Texas 2009 - 81st Regular

Texas House Bill HB2037 Compare Versions

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1	1	81R21575 CAE-D
2	2	By: Howard of Travis, Anchia, Branch, H.B. No. 2037
3	3	Eissler, Guillen, et al.
4	4
5	5
6	6	A BILL TO BE ENTITLED
7	7	AN ACT
8	8	relating to the creation of the Permanent School Fund Management
9	9	Council to manage the permanent school fund; providing a criminal
10	10	penalty.
11	11	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
12	12	SECTION 1. Chapter 43, Education Code, is amended by adding
13	13	Sections 43.0011, 43.0012, and 43.0013 and amending Sections
14	14	43.003, 43.0031, 43.0032, and 43.0033 to read as follows:
15	15	Sec. 43.0011. DEFINITION. In this chapter, "council" means
16	16	the Permanent School Fund Management Council.
17	17	Sec. 43.0012. PERMANENT SCHOOL FUND MANAGEMENT COUNCIL.
18	18	(a) The Permanent School Fund Management Council consists of the
19	19	following seven members:
20	20	(1) two members appointed by the governor;
21	21	(2) one member appointed by the governor from a list of
22	22	candidates prepared by the speaker of the house of representatives;
23	23	(3) one member appointed by the governor from a list of
24	24	candidates prepared by the State Board of Education;
25	25	(4) one member appointed by the lieutenant governor;
26	26	(5) one member appointed by the commissioner of the
27	27	General Land Office; and
28	28	(6) one member appointed by the comptroller.
29	29	(b) Council members serve staggered terms of four years,
30	30	with the terms of three members expiring on February 1 of one
31	31	odd-numbered year and the terms of four members expiring on
32	32	February 1 of the next odd-numbered year.
33	33	(c) A vacancy on the council is filled for the unexpired
34	34	portion of the member's term in the same manner as the original
35	35	appointment.
36	36	(d) The members of the council shall elect the presiding
37	37	officer of the council, who serves a term of two years expiring
38	38	February 1 of each odd-numbered year. A member may serve more than
39	39	one term as presiding officer.
40	40	(e) The council, by a majority vote of all members, shall
41	41	appoint a chief investment officer of the permanent school fund to
42	42	serve at the will of the council.
43	43	(f) The council may adopt rules and operating procedures as
44	44	necessary to administer the permanent school fund and perform other
45	45	duties imposed on the council by law.
46	46	(g) The council shall meet at least quarterly and may hold
47	47	other meetings called by the presiding officer.
48	48	(h) The council may create standing committees to advise the
49	49	council. The council shall create:
50	50	(1) an audit and ethics committee;
51	51	(2) a policy committee; and
52	52	(3) a risk committee.
53	53	(i) The council is subject to the open meetings law, Chapter
54	54	551, Government Code, except that the council is not required to
55	55	discuss an investment or potential investment with one or more
56	56	council employees or with a third party in an open meeting to the
57	57	same extent that the board of trustees of the Texas growth fund is
58	58	provided an exception from the open meetings law under Section
59	59	551.075, Government Code.
60	60	Sec. 43.0013. ADMINISTRATIVE SUPPORT AND MANAGEMENT. (a)
61	61	The council shall contract with a corporation formed by the
62	62	comptroller to provide administrative support to the council.
63	63	(b) The council may contract with the corporation described
64	64	by Subsection (a) to exercise any power or perform any duty of the
65	65	council relating to the investment of the permanent school fund.
