0001| AN ACT | 0002| RELATING TO PUBLIC FUNDS; CHANGING CERTAIN PROVISIONS FOR INVESTMENT OF | 0003| THE PERMANENT FUND AND THE SEVERANCE TAX PERMANENT FUND. | 0004| | 0005| BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO: | 0006| Section 1. Section 6-8-9 NMSA 1978 (being Laws 1957, Chapter 179, | 0007| Section 9, as amended) is amended to read: | 0008| "6-8-9. SECURITIES AND INVESTMENT.--Money made available for | 0009| investment for a period in excess of one year may be invested in the | 0010| following classes of securities and investments: | 0011| A. bonds, notes or other obligations of the United States | 0012| government, its agencies or instrumentalities; | 0013| B. bonds, notes or obligations of a municipal or political | 0014| subdivision of this state, issued pursuant to a law of this state; | 0015| provided that the issuer has not, within ten years prior to the making | 0016| of the investment, been in default for more than three months in the | 0017| payment of any part of the principal or interest on any debt evidenced | 0018| by its bonds, notes or obligations; and provided further, if the bonds | 0019| are city or county utility or utility-district revenue bonds, the | 0020| revenues of that utility, other than for payment of operation and | 0021| maintenance expenses, are pledged wholly to the payment of the interest | 0022| on and principal of the indebtedness and the utility project has been | 0023| completely self-supporting for a period of five years next preceding the | 0024| investment; | 0025| C. bonds, debentures or other obligations issued by a | 0001| federal land bank or by a federal intermediate credit bank or banks for | 0002| cooperatives under the acts of congress known as the Federal Farm Loan | 0003| Act, as amended, and the Farm Credit Act of 1933, as amended; | 0004| D. bonds, debentures or other obligations issued or | 0005| guaranteed by any national mortgage association under the act of | 0006| congress of June 27, 1934 known as the National Housing Act, as amended; | 0007| E. bonds, notes, debentures, equipment trust certificates, | 0008| conditional sales agreements or other evidences of indebtedness of any | 0009| corporation organized and operating within the United States, rated not | 0010| less than Baa or BBB or the equivalent by a national rating service; | 0011| F. common and preferred stocks and convertible issues of any | 0012| corporation organized and operating within the United States; provided | 0013| that it has a minimum net worth of twenty-five million dollars | 0014| ($25,000,000) and securities listed on one or more national stock | 0015| exchanges; and provided further that the fund shall not own more than | 0016| five percent of the voting stock of any company. Common stocks should | 0017| represent a diversified portfolio with an above-average current yield | 0018| and the prospect for dividend increases and capital appreciation; | 0019| G. industrial revenue bonds issued pursuant to the | 0020| Industrial Revenue Bond Act, where both the principal and interest of | 0021| the bonds are fully and unconditionally guaranteed by a lease agreement, | 0022| executed by a corporation organized and operating within the United | 0023| States, rated not less than A by a national rating service; | 0024| H. notes or obligations securing loans to New Mexico | 0025| businesses made by banks and savings and loan associations pursuant to | 0001| the act of congress of July 30, 1953 known as the Small Business Act of | 0002| 1953, as amended, only to the extent that both principal and interest | 0003| are guaranteed by the United States government. The state investment | 0004| officer may enter into conventional agreements for the servicing of the | 0005| loans and the administration of the receipts therefrom. Any servicing | 0006| agreement may contain reasonable and customary provisions as the state | 0007| investment officer may deem advisable and as may be agreed upon; | 0008| I. notes or obligations securing loans or participation in | 0009| loans to business concerns or other organizations that are obligated to | 0010| use the loan proceeds within New Mexico, to the extent the loans are | 0011| secured by first mortgages on real estate located in New Mexico and are | 0012| further secured by an assignment of rentals, the payment of which is | 0013| fully guaranteed by the United States in an amount sufficient to pay all | 0014| principal and interest of the mortgage; | 0015| J. notes or obligations securing loans issued by banks and | 0016| savings