How must a Texas public funds investment pool like TexPool calculate the maturity it discloses to investors?

Plain-English summary

TexPool, the Texas Local Government Investment Pool, lets cities, counties, and other public entities invest their funds together. State law (the Public Funds Investment Act, chapter 2256 of the Government Code) makes a pool tell its investors certain numbers, including "the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool." TexPool buys "floating rate securities," which carry two important dates: a reset date, when the interest rate can change, and a stated (final) maturity date, when the security actually matures. The Fort Bend County Attorney, on behalf of his county treasurer, asked the Attorney General whether TexPool could compute that disclosed maturity figure using the earlier reset dates instead of the stated maturity dates.

The opinion concluded that the statute requires the stated maturity date. The phrase "stated maturity date" is not specially defined in Texas law, so the opinion read it by its common meaning, the date a security finally matures, not the date its rate may be adjusted. Because that reading is workable and not absurd, the office could not substitute "reset date" for the words the legislature actually chose. So for the required disclosure under section 2256.016(b)(2), TexPool has to use the floating-rate securities' stated maturity dates. The opinion then addressed the county's second question and found no conflict with TexPool's actual practice: TexPool was already disclosing two sets of figures, one based on reset dates and one based on stated maturity dates. Section 2256.016 sets only minimum, threshold disclosure requirements ("at a minimum"), so a pool may calculate and disclose additional data as long as the methods are reasonable and the information is not misleading. The opinion noted that TexPool's reset-date calculation follows federal SEC money-market-fund rules (17 C.F.R. § 270.2a-7) that, while not binding on government pools, set the industry standard, and that TexPool clearly labels which parameters each figure uses. Having found the disclosure practices consistent with the statute, the opinion did not reach the county's third question about what recourse a public entity would have against a pool that miscalculates its weighted average maturity.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The Public Funds Investment Act and the referenced SEC money-market rules have both been amended over the years, so verify the current statute and regulations before relying on any specific provision here.

What the opinion meant for those who asked

Fort Bend County and its treasurer (what the opinion held for them): The opinion confirmed the treasurer's view that the statute keys the required disclosure to the stated maturity date, while also explaining that TexPool's added reset-date disclosure does not violate the statute.

TexPool and other public funds investment pools (what the opinion held for them): The opinion held that the mandatory "maximum average dollar-weighted maturity" disclosure must be computed from stated maturity dates, but that a pool may disclose extra data (such as reset-date figures) if the method is reasonable and not misleading.

Public entities investing in pools (what the opinion held for them): The opinion gave them a clear reading of what the mandatory disclosure means, but expressly did not decide what remedies exist against a pool that calculates the figure incorrectly.

Common questions

What does "stated maturity date" mean in the Public Funds Investment Act?
The opinion read it by its ordinary meaning: the date a security finally matures, not the reset date when its interest rate can be adjusted.

Can TexPool base its required maturity disclosure on reset dates instead?
No. The opinion concluded the statute requires the mandatory disclosure to use stated maturity dates, and the office could not swap in "reset date" for the words the legislature chose.

Is it a problem that TexPool also publishes reset-date numbers?
No. The opinion found that the statute sets only minimum disclosure requirements, so a pool may also disclose additional, clearly labeled figures as long as the method is reasonable and not misleading.

Did the opinion say what happens if a pool miscalculates?
No. Because it found TexPool's practices consistent with the statute, the opinion did not address what recourse a public entity might have against a pool that calculates its weighted average maturity inaccurately.

Background and statutory framework

TexPool is organized under chapter 791 (the Interlocal Cooperation Act) and chapter 2256 (the Public Funds Investment Act) of the Government Code. Section 2256.016 lets an entity invest in a pool and requires the pool, to be eligible, to disclose specified information "at a minimum," including the maximum average dollar-weighted maturity "based on the stated maturity date" in an offering circular (subsection (b)(2)) and the current such maturity in a monthly report (subsection (c)(2)(B)). Related provisions use similar language (sections 2256.005 and 2256.019). The Code Construction Act directs that technical terms be construed by their acquired meaning and other words by common usage (section 311.011), and presumes a result feasible of execution (section 311.021(4)). The opinion relied on the rule that courts and the office may not insert or substitute statutory words absent clear legislative intent, citing Laidlaw Waste Systems v. City of Wilmer, 904 S.W.2d 656 (Tex. 1995), and Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547 (Tex. 1981). It noted that TexPool's reset-date calculation tracks federal SEC money-market rules at 17 C.F.R. § 270.2a-7, which treat certain floating-rate government securities as having a one-day remaining maturity.

