SB0174

SENATE BILL 174

52nd legislature - STATE OF NEW MEXICO - first session, 2015

INTRODUCED BY

Peter Wirth

AN ACT

RELATING TO PUBLIC FINANCES; MAKING ADMINISTRATIVE CHANGES APPLICABLE TO THE STATE INVESTMENT COUNCIL, STATE INVESTMENT OFFICER AND INVESTMENT OFFICE AND LIMITING THEIR LIABILITY; ELIMINATING THE PRIVATE EQUITY INVESTMENT ADVISORY COMMITTEE; PROVIDING FOR INDEMNIFICATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. Section 6-8-1 NMSA 1978 (being Laws 1957, Chapter 179, Section 1, as amended by Laws 1997, Chapter 135, Section 1 and by Laws 1997, Chapter 183, Section 1) is amended to read:

"6-8-1. DEFINITIONS.--As used in Chapter 6, Article 8 NMSA 1978:

[A. "secretary" means the secretary of finance and administration;

B. "department" means the department of finance and administration;

C. "land grant permanent funds" means those funds derived from lands under the direction, control, care and disposition of the commissioner of public lands conferred by Article 13, Sections 1 and 2 of the constitution of New Mexico; and

D.] A. "council" means the state investment council;

B. "department" means the department of finance and administration;

C. "land grant permanent funds" means the permanent school fund established pursuant to the provisions of Article 12, Section 2 of the constitution of New Mexico and all other permanent funds derived from lands granted or confirmed to the state by the act of congress of June 20, 1910, entitled "An act to enable the people of New Mexico to form a constitution and state government and be admitted into the union on an equal footing with the original states";

D. "permanent funds" means the land grant permanent funds, severance tax permanent fund, tobacco settlement permanent fund and water trust fund;

E. "secretary" means the secretary of finance and administration;

F. "severance tax permanent fund" means the fund established pursuant to the provisions of Article 8, Section 10 of the constitution of New Mexico;

G. "tobacco settlement permanent fund" means the fund established pursuant to the provisions of Section 6-4-9 NMSA 1978; and

H. "water trust fund" means the fund established pursuant to the provisions of Article 16, Section 6 of the constitution of New Mexico."

SECTION 2. Section 6-8-3 NMSA 1978 (being Laws 1957, Chapter 179, Section 3, as amended) is amended to read:

"6-8-3. COUNCIL TERMS AND QUALIFICATIONS.--

A. Members of the council appointed pursuant to Paragraphs (6) and (7) of Subsection A of Section 6-8-2 NMSA 1978, with the advice and consent of the senate, shall serve for staggered terms of five years. Members of the council shall serve until their successors are appointed and have qualified.

B. The members of the council appointed pursuant to Paragraphs (6) and (7) of Subsection A of Section 6-8-2 NMSA 1978 shall be qualified by competence and no less than ten [years] years' experience in the field of investment management, investment risk management, corporate governance, investment accounting or finance. A member of the council shall not have had any contracts to do business with the [state investment] council, the investment office, the office of the state treasurer, the educational retirement board, the public employees retirement association, the New Mexico finance authority or the state board of finance for a period of two calendar years prior to the person's appointment to the council and shall not enter into any contracts to do business with any of the named state agencies or instrumentalities for a period of two calendar years after the end of the term for which the member was appointed. Members of the council and officers and employees of the council shall be governed by the provisions of the Governmental Conduct Act. Nothing in this section or in the Governmental Conduct Act shall be construed as prohibiting an officer of a financial institution from participating as a member of the council in setting general policies of the council, nor shall any provision of the Governmental Conduct Act prohibit the council or the state treasurer from depositing funds under the jurisdiction of the council in any financial institution. A council member shall not hold an office or employment in a political party.

C. The member appointed pursuant to Paragraph (5) of Subsection A of Section 6-8-2 NMSA 1978 shall serve at the pleasure of the governor. A member of the council appointed pursuant to Paragraphs (6) and (7) of Subsection A of Section 6-8-2 NMSA 1978 may be removed from the council by the appointing person or entity, for failure to attend three consecutive meetings or other cause, in the manner provided for removal of members of boards of regents under Article 12, Section 13 of the constitution of New Mexico. A vacancy in the membership of the council occurring other than by expiration of term shall be filled in the same manner as the original appointment but for the unexpired term only."