and loan associations pursuant to Title IV of the act of | 0017| congress of November 8, 1965 known as the Higher Education Act of 1965, | 0018| as amended, only to the extent that both principal and interest are | 0019| guaranteed unconditionally by the United States government. The | 0020| applicant banks or savings and loan associations shall enter into an | 0021| indemnity agreement to pay off the investments, together with interest | 0022| and any unpaid costs and expenses in connection therewith, according to | 0023| the terms under which they are made in a form that meets the approval of | 0024| the state investment officer. The state investment officer may enter | 0025| into conventional agreements for the servicing of the loans and the | 0001| administration of the receipts therefrom. Any servicing agreement may | 0002| contain reasonable and customary provisions as the state investment | 0003| officer may deem advisable and as may be agreed upon; | 0004| K. obligations secured by mortgages constituting a first | 0005| lien upon real estate located within the state of New Mexico that are | 0006| fully insured or guaranteed as to the payment of the principal and | 0007| interest thereof by the government of the United States or by any | 0008| authorized agency thereof, including mortgages securing loans insured | 0009| under the National Housing Act or the Farmers' Home Administration Act, | 0010| as amended. The state investment officer may enter into conventional | 0011| agreements for the servicing of those loans and the administration of | 0012| the receipts therefrom, and any servicing agreement may contain | 0013| reasonable and customary provisions as the state investment officer may | 0014| deem advisable and as may be agreed upon, with respect to such matters | 0015| as the taking and holding of title in the name of the servicing agent | 0016| for the benefit of the state investment officer; the physical custody of | 0017| the obligations and mortgages serviced by the servicing agent; the | 0018| deduction of the servicing agent's fee, in the amount that shall not | 0019| annually exceed one-half of one percent of the principal balance of the | 0020| obligations serviced from time to time outstanding, by the servicing | 0021| agent, prior to remittance of the proceeds; the periodic remittance of | 0022| the net proceeds received in payment on all obligations so secured to | 0023| the state treasurer as custodian of the permanent fund; the authority | 0024| and duty of the servicing agent with respect to the collection of any | 0025| obligation in default and the effectuation of the applicable federal | 0001| insurance or guarantee thereof; and other appropriate matters; and | 0002| L. bonds, notes, debentures and other obligations issued by | 0003| the state of New Mexico. All transactions entered into on or after July | 0004| 1, 1991 shall be accounted for in accordance with generally accepted | 0005| accounting principles. | 0006| Not more than fifty percent of the book value of the permanent | 0007| fund shall be invested at any given time in securities described in | 0008| Subsections E and F of this section, and no more than ten percent of the | 0009| book value of the permanent fund shall be invested at any given time in | 0010| securities described in Subsection E of this section that are rated Baa | 0011| or BBB. | 0012| Commissions paid for the purchase and sale of any security shall | 0013| not exceed brokerage rates prescribed and approved by national stock | 0014| exchanges or by industry practice." | 0015| Section 2. Section 6-8-19 NMSA 1978 (being Laws 1987, Chapter | 0016| 126, Section 1, as amended) is amended to read: | 0017| "6-8-19. SHORT-TERM INVESTMENTS--REPURCHASE AGREEMENTS.-- | 0018| A. Money in or derived from the land grant permanent trust | 0019| funds and in or from the severance tax permanent fund made available for | 0020| investment for a period of less than one year may be invested in: | 0021| (1) contracts for the present purchase and resale at a | 0022| specified time in the future, not to exceed one year, of specific se- | 0023| curities at specified prices at a price differential representing the | 0024| interest income to be earned by the state. No such contract shall be | 0025| invested in unless the contract is fully secured by: | 0001| (a) obligations of the United States or other | 0002| securities backed by the United States if the obligations or securities | 0003| have a market value of at least one hundred two percent of the amount of | 0004| the