Citations

Statutory and regulatory provisions:

• Tex. Gov't Code Ann. §§ 2256.002, 2256.003, 2256.005, 2256.016, 2256.019 (Vernon 2000)
• Tex. Gov't Code Ann. §§ 311.011, 311.021(4) (Vernon 1998)
• 17 C.F.R. § 270.2a-7 (2000)

Cases:

• Laidlaw Waste Sys. v. City of Wilmer, 904 S.W.2d 656 (Tex. 1995)
• Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547 (Tex. 1981)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0359
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2001/jc0359.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

March 27, 2001

The Honorable Ben W. "Bud" Childers
Fort Bend County Attorney
301 Jackson, Suite 621
Richmond, Texas 77469-3108

Opinion No. JC-0359

Re: Whether, under section 2256.016 of the Government Code, the Texas Local Government Investment Pool may calculate the "maximum average dollar-weighted maturity" of the pool using the reset date of floating rate securities as opposed to their stated maturity date (RQ-0305-JC)

Dear Mr. Childers:

Section 2256.016 of the Government Code requires a public funds investment pool to disclose "the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool," TEX. GOV'T CODE ANN. § 2256.016(b)(2) (Vernon 2000) and "the current average dollar-weighted maturity, based on the stated maturity date, of the pool," id. § 2256.016(c)(2)(B). On behalf of your county treasurer, you ask whether, under section 2256.016, the Texas Local Government Investment Pool ("TexPool") may calculate the "maximum average dollar-weighted maturity" of the pool using the reset date of floating rate securities as opposed to their stated maturity date. We conclude that section 2256.016 requires TexPool to calculate the "maximum average dollar-weighted maturity" of the pool's portfolio using these securities' stated maturity dates. TexPool's practice of disclosing information using both the reset date and the stated maturity date of these securities is consistent with section 2256.016.

(Footnote: See Letter from Honorable Ben W. "Bud" Childers, Fort Bend County Attorney, to Honorable John Cornyn, Texas Attorney General at 2 (Nov. 3, 2000) (on file with Opinion Committee) [hereinafter Request Letter].)

TexPool is a public funds investment pool organized under chapter 791 of the Government Code, the Interlocal Cooperation Act, and chapter 2256 of the Government Code, the Public Funds Investment Act, which generally governs the investments of state agencies, local governments, and public funds investment pools, such as TexPool. See id. § 2256.003. Under the Public Funds Investment Act, an "investment pool" is "an entity created under this code to invest public funds jointly on behalf of the entities that participate in the pool." Id. § 2256.002(6). The Public Funds Investment Act refers to a governmental unit subject to its provisions as an "investing entity" or "entity." See id. §§ 2256.002(5), .003.

Section 2256.016(a) authorizes an entity to invest its funds in an investment pool. Subsections (b) and (c) of that provision establish certain requirements an investment pool must satisfy in order to be eligible to receive and invest funds. Those requirements include disclosing in an offering circular, or similar disclosure instrument, information including "the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool," id. § 2256.016(b)(2), and providing its investors with a monthly report that contains, among other things, "the current average dollar-weighted maturity, based on the stated maturity date, of the pool," id. § 2256.016(c)(2)(B). You inquire about the first disclosure requirement.