SECTION 3. Section 6-8-4 NMSA 1978 (being Laws 1957, Chapter 179, Section 4, as amended) is amended to read:

"6-8-4. INVESTMENT OFFICE--STATE INVESTMENT OFFICER--TERMS.--

A. There is established an "investment office". The chief administrative officer of the office shall be known as the "state investment officer".

B. The state investment officer shall be appointed by the council. The state investment officer shall devote the officer's entire time and attention to the duties of that office and shall not engage in any other occupation or profession or hold any other public office, appointive or elective. The state investment officer shall be [a person] an individual qualified by [training and] at least ten years of investment and executive experience to direct the work of the investment office [and shall have had at least five years' professional experience as an investment officer]. The state investment officer shall appoint a deputy state investment officer, with at least seven years' professional experience in the field of institutional investment management, to serve as the chief investment officer. The state investment officer shall receive a salary to be determined by the [state investment] council [but in no case less than fifty thousand dollars ($50,000) annually].

C. The state investment officer shall serve [for an initial term of two years beginning July 1, 1981 and thereafter for terms of four years. The state investment officer may be removed from office by the council for cause] at the will of the council."

SECTION 4. Section 6-8-5 NMSA 1978 (being Laws 1957, Chapter 179, Section 5, as amended) is amended to read:

"6-8-5. BOND--STAFF--BUDGET.--

A. Before the state investment officer or other responsible employee of the investment office enters upon [his] the officer's or employee's duties, the secretary shall require an individual bond or include the state investment officer and [other responsible] all employees of the investment office under a blanket bond for an amount and for a coverage deemed best to protect the state's interest. The bond premiums shall be paid by the state.

B. The state investment officer shall annually prepare a budget for administering and investing all funds managed by the investment office, which shall be reviewed and approved by the council. Any funds provided for the operating budget of the investment office shall be appropriated from the assets of the land grant permanent funds, the severance tax permanent fund, funds available for investment pursuant to Subsection [G] I of Section 6-8-7 NMSA 1978 or any other funds managed by the investment office, as authorized by law [however, in regard to the land grant permanent funds, appropriation shall be made from earnings on investments of the land grant permanent funds before distribution to the income funds during the period prior to the date the United States congress consents to the provisions of Constitutional Amendment 1 approved at the 1996 general election].

C. Amounts budgeted or appropriated from the land grant permanent funds and the severance tax permanent fund for the costs of administering and investing those funds shall be in addition to the amounts distributed to the beneficiaries of the land grant permanent funds and to the general fund from the severance tax permanent fund as provided by law [provided that amounts budgeted or appropriated from the land grant permanent funds shall be made from earnings on investments of the funds before distribution to the income funds during the period prior to the date the United States congress consents to the provisions of Constitutional Amendment 1 approved at the 1996 general election].

D. The state investment officer shall appoint all employees of the investment office."

SECTION 5. Section 6-8-6 NMSA 1978 (being Laws 1957, Chapter 179, Section 6, as amended) is amended to read:

"6-8-6. TRANSFER OF INVESTMENT POWERS.--

A. The functions, powers and duties vested by law relating to the investment or reinvestment of money and the purchase, sale or exchange of investments or securities of the permanent [fund] funds are [transferred] delegated to the state investment officer under the supervision of the council. [The state treasurer shall maintain] Custody of the [state] permanent [fund but shall at all times render the fund or any part of it available for investment] funds shall be maintained by a custodian bank selected and overseen, in accordance with the provisions of [Sections 6-8-1 through 6-8-18] Subsection H of Section 6-8-7 NMSA 1978, by the state investment officer and the council.

B. Any provision of existing law requiring or designating an elected state official to serve by virtue of [his] the official's office in an active or advisory capacity, other than as a member of the council, concerning the investment of the [state] permanent [fund shall be] funds is inoperative."

