Part 10.
TEXAS WATER DEVELOPMENT BOARD
Chapter 367.
AGRICULTURAL WATER CONSERVATION PROGRAM
31 TAC §§367.2, 367.17, 367.18, 367.21 - 367.26
The Texas Water Development Board (the board) proposes amendments
to 31 TAC §§367.2, 367.17 and 367.18 and new §367.21 - 367.26
under the Agricultural Water Conservation Program.
The rules are proposed as the board’s policy on collateral under
the nonpoint source pollution control linked deposit program. Under that program,
lending institutions agree to make loans to individuals for nonpoint source
pollution control projects in exchange for the board’s deposit of funds
with the institution. These rules provide the requirements on how the deposit
of board funds will be collateralized, or secured, as required by the Public
Funds Collateralization Act (PFCA).
The board proposes amendments to §367.2 to amend the definition of
eligible lending institution. The change will clarify that a state depository
is an institution designated by the Texas comptroller of public accounts as
a state depository. The section is also amended to add a new definition of
pledged security. The term is used throughout the proposed rules, and refers
to the securities authorized by the board’s rules and the linked deposit
agreement to secure the board’s deposit of funds with the eligible lending
institution.
The board proposes an amendment to §367.17 to clarify that when the
executive administrator withdraws funds under the linked deposit agreement
or because the institutions cease to be eligible to hold the board’s
funds, such withdrawal shall be without penalty and shall include withdrawal
of accrued interest.
The board proposes an amendment to §367.18 to clarify that the amount
of funds required to be deposited as collateral is governed by the newly proposed §367.21
rather than the amount of funds deposited with the lending institution. The
difference is that the new provision specifies that the total amount of securities
must include accrued interest, and may be reduced by the amount of federal
insurance (i.e. FDIC) on the funds.
The board proposes new §367.21 to describe the collateral requirements.
Proposed new subsection (a) establishes that the funds the board deposits
must be secured in an amount not less than the amount on deposit under the
linked deposit agreement increased by the amount of any accrued interest and
reduced to the extent the deposit is insured by the United States or its instrumentality.
This provision reflects the requirements in the PFCA, and assures the board’s
deposits are fully secured. Proposed new subsection (b) establishes the value
of the securities as the market value from a nationally recognized financial
information service based upon the previous day’s closing market quotations.
This establishes a neutral method for valuation based upon an industry standard,
and establishes a specific time for the valuation. This also is the method
used to value securities under the board’s rules on investments in 31
TAC Chapter 365, thereby providing consistency between board programs in similar
situations. Proposed new subsection (c) requires additional collateral to
be pledged if the market value falls below the funds on deposit by the board,
in order to assure full collateralization of the board’s deposit, and
also allows a reduction in collateral if the market value exceeds the board’s
funds on deposit, and if allowed in the linked deposit agreement. Proposed
new subsection (d) lists the securities that will be accepted to secure board
deposits, and proposed new subsection (e) lists those securities that will
not be accepted. The list is taken from the Public Funds Investment Act, §2256.009,
and provides a conservative approach to collateralization that will limit
the board’s risk in the deposit of its funds. Proposed new subsection
(f) allows a lending institution to substitute one group of eligible securities
with other eligible securities, thereby providing flexibility for the lending
institutions while at the same time assuring adequate protection of the board’s
deposits. Proposed new subsection (g) allows the executive administrator to
further limit the selection of securities in the linked deposit agreement,
thereby allowing for situation-specific evaluation.
Proposed new §367.22 through §367.26 include specific provisions
of the PFCA into board rules in order to put lending institutions and custodians
on notice of these requirements. Specifically, proposed new §367.22 establishes
the requirements for the lending institutions to maintain records and the
ability of the comptroller or executive administrator to examine such records
and securities. Proposed new §367.23 requires the lending institution
to deposit the securities issued with a custodian, which must execute a written
agreement with the executive administrator regarding the terms and conditions
of how the funds will be secured. Still tracking the requirements of the PFCA,
the section further provides which entities are eligible to be a custodian,
and that the custodian holds the pledged securities in trust, and acts as
a bailee or agent of the board. It establishes the requirements of a custodian
to record the receipt of a pledged security and issue a trust receipt to the
executive administrator. It further establishes that the eligible lending
institution shall pay any charges of the custodian bank for accepting and
holding the securities.