66	66	Sec. 43.003. INVESTMENT OF PERMANENT SCHOOL FUND. (a) In
67	67	compliance with this section, the council [State Board of
68	68	Education] may invest the permanent school fund in any investment
69	69	permitted under Section 5(f), Article VII, Texas Constitution [the
70	70	types of securities], which must be carefully examined by the
71	71	council [State Board of Education] and be found to be safe and
72	72	proper investments for the fund [as specified below:
73	73	[(1) securities, bonds, or other obligations issued,
74	74	insured, or guaranteed in any manner by the United States
75	75	Government or any of its agencies and in bonds issued by this state;
76	76	[(2) obligations and pledges of The University of
77	77	Texas;
78	78	[(3) corporate bonds, debentures, or obligations of
79	79	United States corporations of at least "A" rating;
80	80	[(4) obligations of United States corporations that
81	81	mature in less than one year and are of the highest rating available
82	82	at the time of investment;
83	83	[(5) bonds issued, assumed, or guaranteed by the
84	84	Inter-American Development Bank, the International Bank of
85	85	Reconstruction and Development (the World Bank), the African
86	86	Development Bank, the Asian Development Bank, and the International
87	87	Finance Corporation;
88	88	[(6) bonds of counties, school districts,
89	89	municipalities, road precincts, drainage, irrigation, navigation,
90	90	and levee districts in this state, subject to the following
91	91	requirements:
92	92	[(A) the securities, before purchase, must have
93	93	been diligently investigated by the attorney general both as to
94	94	form and as to legal compliance with applicable laws;
95	95	[(B) the attorney general's certificate of
96	96	validity procured by the party offering the bonds, obligations, or
97	97	pledges must accompany the securities when they are submitted for
98	98	registration to the comptroller, who must preserve the
99	99	certificates;
100	100	[(C) the public securities, if purchased, and
101	101	when certified and registered as specified under Paragraph (B), are
102	102	incontestable unless issued fraudulently or in violation of a
103	103	constitutional limitation, and the certificates of the attorney
104	104	general are prima facie evidence of the validity of the bonds and
105	105	bond coupons; and
106	106	[(D) after the issuing political subdivision has
107	107	received the proceeds from the sales of the securities, the issuing
108	108	agency is estopped to deny their validity, and the securities are
109	109	valid and binding obligations;
110	110	[(7) preferred stocks and common stocks that the State
111	111	Board of Education considers proper investments for the permanent
112	112	school fund, subject to the following requirements:
113	113	[(A) in making all of those investments, the
114	114	State Board of Education shall exercise the judgment and care under
115	115	the circumstances then prevailing that persons of ordinary
116	116	prudence, discretion, and intelligence exercise in the management
117	117	of their own affairs, not in regard to speculation but in regard to
118	118	the permanent disposition of their funds, considering the probable
119	119	income as well as the probable safety of their capital;
120	120	[(B) the company issuing the stock must be
121	121	incorporated in the United States, and the stocks must have paid
122	122	dividends for five consecutive years or longer immediately before
123	123	the date of purchase and the stocks, except for bank stocks and
124	124	insurance stocks, must be listed on an exchange registered with the
125	125	Securities and Exchange Commission or its successors; and
126	126	[(C) not more than one percent of the permanent
127	127	school fund may be invested in stock issued by one corporation and
128	128	not more than five percent of the voting stock of any one
129	129	corporation will be owned; and
130	130	[(8) notwithstanding any other law or provision of
131	131	this code, first lien real estate mortgage securities insured by
132	132	the Federal Housing Administration under the National Housing Act
133	133	of the United States, or in any other first lien real estate
134	134	mortgage securities guaranteed in whole or in part by the United
135	135	States].
136	136	(b) The council and the School Land Board shall enter into a
137	137	memorandum of understanding under which the council agrees not to
138	138	invest in real estate without the consent of the board.
139	139	Sec. 43.0031. PERMANENT SCHOOL FUND ETHICS POLICY. [(a)]
140	140	In addition to any other requirements provided by law, the council
141	141	must comply with, and is subject to, the [State Board of Education
142	142	shall adopt and enforce an] ethics policy adopted by the
143	143	corporation that the council contracts with as required by Section
144	144	43.0013. If the corporation does not have an ethics policy the
145	145	council must adopt and comply with an ethics policy. The
146	146	comptroller shall enforce the ethics policy, regardless of whether
147	147	the policy is adopted by the corporation or the council [that
148	148	provides standards of conduct relating to the management and
149	149	investment of the permanent school fund. The ethics policy must
150	150	include provisions that address the following issues as they apply
151	151	to the management and investment of the permanent school fund and to
152	152	persons responsible for managing and investing the fund:
153	153	[(1) general ethical standards;
154	154	[(2) conflicts of interest;
155	155	[(3) prohibited transactions and interests;
156	156	[(4) the acceptance of gifts and entertainment;
157	157	[(5) compliance with applicable professional
158	158	standards;
159	159	[(6) ethics training; and
160	160	[(7) compliance with and enforcement of the ethics
161	161	policy.