SECTION 6. Section 6-8-7 NMSA 1978 (being Laws 1957, Chapter 179, Section 7, as amended) is amended to read:

"6-8-7. POWERS AND DUTIES OF THE STATE INVESTMENT COUNCIL AND STATE INVESTMENT OFFICER--INVESTMENT POLICY--INVESTMENT MANAGERS.--

A. Subject to the limitations, conditions and restrictions contained in policymaking regulations or resolutions adopted by the council, the council may make purchases, sales, exchanges, investments and reinvestments of the assets of all funds in accordance with the Uniform Prudent Investor Act. The state investment officer and the council are trustees of all funds under their control and shall see that money invested is at all times handled in the best interests of the state. The council may delegate administrative and investment-related functions to the state investment officer.

B. The state investment officer shall formulate and recommend to the council for approval investment regulations or resolutions pertaining to the kind or nature of investments and limitations, conditions and restrictions upon the methods, practices or procedures for investment, reinvestment, purchase, sale or exchange transactions that should govern the activities of the investment office.

C. The council shall meet at least [once each month] ten times per year, and as often as exigencies may demand, to consult with the state investment officer concerning the work of the investment office. The council shall have access to all files and records of the investment office and shall require the state investment officer to report on and provide information necessary to the performance of council functions. The council may hire [one or more] investment management or consulting firms to advise the council with respect to the council's [overall] investment [plan] decisions for the investment of [all] funds managed by the investment office and pay reasonable compensation for such [advisory] management or consulting services from the assets of the applicable funds, subject to budgeting and appropriation by the legislature. The terms of any such investment management or consulting services contract shall incorporate the statutory requirements for investment of funds under the council's jurisdiction. Prior to being hired, a prospective investment management, advisory or consulting services firm shall submit to the council a disclosure detailing all campaign contributions made within the last eight years by the firm or the partners or employees of the firm to any member of the council, or to a political committee or other entity that is intended to aid or promote the nomination or election of any candidate to a political office if the political committee or entity is:

(1) established by a council member or the council member's agent;

(2) established in consultation with or at the request of a council member or the council member's agent; or

(3) controlled by a council member or the council member's agent.

D. The council shall provide an opportunity for public comment at meetings of the council. Advance notice of meetings shall be published on the council's web site and in a newspaper of general circulation at least ten days in advance of the meeting.

E. All funds managed by the state investment officer shall be managed in accordance with the Uniform Prudent Investor Act. The council may [employ investment management services to invest the funds and may pay reasonable compensation for investment management services from the assets of the applicable funds, subject to budgeting and appropriation by the legislature] form and use committees to study and make recommendations to the council. Prior to commencing work for the council, a committee member who is not a member of the council shall submit to the council a disclosure detailing all campaign contributions made within the last eight years to any member of the council or to a political committee or other entity that is intended to aid or promote the nomination or election of any candidate to a political office if the political committee or entity is:

(1) established by a council member or the council member's agent;

(2) established in consultation with or at the request of a council member or the council member's agent; or

(3) controlled by a council member

or the council member's agent.

F. Fiduciaries of the permanent funds are:

(1) the council;

(2) the state investment officer and investment office staff;

(3) any person providing investment advice to the council [or], the state investment officer or investment office staff for [a] an investment management, advisory or consulting services fee [or other compensation]; and

(4) all persons exercising discretionary authority over or control of funds under the management of the council [are fiduciaries].

G. The council may contract for legal services for litigation on a contingent or partly contingent fee basis, subject to an expedited solicitation process devised and approved by the council; provided that:

(1) amounts recovered by the legal services contractor shall be deposited in the state investment council suspense fund;

(2) the council shall submit each proposed contract to the attorney general and the department for review of the contingency fee. The attorney general's and the department's review shall take into account the complexity of the factual and legal issues presented by the claims to be pursued under the contract. If the attorney general or the department advises the council that the proposed contingency fee is not reasonable, the council may nevertheless approve the contract and the contingency fee by a majority vote of its members; and

(3) each prospective legal services contractor seeking to represent the council on a contingent or partly contingent fee basis shall file with the council the disclosure required by Section 13-1-191.1 NMSA 1978 disclosing all campaign contributions made to the governor, attorney general, state treasurer or any member of the council, or to a political committee that is intended to aid or promote the nomination or election of any candidate to a state office if the committee is:

(a) established by any of the foregoing persons or their agents;

(b) established in consultation with or at the request of any of the foregoing persons or their agents; or

H. The council may select and contract for the services of one or more custodian banks for all funds under the council's management. For the purpose of this subsection, "custodian bank" means a financial institution with the general fiduciary duties to manage, control and collect the assets of an investment fund, including receiving all deposits and paying all disbursements as directed by staff, safekeeping of assets, coordination of asset transfers, timely settlement of securities transactions and accurate and timely reporting of the assets by individual account and in total.