Proposed new §367.24 allows the custodian to deposit a pledged security
with a specified list of institutions, and establishes the duties of the institution
into which the pledged security is deposited, in a manner that reiterates
the requirements of the PFCA. Proposed new §367.25 requires the custodian
to maintain records regarding the pledged securities and transactions relating
to them, allows the executive administrator and comptroller to examine the
securities or records of the custodian, and requires custodians to file a
collateral report with the comptroller. Proposed new §367.26 establishes,
as required by the PFCA, that an audit or regulatory examination of lending
institutions and custodians must include an examination and verification of
pledged securities and records relating to such, and that significant or material
noncompliance with the requirements of board rule and the PFCA shall be reported
to the comptroller and board.
Ms. Melanie Callahan, Director of Fiscal Services, has determined that
for the first five-year period the amendments and new sections are in effect
there will not be fiscal implications on state and local government as a result
of enforcement and administration of the amendments and new sections.
Ms. Callahan has also determined that for the first five years the amendments
and new sections, as proposed, are in effect the public benefit anticipated
as a result of enforcing the amendments and new sections will be to assure
the funds of the board deposited with lending institutions as part of the
linked deposit programs will be protected. Ms. Callahan has determined there
will not be economic costs to small businesses or individuals required to
comply with the amendments and new sections as proposed.
Comments on the proposal will be accepted for 30 days following publication
and may be submitted to Jonathan Steinberg, Deputy Counsel, Texas Water Development
Board, P.O. Box 13231, Austin, Texas 78711-3231, by e-mail to jonathan.steinberg@twdb.state.tx.us
or by fax at (512) 475-2051.
The amendments and new sections are proposed under the authority
of the Texas Water Code §6.101 and §17.905, which provide the Texas
Water Development Board with the authority to adopt rules necessary to carry
out the powers and duties in the Texas Water Code and other laws of the State
and for the linked deposit program.
The statutory provisions affected by the proposed amendments and new sections
are Texas Water Code, Chapter 17, Subchapter J.
§367.2.Definitions.
The following words and terms, when used in this chapter, shall have
the following meanings, unless the context clearly indicates otherwise.
(1) - (5)
(No change.)
(6)
Eligible lending institution--a financial institution that
makes commercial loans, is either a
designated
depository of state
funds
by the Texas comptroller of public accounts, herein referred to
as a state depository,
or an institution of the Farm Credit System headquartered
in this state, and agrees to participate in a linked deposit program established
under Water Code §17.905 and is willing to agree to provide collateral
equal to the amount of linked deposits placed with it.
(7) - (11)
(No change.)
(12)
Pledged security--Means the
securities authorized by these rules and the linked deposit agreement to secure
the board’s deposit of funds with the eligible lending institution.
(13)
[
§367.17.Board Obligations in Linked Deposit Agreements.
(a)
(No change.)
(b)
The board or the executive administrator may withdraw linked
deposits
and accrued interest
from the lending institution
without penalty
according to the terms of the linked deposit agreement
or if the institution ceases to be either a state depository as designated
by the Texas comptroller of public accounts or a Farm Credit System institution
headquartered in Texas.
§367.18.Lending Institution Obligations in Linked Deposit Agreements.
(a)
Upon execution of a linked deposit agreement and receipt
of money from the board, the lending institution shall:
(1)
provide collateral
as required in §367.21 of
this title (relating to Collateral for Linked Deposits)
[
(2) - (6)
(No change.)
(b)
(No change.)
§367.21.Collateral for Linked Deposits.
(a)
Eligible lending institutions shall secure funds which
the board deposits pursuant to a linked deposit agreement in an amount not
less than the amount of the deposit under the linked deposit agreement:
(1)
increased by the amount of any accrued interest; and
(2)
reduced to the extent that the United States or an instrumentality
of the United States insures the deposit.
(b)
For the purposes of this chapter, the value of securities
shall be the market value obtained from a nationally recognized financial
information service based upon the previous day’s closing market quotations.
(c)
If the market value of the securities pledged by the eligible
lending institution becomes less than the amount of funds on deposit in the
depository by the board, the executive administrator shall require that additional
collateral be pledged immediately, or that the amounts of board funds on deposit
be reduced. If the collateral pledged by an eligible lending institution is
in excess of that required by the market value of funds on deposit by the
board, the executive administrator may allow the release of the excess collateral.