162	162	[(b) The ethics policy must include provisions applicable
163	163	to:
164	164	[(1) members of the State Board of Education;
165	165	[(2) the commissioner;
166	166	[(3) employees of the agency; and
167	167	[(4) any person who provides services to the board
168	168	relating to the management or investment of the permanent school
169	169	fund.
170	170	[(c) Not later than the 45th day before the date on which the
171	171	board intends to adopt a proposed ethics policy or an amendment to
172	172	or revision of an adopted ethics policy, the board shall submit a
173	173	copy of the proposed policy, amendment, or revision to the Texas
174	174	Ethics Commission and the state auditor for review and comments.
175	175	The board shall consider any comments from the commission or state
176	176	auditor before adopting the proposed policy.
177	177	[(d) The provisions of the ethics policy that apply to a
178	178	person who provides services to the board relating to the
179	179	management or investment of the permanent school fund must be based
180	180	on the Code of Ethics and the Standards of Professional Conduct
181	181	prescribed by the Association for Investment Management and
182	182	Research or other ethics standards adopted by another appropriate
183	183	professionally recognized entity.
184	184	[(e) The board shall ensure that applicable provisions of
185	185	the ethics policy are included in any contract under which a person
186	186	provides services to the board relating to the management and
187	187	investment of the permanent school fund].
188	188	Sec. 43.0032. CONFLICTS OF INTEREST. (a) A member of the
189	189	council [State Board of Education], [the commissioner,] an employee
190	190	of the council [agency], or a person who provides services to the
191	191	council [board] that relate to the management or investment of the
192	192	permanent school fund who has a business, commercial, or other
193	193	relationship that could reasonably be expected to diminish the
194	194	person's independence of judgment in the performance of the
195	195	person's responsibilities relating to the management or investment
196	196	of the fund shall disclose the relationship in writing to the
197	197	council [board].
198	198	(b) [The board or the board's designee shall, in the ethics
199	199	policy adopted under Section 43.0031, define the kinds of
200	200	relationships that may create a possible conflict of interest.
201	201	[(c)] A person who files a statement under Subsection (a)
202	202	disclosing a possible conflict of interest may not give advice or
203	203	make decisions about a matter affected by the possible conflict of
204	204	interest unless the council [board, after consultation with the
205	205	general counsel of the agency,] expressly waives this prohibition.
206	206	The council [board] may delegate the authority to waive the
207	207	prohibition established by this subsection.
208	208	Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
209	209	advisor, broker, or other person providing services to the council
210	210	[State Board of Education] relating to the management and
211	211	investment of the permanent school fund shall file with the council
212	212	[board] regularly, as determined by the council [board], a report
213	213	that describes in detail any expenditure of more than $50 made by
214	214	the person on behalf of:
215	215	(1) a member of the council [board]; or
216	216	(2) [the commissioner; or
217	217	[(3)] an employee of the council, [agency or of] a
218	218	nonprofit corporation created under Section 43.006, or a
219	219	corporation contracting with the council under Section 43.0013.
220	220	SECTION 2. Sections 43.0034(a) and (c), Education Code, are
221	221	amended to read as follows:
222	222	(a) The council [board] shall prescribe forms for:
223	223	(1) statements of possible conflicts of interest and
224	224	waivers of possible conflicts of interest under Section 43.0032;
225	225	and
226	226	(2) reports of expenditures under Section 43.0033.
227	227	(c) The council [board] shall designate an employee of the
228	228	council [agency] to act as custodian of statements, waivers, and
229	229	reports described by Subsection (a) for purposes of public
230	230	disclosure.
231	231	SECTION 3. Chapter 43, Education Code, is amended by adding
232	232	Sections 43.0035, 43.0036, and 43.0037 and amending Sections
233	233	43.004, 43.005, and 43.0051 to read as follows:
234	234	Sec. 43.0035. APPEARANCE BY FORMER COUNCIL MEMBER. (a) A
235	235	former member of the council may not make any communication to or
236	236	appearance before the council or a member, chief investment
237	237	officer, or employee of the council before the second anniversary
238	238	of the date the individual ceased to be a member of the council if
239	239	the communication or appearance is made:
240	240	(1) with the intent to influence council action; and
241	241	(2) on behalf of any person in connection with any
242	242	matter on which the person seeks action by the council.