We note that two other provisions in the Public Funds Investment Act contain similar language. Section 2256.005 requires investing entities to adopt investment policies. Pooled fund groups' policies must include "the maximum dollar-weighted average maturity allowed based on the stated maturity date for the portfolio." Id. § 2256.005(b)(4)(C). In addition, section 2256.019 requires a public funds investment pool to be "continuously rated no lower than AAA or AAA-m or at an equivalent rating by at least one nationally recognized rating service or no lower than investment grade by at least one nationally recognized rating service with a weighted average maturity no greater than 90 days." Id. § 2256.019 (emphasis added); see also id. § 2256.016(h) ("To maintain eligibility to receive funds from and invest funds on behalf of an entity under this chapter, an investment pool must be continuously rated no lower than AAA or AAA-m or at an equivalent rating by at least one nationally recognized rating service."). You have not asked us to construe these provisions and we do not address them.

You explain that TexPool purchases "floating rate securities." The rates of these securities are not fixed but change at set intervals. See Request Letter, supra note 1, at 1. "As a result, the floater security has two (2) dates important to the investor: the reset date and the maturity date. At the reset date, the security can change the coupon. At the floater's stated (final) maturity date it will mature." Id. at 1-2. You state that TexPool "is currently using the reset date (the date of the rate increases) of the floating rate security to calculate the weighted average maturity." Id. at 2. The Comptroller's office, which administers TexPool, confirms that "TexPool currently calculates the pool's WAM through use of the final maturity date for fixed rate securities and 'reset date' for floating rate securities." Later in the same letter, however, the Comptroller's office informs us that TexPool is calculating and disclosing weighted average maturity using both "the reset date standard and the final maturity standard." Comptroller Letter, note 2, at 4.

(Footnote: Letter from Lita Gonzalez, Associate Deputy General Counsel, Agency Affairs, Office of the Comptroller of Public Accounts, to Honorable John Cornyn, Texas Attorney General at 2 (Dec. 28, 2000) (on file with Opinion Committee) [hereinafter Comptroller Letter].)

It appears that your county treasurer believes that section 2256.016 of the Government Code requires TexPool to calculate "maximum average dollar-weighted maturity" according to the final maturity date of floating rate securities. Accordingly, you ask the following questions:

1. May a public funds investment pool use the "reset date" to calculate their portfolio's weighted average maturity ("WAM"), as opposed to the stated maturity date as dictated by § 2256.016(b)(2) of the Government Code?

2. If it is determined that a public funds investment pool may use the "reset date" to calculate their portfolio's weighted average maturity, should the pool additionally disclose the weighted average maturity ("WAM") based on the stated maturity?

3. What recourse, if any, does a public entity in Texas have against a public funds investment pool who inaccurately calculates its weighted average maturity ("WAM")?

Request Letter, supra note 1, at 2-3.

First, we address whether calculation of "maximum average dollar-weighted maturity" using floating rate securities' reset dates satisfies the section 2256.016(b)(2) disclosure requirement. Again, that provision requires a public funds investment pool to disclose in an offering circular, or similar disclosure instrument, "the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool." TEX. GOV'T CODE ANN. § 2256.016(b)(2) (Vernon 2000). The answer to this question turns on the meaning of the phrase "stated maturity date" as it is used in section 2256.016. The Code Construction Act provides that "[w]ords and phrases that have acquired a technical or particular meaning, whether by legislative definition or otherwise, shall be construed accordingly." Id. § 311.011(b) (Vernon 1998). Absent such a meaning, words and phrases are "read in context and construed according to the rules of grammar and common usage." Id. § 311.011(a).

No Texas statute or case defines "stated maturity date" (or "maximum average dollar-weighted maturity") for purposes of the Public Funds Investment Act disclosure requirement. We believe, however, that "stated maturity date" is commonly understood to mean the date a security finally matures, and is not commonly understood to refer to other relevant dates such as the date the rate on the security may be adjusted. See BLACK'S LAW DICTIONARY 400 (7th ed. 1999) (defining "date of maturity" as "[t]he date when a debt falls due, such as a debt on a promissory note or bond"). Given that each floating rate security has a stated maturity date and it is possible to calculate "maximum average dollar-weighted maturity" using such a security's stated maturity date, this construction of the statute is not absurd. See TEX. GOV'T CODE ANN. § 311.021(4) (Vernon 1998) (presumption that in enacting statute "a result feasible of execution is intended"). Because this construction is not absurd or contrary to any clear expression of legislative intent, we are not at liberty to substitute the words "reset date" for the words "stated maturity date" employed by the legislature in section 2256.016(b)(2), or to insert those words into the statute. See Laidlaw Waste Sys. v. City of Wilmer, 904 S.W.2d 656, 659 (Tex. 1995) (courts should not insert words in a statute except to give effect to clear legislative intent); Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547, 552 (Tex. 1981) (same). Thus, we conclude that section 2256.016 requires TexPool to calculate the "maximum average dollar-weighted maturity" of its portfolio according to floating rate securities' stated date of maturity.