I. For funds available for investment for more than one year, the council may contract with any state agency to provide investment advisory or investment management services, separately or through a pooled investment fund; provided that the state agency enters into a joint powers agreement with the council and that the state agency pays at least the direct cost of such services. Notwithstanding any statutory provision governing state agency investments, the council may invest funds available from a state agency pursuant to a joint powers agreement in any type of investment permitted for the land grant permanent funds under the prudent investor rule. In performing investment services for a state agency, the council and the state investment officer and investment office staff are exempt from the New Mexico Uniform Securities Act. As used in this subsection, "state agency" means any branch, agency, department, board, instrumentality, institution or political subdivision of the state, the New Mexico finance authority, the New Mexico mortgage finance authority and any tax-exempt private endowment entity whose sole beneficiary is a state agency or whose beneficiaries are students attending a public educational institution in the state.

J. The state investment officer shall provide quarterly performance reports to the legislative finance committee. Annually, the state investment officer shall ratify and provide written investment policies, including any amendments, to the legislative finance committee.

K. Council members, the state investment officer and investment office staff and committee members appointed by the council, jointly and severally, shall be indemnified by the state, out of the permanent funds, from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including court costs and attorney fees, against all claims, liability, losses or damages arising from any decisions made or actions taken while acting within the scope of duty and pursuant to law as a council member, the state investment officer, investment office staff or a committee member appointed by the council. Following indemnification, if it is shown that the indemnified person acted fraudulently or with intentional malice, the state shall have the right to recover from the indemnified person any amount expended under this subsection."

SECTION 7. Section 6-8-11 NMSA 1978 (being Laws 1957, Chapter 179, Section 11, as amended) is amended to read:

"6-8-11. CUSTODY OF SECURITIES.--Securities purchased or held by the state investment officer or the [state investment] council shall be in the custody of [the state treasurer who may, with the approval of the secretary, deposit with a bank or trust company the securities for safekeeping and servicing] a custodian bank contracted pursuant to the provisions of Subsection H of Section 6-8-7 NMSA 1978."

SECTION 8. Section 6-8-13 NMSA 1978 (being Laws 1957, Chapter 179, Section 13, as amended) is amended to read:

"6-8-13. RECORD OF INVESTMENTS.--The investment [division] office shall keep accurate and complete records and accounts concerning the state investment portfolio."

SECTION 9. Section 6-8-14 NMSA 1978 (being Laws 1957, Chapter 179, Section 14, as amended) is amended to read:

"6-8-14. MONTHLY REPORTS.--No later than [ten] twenty days after the [close] end of each month, the state investment officer shall submit to [the secretary and] the [state investment] council a report of the operations of the investment office during the past month. Each report shall [give a complete statement of the state investment portfolio as of the time of the report and, in addition, shall include a detailed summary of the month's investment, reinvestment, purchase, sale and exchange transactions, setting forth the investments bought, sold or exchanged, the dates thereof, the prices paid or obtained, the names of the dealers involved, fees paid for each transaction, disclosure of contractor arrangements and a statement of the funds or accounts referred to herein. The reports shall also be circulated to a mailing list of investment bankers and brokers recommended by the council] include a schedule of cumulative fiscal year actual and budgeted expenditures and a monthly summary of contributions, distributions, income and net gains or losses for each permanent fund and investment pool. The reports shall be published on the web [sites] site of the council [the legislature and the department of finance and administration] and the sunshine portal and shall be open for inspection to the public and the press in the [office of the state] investment [officer] office."

SECTION 10. Section 7-27-5.15 NMSA 1978 (being Laws 1990, Chapter 126, Section 5, as amended) is amended to read:

"7-27-5.15. NEW MEXICO PRIVATE EQUITY FUNDS AND BUSINESS INVESTMENTS.--

A. No more than nine percent of the market value of the severance tax permanent fund may be invested in New Mexico private equity funds or New Mexico businesses under this section.