contract; or | 0005| (b) A1 or P1 commercial paper, corporate | 0006| obligations rated AA or better and maturing in five years or less or | 0007| asset-backed securities rated AAA with an average life of five years or | 0008| less if the commercial paper, corporate obligations or asset-backed | 0009| securities have a market value of at least one hundred three percent of | 0010| the market value of the contract; | 0011| (2) contracts for the temporary exchange of state-owned securities for the use of broker-dealers, banks or other recog- | 0012| nized institutional investors in securities, for periods not to exceed | 0013| one year, for a specified fee rate. No such contract shall be invested | 0014| in unless the contract is fully secured by exchange of an irrevocable | 0015| letter of credit running to the state, cash or equivalent collateral of | 0016| at least one hundred two percent of the market value of the securities | 0017| plus accrued interest temporarily exchanged. Such contracts may | 0018| authorize the state investment officer to invest cash collateral in in- | 0019| struments or securities that are authorized investments for the funds | 0020| and may authorize payment of a fee from the funds, or from income | 0021| generated by the investment of cash collateral, to the borrower of | 0022| securities providing cash as collateral. The state investment officer | 0023| may enter into a contract that apportions income derived from the | 0024| investment of cash to pay its agent in securities-lending transactions; | 0025| (3) commercial paper issued by corporations organized | 0001| and operating within the United States and rated "prime" quality by a | 0002| national rating service; and | 0003| (4) prime bankers' acceptances issued by money center | 0004| banks. | 0005| B. The collateral required for either of the forms of in- | 0006| vestment specified in Paragraph (1) or (2) of Subsection A of this sec- | 0007| tion shall be delivered to the state fiscal agent or its designee con- | 0008| temporaneously with the transfer of funds or delivery of the securities, | 0009| at the earliest time industry practice permits, but in all cases | 0010| settlement shall be on a same-day basis. | 0011| C. Neither of the contracts specified in Paragraph (1) or | 0012| (2) of Subsection A of this section shall be invested in unless the | 0013| contracting bank, brokerage firm or recognized institutional investor | 0014| has a net worth in excess of five hundred million dollars ($500,000,000) | 0015| or is a primary broker or primary dealer." | 0016| Section 3. Section 7-27-5.1 NMSA 1978 (being Laws 1983, Chapter | 0017| 306, Section 8, as amended) is amended to read: | 0018| "7-27-5.1. MARKET RATE INVESTMENTS.-- | 0019| A. The severance tax permanent fund may be invested in the | 0020| following market rate investments: | 0021| (1) bonds, notes or other obligations of the United | 0022| States government, its agencies or instrumentalities and bonds, notes or | 0023| other obligations guaranteed by agencies and instrumentalities of the | 0024| United States government, including the bureau of Indian affairs; | 0025| (2) bonds, notes, debentures or other obligations | 0001| issued under the act of congress of June 27, 1934 known as the Federal | 0002| Farm Loan Act, as amended, and the Farm Credit Act of 1933, as amended; | 0003| (3) bonds, notes, debentures or other obligations | 0004| issued or guaranteed by any national mortgage association under the act | 0005| of congress of June 27, 1934 known as the National Housing Act, as | 0006| amended; | 0007| (4) preferred stock, common stock or convertible | 0008| issues of any corporation organized and operating within the United | 0009| States; provided that it shall have a minimum net worth of twenty-five | 0010| million dollars ($25,000,000) and securities listed on one or more | 0011| national stock exchanges or included on a nationally recognized list of | 0012| stocks; and provided further that the fund shall not own more than five | 0013| percent of the voting stock of any company. Common stock shall not be | 0014| purchased if, at the time, it will exceed or will with the purchase | 0015| exceed fifty percent of the book value of the severance tax permanent | 0016| fund. Common stocks should represent a diversified portfolio with an | 0017| above-average current yield and the prospects for dividend increases and | 0018| capital appreciation; | 0019| (5) bonds, notes, debentures or other evidence of | 0020| indebtedness, excluding commercial paper of any