243	243	(b) A person commits an offense if the person violates this
244	244	section. An offense under this section is a Class A misdemeanor.
245	245	Sec. 43.0036. FINANCIAL AUDIT. (a) The state auditor shall
246	246	conduct an annual financial audit of the permanent school fund.
247	247	(b) The state auditor may contract with an independent and
248	248	internationally recognized accounting firm with substantial
249	249	experience in auditing investment accounts to conduct the financial
250	250	audit of the permanent school fund.
251	251	(c) The council shall reimburse the state auditor for the
252	252	cost of the audit.
253	253	(d) The state auditor or the accounting firm selected to
254	254	conduct the audit shall report the results of the audit directly to
255	255	the council.
256	256	(e) Not later than the 30th day after the date the council
257	257	receives a copy of the audit report, the council shall file a copy
258	258	of the audit report with the governor, the lieutenant governor, the
259	259	speaker of the house of representatives, the commissioner, and the
260	260	comptroller.
261	261	Sec. 43.0037. REPORTS. (a) Before December 1 of each year,
262	262	the council shall prepare a written report detailing the council's
263	263	investment and fiduciary practices and policies.
264	264	(b) Not later than January 1 of each year, the council shall
265	265	distribute the report to the governor, the lieutenant governor, the
266	266	speaker of the house of representatives, the presiding officers of
267	267	the standing committees of each house of the legislature with
268	268	primary jurisdiction over primary and secondary education, the
269	269	presiding officers of the standing committees of each house of the
270	270	legislature with primary jurisdiction over state finance or
271	271	appropriations, and the state auditor.
272	272	Sec. 43.004. WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
273	273	EVALUATION. (a) The council [State Board of Education] shall
274	274	develop written investment objectives concerning the investment of
275	275	the permanent school fund. The objectives may address desired
276	276	rates of return, risks involved, investment time frames, and any
277	277	other relevant considerations.
278	278	(b) The council [board] shall employ a well-recognized
279	279	performance measurement service to evaluate and analyze the
280	280	investment results of the permanent school fund. The service shall
281	281	compare investment results with the written investment objectives
282	282	developed by the council [board], and shall also compare the
283	283	investment of the permanent school fund with the investment of
284	284	other public and private funds.
285	285	Sec. 43.005. EXTERNAL INVESTMENT MANAGERS. (a) The
286	286	council [State Board of Education] may contract with private
287	287	professional investment managers to assist the council [board] in
288	288	making investments of the permanent school fund. A contract under
289	289	this subsection must be approved by the council [board] or
290	290	otherwise entered into in accordance with council [board] rules
291	291	relating to contracting authority.
292	292	(b) The council [State Board of Education] by rule may
293	293	delegate a power or duty relating to the investment of the permanent
294	294	school fund to a committee, officer, employee, or other agent of the
295	295	council [board].
296	296	Sec. 43.0051. TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT
297	297	OF THE PERMANENT SCHOOL FUND. The council [State Board of
298	298	Education] may transfer funds from the portion of the permanent
299	299	school fund managed by the council [State Board of Education] to the
300	300	real estate special fund account of the permanent school fund if the
301	301	council [State Board of Education] determines, using the standard
302	302	of care set forth in Subsection (f), Section 5, Article VII, Texas
303	303	Constitution, that such transfer is in the best interest of the
304	304	permanent school fund.
305	305	SECTION 4. Sections 43.006(a), (b), (c), (d), and (f),
306	306	Education Code, are amended to read as follows:
307	307	(a) The council [State Board of Education] may delegate
308	308	investment authority for the investment of the permanent school
309	309	fund to the same extent as an institution with respect to an
310	310	institutional fund under Chapter 163, Property Code.
311	311	(b) The council [board] may enter into a contract with a
312	312	nonprofit corporation for the corporation to invest funds under the
313	313	control and management of the council [board], including the
314	314	permanent school fund, as designated by the council [board]. The
315	315	corporation may not engage in any business other than investing
316	316	funds designated by the council [board] under the contract.