B. In making investments pursuant to Subsection A of this section, the council shall make investments in New Mexico private equity funds or New Mexico businesses whose investments or enterprises enhance the economic development objectives of the state.

C. The state investment officer shall make investments pursuant to Subsection A of this section only upon approval of the council [upon review of the recommendation of the private equity investment advisory committee] and within guidelines and policies established by the council.

D. As used in this section:

(1) "New Mexico business" means, in the case of a corporation or limited liability company, a business with its principal office and a majority of its full-time employees located in New Mexico or, in the case of a limited partnership, a business with its principal place of business and eighty percent of its assets located in New Mexico; and

(2) "New Mexico private equity fund" means a limited partnership, limited liability company or corporation organized and operating in the United States and maintaining an office staffed by a full-time investment officer in New Mexico that:

(a) has as its primary business activity the investment of funds in return for equity in or debt of businesses for the purpose of providing capital for start-up, expansion, product or market development, recapitalization or similar business purposes;

(b) holds out the prospects for capital appreciation from such investments;

(c) has at least one full-time manager with at least three years of professional experience in assessing the growth prospects of businesses or evaluating business plans and who has established permanent residency in the state;

(d) is committed to investing or helps secure investing by others, in an amount at least equal to the total investment made by the state investment officer in that fund pursuant to this section, in businesses with a principal place of business in the state and that hold promise for attracting additional capital from individual or institutional investors nationwide for businesses in the state; and

(e) accepts investments only from accredited investors as that term is defined in Section 2 of the federal Securities Act of 1933, as amended (15 USCA Section 77(b)), and rules and regulations promulgated pursuant to that section, or federally recognized Indian tribes, nations and pueblos with at least five million dollars ($5,000,000) in overall investment assets.

E. The state investment officer is authorized to make investments in New Mexico businesses to create new job opportunities and to support new, emerging or expanding businesses in a manner consistent with the constitution of New Mexico if:

(1) the investments are made:

(a) in conjunction with cooperative investment agreements with parties that have demonstrated abilities and relationships in making investments in new, emerging or expanding businesses;

(b) in a New Mexico aerospace business that has received an award from the United States government or one of its agencies or instrumentalities: 1) in an amount, not less than one hundred million dollars ($100,000,000), that is equal to at least ten times the investment from the severance tax permanent fund; and 2) for the purpose of stimulating commercial enterprises; or

(c) in a New Mexico business that: 1) is established to perform technology transfer, research and development, research commercialization, manufacturing, training, marketing or public relations in any field of science or technology, including but not limited to energy, security, defense, aerospace, automotives, electronics, telecommunications, computer and information science, environmental science, biomedical science, life science, physical science, materials science or nanoscience, using research developed in whole or in part by a state institution of higher education or a prime contractor designated as a national laboratory by an act of congress that is operating a facility in the state, or an affiliated entity; and 2) has an agreement to operate the business on state lands;

(2) an investment in any one business does not exceed ten percent of the amount available for investment pursuant to this section; and

(3) the investments represent no more than fifty-one percent of the total investment capital in a business; provided, however, that nothing in this subsection prohibits the ownership of more than fifty-one percent of the total investment capital in a New Mexico business if the additional ownership interest:

(a) is due to foreclosure or other action by the state investment officer pursuant to agreements with the business or other investors in that business;

(b) is necessary to protect the investment; and

F. The state investment officer shall make a commitment to the small business investment corporation pursuant to the Small Business Investment Act to invest one percent of the market value of the severance tax permanent fund to create new job opportunities by providing capital for land, buildings or infrastructure for facilities to support new or expanding businesses and to otherwise make investments to create new job opportunities to support new or expanding businesses in a manner consistent with the constitution of New Mexico. On July 1 of each year, the state investment officer shall determine whether the invested capital in the small business investment corporation is less than one percent of the market value of the severance tax permanent fund. If the invested capital in the small business investment corporation equals less than one percent of the market value of the severance tax permanent fund, further commitments shall be made until the invested capital is equal to one percent of the market value of the fund.