You also ask, "[i]f it is determined that a public funds investment pool may use the 'reset date' to calculate their portfolio's weighted average maturity, should the pool additionally disclose the weighted average maturity ("WAM") based on the stated maturity?" Request Letter, supra note 1, at 3. We note that TexPool is currently calculating weighted average maturity based on both the reset date and the stated date of maturity of floating rate securities. See Comptroller Letter, supra note 2, at 4 ("[T]he calculation of the WAM through use of the reset date standard and the final maturity standard is posted in TexPool's Information Statement. Thus, both calculations are available to all participants in the pool."). Disclosure of these two sets of data is consistent with section 2256.016.

Section 2256.016 requires a public funds investment pool to disclose certain data, but it establishes only minimum, threshold disclosure requirements. See TEX. GOV'T CODE ANN. § 2256.016(b) (Vernon 2000) (offering circular must contain "at a minimum, the following information"); (c)(2) (monthly report must contain "at a minimum, the following information") (emphasis added). The statute does not preclude a pool from calculating and disclosing additional data and, by using the words "at a minimum" to describe the required disclosures, see id., appears to expressly contemplate that additional information may be disclosed. Thus, we believe that a public funds investment pool is authorized to calculate and disclose additional data, provided that the methods used to calculate the information are reasonable and the information is not misleading to investors.

The Comptroller's office informs us that TexPool calculates weighted average maturity using the reset date of floating rate securities according to Federal Securities and Exchange Commission ("SEC") rules applicable to money market funds, 17 C.F.R. § 270.2a-7. See Comptroller Letter, supra note 2, at 2. We understand that these rules, while they do not apply to government funds like TexPool, establish industry standards for money market funds, TexPool's private sector equivalent. See id. These rules allow certain securities to be treated as having maturity dates that are shorter than their final maturity dates. For example, certain adjustable rate government securities "shall be deemed to have a maturity equal to the period remaining until the next readjustment of the interest rate. A Government Security that is a Floating Rate Security shall be deemed to have a remaining maturity of one day." 17 C.F.R. § 270.2a-7(d)(1) (2000). We conclude that TexPool may reasonably rely on the SEC rules to calculate weighted average maturity using floating rate securities' reset date. TexPool publications disclosing two sets of maximum average maturity data are explicit about the different parameters used to calculate the two sets of data. See, e.g., http://www.TexPool.com (rate information).

(Footnote: See also Letter from Carol A. Smith, Audit Manager, State Auditor's Office, to Susan D. Gusky, Chair, Opinion Committee, Office of the Attorney General at 2 (Dec. 18, 2000) (on file with Opinion Committee).)

Because we conclude that TexPool's disclosure practices are consistent with section 2256.016, we do not address your final question about what recourse a public entity might have against a public funds investment pool that inaccurately calculates its weighted average maturity. Finally, we note that calculation of weighted average maturity according to floating rate securities' reset dates may be the industry standard for evaluating money market fund portfolios. See discussion supra. In construing section 2256.016, however, this office may not depart from the plain meaning of the words "stated maturity date."

SUMMARY

Section 2256.016(b)(2) of the Government Code requires TexPool to calculate the "maximum average dollar-weighted maturity" of the pool's portfolio using floating rate securities' stated maturity dates. TexPool's practice of disclosing two sets of weighted average maturity data, one using floating rate securities' reset dates and the other using their stated maturity dates, is consistent with section 2256.016.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee