the State in consideration or in exchange for a reciprocal payment by any person, such as a variable rate payment in exchange for a fixed rate payment, a fixed rate payment in exchange for a variable rate payment, a payment when a cap or a floor amount is exceeded, or other similar payment.

(d) The department of budget and finance shall submit to the legislature an annual report on the short-term investment of state moneys no later than twenty days prior to the convening of each regular session of the legislature.

(e) As used in this section:

"Income" means:

(1) Interest receipts adjusted for amortization and accretion; and

(2) Net realized gains,

that are net of the costs of investment and management of State moneys.

"Investment pool" means the aggregate of state treasury moneys that are maintained in the custody of the director of finance for investment and reinvestment without regard to fund designation."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on January 1, 2050.

HOUSE OF REPRESENTATIVES	H.B. NO.	2399
THIRTIETH LEGISLATURE, 2020		H.D. 1
STATE OF HAWAII