(d)
Eligible lending institutions shall secure funds that the
board deposits pursuant to a linked deposit agreement using only the following
as pledged securities except as further limited by subsection (e) of this
section:
(1)
obligations, including letters of credit, of the United
States or its agencies and instrumentalities;
(2)
direct obligations of this state or its agencies and instrumentalities;
(3)
collateralized mortgage obligations directly issued by
a federal agency or instrumentality of the United States, the underlying security
for which is guaranteed by an agency or instrumentality of the United States;
(4)
other obligations, the principal and interest of which
are unconditionally guaranteed or insured by, or backed by the full faith
and credit of, this state or the United States or their respective agencies
and instrumentalities;
(5)
obligations of states, agencies, counties, cities, and
other political subdivisions of any state rated as to investment quality by
a nationally recognized investment rating firm not less than A or its equivalent;
and
(6)
bonds issued, assumed, or guaranteed by the State of Israel.
(e)
The following may not be used to secure funds that the
board deposits pursuant to a linked deposit agreement:
(1)
obligations whose payment represents the coupon payments
on the outstanding principal balance of the underlying mortgage-backed security
collateral and pays no principal;
(2)
obligations whose payment represents the principal stream
of cash flow from the underlying mortgage-backed security collateral and bears
no interest;
(3)
collateralized mortgage obligations that have a stated
final maturity date of greater than 10 years; and
(4)
collateralized mortgage obligations the interest rate of
which is determined by an index that adjusts opposite to the changes in a
market index.
(f)
An eligible lending institution may substitute one group
of securities eligible under this section and the linked deposit agreement
for another group of securities eligible under this section and the linked
deposit agreement.
(g)
Within the limits of this section, the executive administrator
may limit the selection of eligible investment securities for linked deposits
in the linked deposit agreement.
§367.22.Records of Depository.
(a)
Eligible lending institutions shall maintain a separate,
accurate, and complete record relating to the pledged securities, the deposit
of the board’s funds, and all transactions related to the pledged securities.
(b)
The comptroller or the executive administrator may examine
and verify at any reasonable time the pledged securities or a record an eligible
lending institution maintains under this section.
§367.23.Deposit of Pledged Securities with Custodian.
(a)
An eligible lending institution shall deposit with a custodian
a pledged security. The custodian and the executive administrator shall agree
in writing on the terms and conditions for securing a linked deposit.
(b)
A custodian must be approved by the executive administrator,
either in the linked deposit agreement or separately, and be:
(1)
a state or national bank that:
(A)
is designated by the comptroller as a state depository;
(B)
has its main office or a branch office in this state; and
(C)
has a capital stock and permanent surplus of $5 million
or more;
(2)
the Texas Treasury Safekeeping Trust Company;
(3)
a Federal Reserve Bank or a branch of a Federal Reserve
Bank; or
(4)
a federal home loan bank.
(c)
A custodian holds in trust the pledged securities used
to secure the board’s deposit in the eligible lending institution.
(d)
A custodian, whether acting alone or through a permitted
institution under §367.24 of this title (relating to Custodian’s
Deposit of Pledged Security with Another Institution), is for all purposes
the bailee or agent of the board.
(e)
On receipt of a pledged security, a custodian shall:
(1)
immediately identify on its books and records, by book
entry or another method, the pledge of the security to the board; and
(2)
promptly issue and deliver to the executive administrator
a trust receipt for the pledged security. If the custodian deposits the pledged
security pursuant to §367.24 of this title, the trust receipt shall so
indicate.
(f)
An eligible lending institution may not itself be the custodian
of securities it pledges for the linked deposit, nor may it deposit the securities
with an entity of which the eligible lending institution is a branch.
(g)
The eligible lending institution shall pay any charges
of the custodian bank for accepting and holding the securities.
§367.24.Custodian’s Deposit of Pledged Security with Another Institution.
(a)
The custodian may deposit a pledged security with one of
the following institutions:
(1)
a Federal Reserve Bank;
(2)
a clearing corporation as defined by §8.102, Texas
Business and Commerce Code;
(3)
a bank eligible to be a custodian under §367.23 of
this title (relating to Deposit of Pledged Securities with Custodian); or
(4)
a state or nationally chartered bank that is controlled
by a bank holding company that controls a bank eligible to be a custodian
under §367.23 of this title.
(b)
The custodian may not deposit a pledged security with an
eligible lending institution or an entity of which the eligible lending institution
is a branch.