317	317	(c) The council [board] must approve the:
318	318	(1) articles of incorporation and bylaws of the
319	319	corporation and any amendment to the articles of incorporation or
320	320	bylaws;
321	321	(2) investment policies of the corporation, including
322	322	changes to those policies;
323	323	(3) audit and ethics committee of the corporation; and
324	324	(4) code of ethics of the corporation.
325	325	(d) The board of directors of the corporation must be
326	326	members of the council [State Board of Education].
327	327	(f) The corporation shall file quarterly reports with the
328	328	council [State Board of Education] concerning matters required by
329	329	the council [board].
330	330	SECTION 5. Section 43.007, Education Code, is amended to
331	331	read as follows:
332	332	Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF SECURITIES.
333	333	(a) The council [State Board of Education] may authorize the
334	334	purchase of all of the types of securities in which it is authorized
335	335	by law to invest the permanent school fund in either registered or
336	336	negotiable form. The council [board] may authorize the reissue of
337	337	those securities held at any time for the account of the permanent
338	338	school fund in either registered or negotiable form. The council
339	339	[State Board of Education] may authorize the sale of any of the
340	340	securities held for the account of the permanent school fund and
341	341	reinvest the proceeds of sale for the fund and may authorize the
342	342	exchange of any of the securities held for the account of the
343	343	permanent school fund.
344	344	(b) In making purchases, sales, exchanges, and reissues,
345	345	the council [State Board of Education] shall exercise the judgment
346	346	and care prescribed by Section 5(f), Article VII, Texas
347	347	Constitution [under the circumstances then prevailing that persons
348	348	of ordinary prudence, discretion, and intelligence exercise in the
349	349	management of their own affairs not in regard to speculation but in
350	350	regard to the permanent disposition of their funds, considering the
351	351	probable income as well as the probable safety of their capital].
352	352	(c) When any securities are sold, reissued, or exchanged as
353	353	provided by Subsection (a), the custodian of the securities shall
354	354	deliver the securities sold, reissued, or exchanged in accordance
355	355	with the directions of the council [State Board of Education].
356	356	SECTION 6. Sections 43.009(a), (b), and (c), Education
357	357	Code, are amended to read as follows:
358	358	(a) The council [State Board of Education] may authorize the
359	359	governing body of any political subdivision in this state to pay off
360	360	and discharge, at any interest paying date whether the bonds are
361	361	matured or not, all or any part of any outstanding bond indebtedness
362	362	owned by the permanent school fund.
363	363	(b) The governing body of a political subdivision desiring
364	364	to pay off and discharge any bonded indebtedness owned by the fund
365	365	shall apply in writing to the council [State Board of Education],
366	366	not later than the 30th day before any interest paying date on the
367	367	bonds, describing the bonds or part of the bonds it desires to pay
368	368	off and discharge. The application must be accompanied by an
369	369	affidavit stating that only tax money collected from a tax levy made
370	370	for the specific purpose of providing a sinking fund and paying
371	371	interest on the particular bonds to be redeemed will be spent in
372	372	redeeming, taking up, or paying off the bonds.
373	373	(c) The council [State Board of Education], on receiving the
374	374	application and affidavit, shall take action on them in the manner
375	375	it considers best and shall notify the applicant whether the
376	376	application is refused or granted in whole or in part.
377	377	SECTION 7. Sections 43.010(a), (c), and (d), Education
378	378	Code, are amended to read as follows:
379	379	(a) If interest or principal has not been paid for two years
380	380	or more on any bonds issued by any school district and held by the
381	381	permanent school fund, the council [State Board of Education] may
382	382	direct the commissioner to:
383	383	(1) compel the district to levy a tax sufficient to
384	384	meet the interest and principal payments then or later due; or
385	385	(2) if the district furnishes to the council [State
386	386	Board of Education] satisfactory proof that the district's taxing
387	387	ability is insufficient, direct the commissioner to require the
388	388	district to:
389	389	(A) exhaust all legal remedies in collecting
390	390	delinquent taxes; and
391	391	(B) levy a tax at the maximum lawful rate on the
392	392	bona fide valuation of taxable property located in the district.
393	393	(c) As long as any school district is delinquent in its
394	394	payments of principal or interest on any of its bonds owned by the
395	395	permanent school fund, the council [State Board of Education] may
396	396	specify the method of crediting payments to the state made by the
397	397	district as to principal and interest.