corporation organized | 0021| and operating within the United States; provided that the bonds, notes, | 0022| debentures or other evidence of indebtedness are rated at least Baa or | 0023| BBB or the equivalent by a national rating service. No more than ten | 0024| percent of the severance tax permanent fund shall be invested in bonds, | 0025| notes, debentures or other evidence of indebtedness that are rated Baa | 0001| or BBB or the equivalent by a national rating service; | 0002| (6) commercial paper rated "prime" quality by a | 0003| national rating service, issued by corporations organized and operating | 0004| within the United States; | 0005| (7) prime bankers' acceptances issued by money center | 0006| banks; | 0007| (8) contracts for the present purchase and resale at a | 0008| specified time in the future, not to exceed one year, of specific | 0009| securities at specific prices at a price differential representing the | 0010| interest income to be earned by the state. No such contract shall be | 0011| invested in unless the contract is fully secured by: | 0012| (a) obligations of the United States or other | 0013| securities backed by the United States if the obligations or securities | 0014| have a market value of at least one hundred two percent of the amount of | 0015| the contract; or | 0016| (b) A1 or P1 commercial paper, corporate | 0017| obligations rated AA or better and maturing in five years or less or | 0018| asset-backed securities rated AAA with an average life of five years or | 0019| less if the commercial paper, corporate obligations or asset-backed | 0020| securities have a market value of at least one hundred three percent of | 0021| the amount of the contract; | 0022| (9) contracts for the temporary exchange of state-owned securities for the use of broker-dealers, banks or other | 0023| recognized institutional investors in securities, for periods not to | 0024| exceed one year, for a specified fee rate. No such contract shall be | 0025| invested in unless the contract is fully secured by exchange of an | 0001| irrevocable letter of credit running to the state, cash or equivalent | 0002| collateral of at least one hundred two percent of the market value of | 0003| the securities plus accrued interest temporarily exchanged. Such | 0004| contracts may authorize the state investment officer to invest cash | 0005| collateral in instruments or securities that are authorized investments | 0006| for the funds and may authorize payment of a fee from the funds, or from | 0007| income generated by the investment of cash collateral, to the borrower | 0008| of securities providing cash as collateral. The state investment | 0009| officer may enter into a contract that apportions income derived from | 0010| the investment of cash to pay its agent in securities-lending | 0011| transactions; and | 0012| (10) participation interests in New Mexico real-property-related business loans. The actual amount invested under this | 0013| paragraph shall not exceed ten percent of the severance tax permanent | 0014| fund and shall be included in any minimum amount of severance tax | 0015| permanent fund investments required to be placed in New Mexico | 0016| certificates of deposit. Investments authorized in this paragraph are | 0017| subject to the following: | 0018| (a) the state investment officer may purchase | 0019| from eligible institutions a participation interest of up to eighty | 0020| percent in any loan secured by a first mortgage or a deed of trust on | 0021| the real property located in New Mexico of an eligible business entity, | 0022| or its subsidiary, that is operating or shall use loan proceeds to | 0023| commence operations within New Mexico plus any other guarantees or | 0024| collateral that may be judged by the eligible institution or the state | 0025| investment officer to be prudent. To be eligible for investment the | 0001| following minimum requirements shall be met: 1) the loan proceeds shall | 0002| be used exclusively for the purpose of expanding or establishing | 0003| businesses in New Mexico, including the refinancing of such businesses | 0004| for expansion purposes only. If a portion of the loan proceeds were | 0005| used for refinancing or repaying an existing loan and payment of | 0006| principal and interest to the state has not been made within ninety days | 0007| from the due date, unless extended pursuant to agreement between the | 0008| originating institution and the state investment officer, the | 0009| originating institution shall buy back the state's participation | 0010| interest in the loan and begin foreclosure proceedings; 2) eligible | 0011| business entities shall not include public utilities or financial | 0012| institutions or shopping centers, apartment buildings or other such | 0013| passive investments; 3) the minimum loan amount shall be two hundred | 0014| fifty thousand dollars ($250,000) and may be met by packaging up to ten | 0015| separate loans satisfying the requirements of this paragraph. The | 0016| maximum loan amount shall be two million dollars ($2,000,000); 4) the | 0017| loan maturity shall be not less than five years or more than thirty | 0018| years; 5) the maximum loan-to-value ratio shall be seventy-five percent | 0019| and based on current appraisal of the real property by an appraiser who | 0020| is licensed or certified in New Mexico and approved by the state | 0021| investment officer, which shall be made not more than one hundred eighty | 0022| days from the loan origination date; 6) the interest rate of the loan | 0023| shall be fixed for five years and shall be adjusted at every fifth | 0024| anniversary of the note to the rate specified in Item 7) of this | 0025| subparagraph; 7) the yield on the state's participation interest shall | 0001| in no case be less than the greater of the then-prevailing yield on | 0002| United States treasury securities of five-year maturity plus two and | 0003| one-half percent or the yield received by the lending institution | 0004| calculated exclusive of servicing fees; 8) if payment of principal or | 0005| interest has not been made within one hundred eighty days from the due | 0006| date, unless extended pursuant to agreement between the originating | 0007| institution and the state investment officer, the originating | 0008| institution shall buy back the state's participation interest in the | 0009| loan, substitute another qualifying loan or begin foreclosure | 0010| proceedings; and 9) if foreclosure proceedings are commenced, the state | 0011| and the originating institution shall share in proportion to their | 0012| participation interest, as provided in this subparagraph, in the legal | 0013| and other foreclosure expenses and in any loss incurred as a result of a | 0014| foreclosure sale; | 0015| (b) a standardized participation agreement, the | 0016| form of which shall be approved by the attorney general's office, shall | 0017| be executed between the investment office and each eligible originating | 0018| institution. The participation agreement shall provide that the | 0019| originating institution shall not assign its interest in any loan | 0020| covered by the agreement without the prior written consent of the state | 0021| investment officer; | 0022| (c) a formal forward commitment program may be | 0023| instituted by the state investment officer with the approval of the | 0024| council; | 0025| (d) the council shall adopt regulations: | 0001| 1) defining passive investments; 2) establishing underwriting | 0002| guidelines; 3) ensuring diversification across a variety of types of | 0003| collateral, types of businesses and regions of the state; and | 0004| 4) providing for the review by the state investment officer of servicing | 0005| and other fees that may be charged by the eligible institution; | 0006| (e) eligible institutions include banks, savings | 0007| and loan associations and credit unions operating in the state; and | 0008| (f) real property is defined as land and attached | 0009| buildings, but excludes all interests that may be secured by a security | 0010| interest under Article 9 of the Uniform Commercial Code, and mineral | 0011| resource values. | 0012| B. The collateral required for either of the forms of | 0013| investment specified in Paragraph (8) or (9) of Subsection A of this | 0014| section shall be delivered to the state fiscal agent or its designee | 0015| contemporaneously with the transfer of funds or delivery of the | 0016| securities, at the earliest time industry practice permits, but in all | 0017| cases settlement shall be on a same-day basis. | 0018| C. Neither of the contracts specified in Paragraph (8) or | 0019| (9) of Subsection A of this section shall be invested in unless the | 0020| contracting bank, brokerage firm or recognized institutional investor | 0021| has a net worth in excess of five hundred million dollars ($500,000,000) | 0022| or is a primary broker or primary dealer." | 0023| Section 4. EFFECTIVE DATE.--The effective date of the provisions | 0024| of this act is July 1, 1996. | 0025| | 0001| HB | 0002| 335 | 0003| Page  |