G. The state investment officer shall report semiannually on the New Mexico private equity investments made pursuant to this section. Annually, a report shall be submitted to the legislature prior to the beginning of each regular legislative session and a second report no later than October 1 each year to the legislative finance committee, the revenue stabilization and tax policy committee and any other appropriate interim committee. Each report shall provide the amounts invested in each New Mexico private equity fund, as well as information about the objectives of the funds, the companies in which each fund is invested and how each investment enhances the economic development objectives of

the state. Each report shall provide the amounts invested in

each New Mexico business."

SECTION 11. Section 7-27-5.26 NMSA 1978 (being Laws 2000 (2nd S.S.), Chapter 6, Section 2, as amended) is amended to read:

"7-27-5.26. INVESTMENT IN FILMS TO BE PRODUCED IN NEW MEXICO.--

A. No more than six percent of the market value of the severance tax permanent fund may be invested in New Mexico film private equity funds or a New Mexico film project under this section.

B. If an investment is made under this section, not more than fifteen million dollars ($15,000,000) of the amount authorized for investment pursuant to Subsection A of this section shall be invested in any one New Mexico film private equity fund or any one New Mexico film project.

C. The state investment officer shall make investments pursuant to this section only upon approval of the [state investment] council after a review by [the private equity investment advisory committee and] the New Mexico film division of the economic development department. The state investment officer may make debt or equity investments pursuant to this section only in New Mexico film projects or New Mexico film private equity funds that invest only in film projects that:

(1) are filmed wholly or substantially in New Mexico;

(2) have shown to the satisfaction of the New Mexico film division that a distribution contract is in place with a reputable distribution company;

(3) have agreed that, while filming in New Mexico, a majority of the production crew will be New Mexico residents;

(4) have posted a completion bond that has been approved by the New Mexico film division; provided that a completion bond shall not be required if the fund or project is guaranteed pursuant to Paragraph (5) of this subsection; and

(5) have obtained a full, unconditional and irrevocable guarantee of repayment of the invested amount in favor of the severance tax permanent fund:

(a) from an entity that has a credit rating of not less than Baa or BBB by a national rating agency;

(b) from a substantial subsidiary of an entity that has a credit rating of not less than Baa or BBB by a national rating agency;

(c) by providing a full, unconditional and irrevocable letter of credit from a United States incorporated bank with a credit rating of not less than A by a national rating agency; or

(d) from a substantial and solvent entity as determined by the [state investment] council in accordance with its standards and practices; or

(6) if not guaranteed pursuant to Paragraph (5) of this subsection, have obtained no less than one-third of the estimated total production costs from other sources as approved by the state investment officer.

D. The state investment officer may loan at a market rate of interest, with respect to an eligible New Mexico film project, up to eighty percent of an expected and estimated film production tax credit available to a film production company pursuant to the provisions of Section 7-2F-1 NMSA 1978; provided that the film production company agrees to name the state investment officer as its agent for the purpose of filing an application for the film production tax credit to which the company is entitled if the company does not apply for the film production tax credit. The New Mexico film division of the economic development department shall determine the estimated amount of a film production tax credit. The [state investment] council shall establish guidelines for the state investment officer's initiation of a loan and the terms of the loan.

E. As used in this section:

(1) "film project" means a single media or multimedia program, including advertising messages, fixed on film, videotape, computer disc, laser disc or other similar delivery medium from which the program can be viewed or reproduced and that is intended to be exhibited in theaters; licensed for exhibition by individual television stations, groups of stations, networks, cable television stations or other means or licensed for the home viewing market; and

(2) "New Mexico film private equity fund" means any limited partnership, limited liability company or corporation organized and operating in the United States that:

(a) has as its primary business activity the investment of funds in return for equity in film projects produced wholly or partly in New Mexico;

(b) holds out the prospects for capital appreciation from such investments; and

(c) accepts investments only from accredited investors as that term is defined in Section 2 of the federal Securities Act of 1933, as amended, and rules promulgated pursuant to that section."

SECTION 12. REPEAL.--Section 6-8-20 NMSA 1978 (being Laws 1987, Chapter 219, Section 3, as amended) is repealed.

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