398	398	(d) The comptroller may not issue any warrant from the
399	399	foundation school fund to or for the benefit of any district that
400	400	has been for as long as two years in default in the payment of
401	401	principal or interest on any security owned by the permanent school
402	402	fund until the council [State Board of Education] certifies that
403	403	the district has satisfactorily complied with the appropriate
404	404	provisions of this section, in which event the comptroller shall
405	405	resume making payments to or for the benefit of the district,
406	406	including the making of pretermitted payments.
407	407	SECTION 8. Sections 43.011(a), (b), (c), (d), and (e),
408	408	Education Code, are amended to read as follows:
409	409	(a) In compliance with this section, the council or State
410	410	Board of Education, as applicable, may revise, readjust, modify,
411	411	refinance, or refund defaulted bonds issued by any school district
412	412	in this state and owned by either the permanent school fund or the
413	413	available school fund.
414	414	(b) Application must be made to the council or State Board
415	415	of Education by the district that issued the bonds and must show
416	416	that:
417	417	(1) delinquent interest totals at least 50 percent of
418	418	the principal amount of the bonds; and
419	419	(2) taxable valuation has decreased to such an extent
420	420	that a full application of the proceeds of the voted authorized tax
421	421	authorized to be levied on the $100 taxable property valuation will
422	422	not meet interest and principal annually maturing on the bonds.
423	423	(c) The council or State Board of Education may effect a
424	424	refunding of the debt due and to become due only if the council or
425	425	board, as applicable, finds that:
426	426	(1) the district is unable to pay the sums already
427	427	matured and the sums contracted to be paid as they mature by paying
428	428	annually to the council or board [State Board of Education] the full
429	429	proceeds of a 50-cent tax levy on the $100 of all taxable valuation
430	430	of property in the district;
431	431	(2) the taxable valuation of property in the district
432	432	has decreased at least 75 percent since the bonds were issued and
433	433	that the decrease was not caused by the district or any of its
434	434	officials;
435	435	(3) the district for a period of at least five years
436	436	before applying to the council or board [State Board of Education]
437	437	for refunding has levied a tax of 50 cents on the $100 of taxable
438	438	valuation of property in the district, and that despite such
439	439	levies, the aggregate amount due the council or board [State Board
440	440	of Education] exceeds the aggregate amount due at the beginning of
441	441	the period;
442	442	(4) the district has not authorized and sold
443	443	additional bonds during the five-year period immediately preceding
444	444	the application; and
445	445	(5) the district has in good faith endeavored to pay
446	446	its debt in accordance with the contract evidenced by the bonds held
447	447	for the account of the permanent school fund or the available school
448	448	fund.
449	449	(d) If the conditions specified by Subsection (c) are found
450	450	to exist, the district is, for purposes of this section, insolvent,
451	451	and the council or State Board of Education may exchange the bonds,
452	452	interest coupons, and other evidences of indebtedness for new
453	453	refunding bonds of the district issued in compliance with the
454	454	following:
455	455	(1) the principal amount of the refunding bonds may
456	456	not be less than the total amount of the bonds, matured interest
457	457	coupons, accrued interest, and interest on delinquent interest then
458	458	actually due to the permanent school fund or the available school
459	459	fund; and
460	460	(2) the rate of interest to be borne by the refunding
461	461	bonds may be lower than that borne by the bonds to be refunded if in
462	462	consideration of the interest reduction the district agrees to levy
463	463	a tax each year for a period of 40 years at a rate sufficient to
464	464	produce annually a sum equal to 90 percent of the amount that can be
465	465	calculated by the levy of a tax at the rate of 50 cents on the $100
466	466	of taxable valuation of property as determined by the latest
467	467	approved tax roll of the district, and in determining the rate of
468	468	interest to be borne by the refunding bonds, the council or board
469	469	[State Board of Education] shall be governed by the following:
470	470	(A) the council or board [State Board of
471	471	Education] may require the rate to be a percent per annum as in its
472	472	judgment will represent the maximum rate that can be paid by the
473	473	district and still permit an orderly and certain retirement of the
474	474	refunding bonds within 40 years from their date;
475	475	(B) the interest rate of refunding bonds to be
476	476	received in exchange for bonds owned by the permanent school fund
477	477	may not be less than the minimum rate at which bonds may then be
478	478	purchased as investments for the permanent school fund; and
479	479	(C) the rate of interest of refunding bonds to be
480	480	received in exchange for bonds owned by the available school fund
481	481	may be set by the council or board [State Board of Education] at any
482	482	rate the council or board considers feasible, and the refunding
483	483	bonds may, at the discretion of the council or board [State Board of
484	484	Education], be made non-interest bearing to a date fixed by the
485	485	council or board.