(c)
If a deposit is made under subsection (a) of this section,
the institution to which the deposit is made shall:
(1)
hold the pledged security to secure funds the board deposits
with the eligible lending institution; and
(2)
on receipt of deposit, immediately issue to the custodian
an advice of transaction or other document that is evidence of the deposit
of the pledged security.
(d)
An institution may apply book entry procedures when an
investment security held by a custodian is deposited under this section. The
records must at all times state the name of the custodian that deposits an
investment security in the institution.
§367.25.Records of Custodian.
(a)
The custodian shall maintain a separate, accurate, and
complete record relating to each pledged security and each transaction relating
to a pledged security.
(b)
The comptroller or the executive administrator may examine
and verify at any reasonable time a pledged security or a record a custodian
maintains under this section. The board or its agent may inspect at any time
a pledged security evidenced by a trust receipt.
(c)
The custodian shall file a collateral report with the comptroller
in the manner and on the dates prescribed by the comptroller.
§367.26.Audits and Examinations.
As part of an audit or regulatory examination of an eligible lending
institution or custodian, the auditor or examiner shall examine and verify
pledged securities and records maintained under this chapter, and shall report
any significant or material noncompliance with this chapter to the comptroller
and the board.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 15, 2005.
TRD-200500725
Suzanne Schwartz
General Counsel
Texas Water Development Board
Proposed date of adoption: April 19, 2005
For further information, please call: (512) 475-2052
Subchapter C. NONPOINT SOURCE POLLUTION CONTROL PROJECT AND ESTUARY MANAGEMENT FINANCIAL ASSISTANCE PROGRAMS
The Texas Water Development Board (the board) proposes amendments
to 31 TAC §§375.302, 375.354 and 375.355 and new §375.358 -
375.363 under Clean Water State Revolving Fund.
The rules are proposed as the board’s policy on collateral under
the nonpoint source pollution control linked deposit program. Under that program,
lending institutions agree to make loans to individuals for nonpoint source
pollution control projects in exchange for the board’s deposit of funds
with the institution. These rules provide the requirements on how the deposit
of board funds will be collateralized, or secured, as required by the Public
Funds Collateralization Act (PFCA).
The board proposes an amendment to §375.302 to add a definition of
pledged security. The term is used throughout the proposed rules, and refers
to the securities authorized by the board’s rules and the linked deposit
agreement to secure the board’s deposit of funds with the eligible lending
institution.
The board proposes an amendment to §375.354 to clarify that when the
executive administrator withdraws funds under the linked deposit agreement
or because the institutions cease to be eligible to hold the board’s
funds, such withdrawal shall be without penalty and shall include withdrawal
of accrued interest.
The board proposes an amendment to §375.355 to clarify that the amount
of funds required to be deposited as collateral is governed by the newly proposed §375.358
rather than the amount of funds deposited with the lending institution. The
difference is that the new provision specifies that the total amount of securities
must include accrued interest, and may be reduced by the amount of federal
insurance (i.e. FDIC) on the funds.
The board proposes new §375.358 to describe the collateral requirements.
Proposed new subsection (a) establishes that the funds the board deposits
must be secured in an amount not less than the amount on deposit under the
linked deposit agreement increased by the amount of any accrued interest and
reduced to the extent the deposit is insured by the United States or its instrumentality.
This provision reflects the requirements in the PFCA, and assures the board’s
deposits are fully secured. Proposed new subsection (b) establishes the value
of the securities as the market value from a nationally recognized financial
information service based upon the previous day’s closing market quotations.
This establishes a neutral method for valuation based upon an industry standard,
and establishes a specific time for the valuation. This also is the method
used to value securities under the board’s rules on investments in 31
TAC Chapter 365, thereby providing consistency between board programs in similar
situations. Proposed new subsection (c) requires additional collateral to
be pledged if the market value falls below the funds on deposit by the board,
in order to assure full collateralization of the board’s deposit, and
also allows a reduction in collateral if the market value exceeds the board’s
funds on deposit, and if allowed in the linked deposit agreement. Proposed
new subsection (d) lists the securities that will be accepted to secure board
deposits, and proposed new subsection (e) lists those securities that will
not be accepted. The list is taken from the Public Funds Investment Act, §2256.009,
and provides a conservative approach to collateralization that will limit
the board’s risk in the deposit of its funds. Proposed new subsection
(f) allows a lending institution to substitute one group of eligible securities
with other eligible securities, thereby providing flexibility for the lending
institutions while at the same time assuring adequate protection of the board’s
deposits. Proposed new subsection (g) allows the executive administrator to
further limit the selection of securities in the linked deposit agreement,
thereby allowing for situation-specific evaluation.
Proposed new §375.359 through §375.363 include specific provisions
of the PFCA into board rules in order to put lending institutions and custodians
on notice of these requirements. Specifically, proposed new §375.359
establishes the requirements for the lending institutions to maintain records
and the ability of the comptroller or executive administrator to examine such
records and securities. Proposed new §375.360 requires the lending institution
to deposit the securities issued with a custodian, which must execute a written
agreement with the executive administrator regarding the terms and conditions
of how the funds will be secured. Still tracking the requirements of the PFCA,
the section further provides which entities are eligible to be a custodian,
and that the custodian holds the pledged securities in trust, and acts as
a bailee or agent of the board. It establishes the requirements of a custodian
to record the receipt of a pledged security and issue a trust receipt to the
executive administrator. It further establishes that the eligible lending
institution shall pay any charges of the custodian bank for accepting and
holding the securities.
Proposed new §375.361 allows the custodian to deposit a pledged security
with a specified list of institutions, and establishes the duties of the institution
into which the pledged security is deposited, in a manner that reiterates
the requirements of the PFCA. Proposed new §375.362 requires the custodian
to maintain records regarding the pledged securities and transactions relating
to them, allows the executive administrator and comptroller to examine the
securities or records of the custodian, and requires custodians to file a
collateral report with the comptroller. Proposed new §375.363 establishes,
as required by the PFCA, that an audit or regulatory examination of lending
institutions and custodians must include an examination and verification of
pledged securities and records relating to such, and that significant or material
noncompliance with the requirements of board rule and the PFCA shall be reported
to the comptroller and board.
Ms. Melanie Callahan, Director of Fiscal Services, has determined that
for the first five-year period the amendments and new sections are in effect
there will not be fiscal implications on state and local government as a result
of enforcement and administration of the amendments and new sections.
Ms. Callahan has also determined that for the first five years the amendments
and new sections, as proposed, are in effect the public benefit anticipated
as a result of enforcing the amendments and new sections will be to assure
the funds of the board deposited with lending institutions as part of the
linked deposit programs will be protected. Ms. Callahan has determined there
will not be economic costs to small businesses or individuals required to
comply with the amendments and new sections as proposed.
Comments on the proposal will be accepted for 30 days following publication
and may be submitted to Jonathan Steinberg, Deputy Counsel, Texas Water Development
Board, P.O. Box 13231, Austin, Texas 78711-3231, by e-mail to jonathan.steinberg@twdb.state.tx.us
or by fax at (512) 475-2051.
1.
INTRODUCTORY PROVISIONS
31 TAC §375.302
The amendments are proposed under the authority of the Texas
Water Code §6.101 and §15.611, which provide the Texas Water Development
Board with the authority to adopt rules necessary to carry out the powers
and duties in the Texas Water Code and other laws of the State and for the
linked deposit program.
The statutory provisions affected by the proposed amendments are Texas
Water Code, Chapter 15, Subchapter J.
§375.302.Definitions of Terms.
The following words and terms, when used in this subchapter, shall
have the following meanings, unless the context clearly indicates otherwise.
(1) - (9)
(No change.)
(10)
Pledged security--Means the
securities authorized by these rules and the linked deposit agreement to secure
the board’s deposit of funds with the eligible lending institution.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on February 15, 2005.
TRD-200500723
Suzanne Schwartz
General Counsel
Texas Water Development Board
Proposed date of adoption: April 19, 2005
For further information, please call: (512) 475-2052
(12)
] Political subdivision--Includes
a municipality, county, district or authority created under the Texas Constitution
Article III, Section 52, or Article XVI, Section 59, an institution of higher
education as defined by §61.003, Education Code, any interstate compact
commission to which the state is a party, and any nonprofit water supply corporation
created and operating under Texas Water Code Chapter 67.
equal
to the amount of the money from the fund placed on deposit with it
];
Chapter 375.
CLEAN WATER STATE REVOLVING FUND
3.
NONPOINT SOURCE POLLUTION LINK DEPOSIT PROGRAM