486	486	(e) The council or State Board of Education may not make a
487	487	revision, readjustment, modification, refinancing, or refunding
488	488	that will release or extinguish any debt or obligation then due and
489	489	payable to the permanent school fund or to the available school
490	490	fund.
491	491	SECTION 9. Sections 43.012(e) and (f), Education Code, are
492	492	amended to read as follows:
493	493	(e) The council [State Board of Education] may accept
494	494	refunding bonds in lieu of either matured or unmatured bonds held
495	495	for the benefit of the permanent school fund if the rate of interest
496	496	on the new refunding bonds is at least the same rate as that of the
497	497	bonds being refunded.
498	498	(f) Refunding bonds issued with the approval or pursuant to
499	499	a refunding agreement with the council or the State Board of
500	500	Education in compliance with either this section or Section 43.011
501	501	shall, on the order of the council or board [State Board of
502	502	Education], be exchanged by the comptroller for the defaulted
503	503	obligations they have been issued to refund.
504	504	SECTION 10. Section 43.014(a), Education Code, is amended
505	505	to read as follows:
506	506	(a) On or before July 1 of each year, the comptroller shall
507	507	estimate the amount of the available school fund receivable from
508	508	every source during the following school year and report the
509	509	estimate to the council and the State Board of Education.
510	510	SECTION 11. Sections 43.015(b), (e), and (f), Education
511	511	Code, are amended to read as follows:
512	512	(b) The comptroller shall provide the council and the State
513	513	Board of Education with the reports specified by Subsection (a) and
514	514	with additional reports concerning those funds requested by the
515	515	council or the State Board of Education.
516	516	(e) On order of the council or the State Board of Education,
517	517	as applicable, the comptroller shall exchange or accept refunding
518	518	bonds in lieu of:
519	519	(1) either matured or unmatured bonds held for the
520	520	benefit of the permanent school fund, which are being refunded
521	521	under this chapter;
522	522	(2) defaulted obligations held for the benefit of the
523	523	available school fund if the refunding bonds are issued in
524	524	compliance with Section 43.012;
525	525	(3) defaulted obligations of any school district of
526	526	this state held for the benefit of the permanent school fund or the
527	527	available school fund if the refunding bonds are issued in
528	528	compliance with Section 43.011; or
529	529	(4) refunding bonds of any school district of this
530	530	state for school bonds not matured held by the comptroller for the
531	531	permanent school fund if the new refunding bonds are issued by the
532	532	school district in compliance with this code.
533	533	(f) The comptroller shall be the custodian of all
534	534	[securities enumerated in Section 43.003(6) and of other]
535	535	securities as designated by the council or the State Board of
536	536	Education in which the school funds of the state are invested. The
537	537	comptroller shall keep those securities in the comptroller's
538	538	custody until paid off, discharged, delivered as required by the
539	539	council or the board, as applicable [State Board of Education], or
540	540	otherwise disposed of by the proper authorities of the state, and on
541	541	the proper installment of any interest or dividend, shall see that
542	542	the proper credit is given, and the coupons on bonds, when paid,
543	543	shall be separated from the bonds and cancelled by the comptroller.
544	544	SECTION 12. Section 43.017, Education Code, is amended to
545	545	read as follows:
546	546	Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
547	547	COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
548	548	The council [State Board of Education] may contract with one or more
549	549	commercial banks to receive payments of dividends and interest on
550	550	securities in which the state permanent school funds are invested
551	551	and transmit that money with identification of its source to the
552	552	comptroller for the account of the available school fund by the
553	553	fastest available means.
554	554	(b) In choosing each commercial bank with which to contract
555	555	as authorized by Subsection (a), the council [State Board of
556	556	Education] shall assure itself of:
557	557	(1) the financial stability of the bank;
558	558	(2) the location of the bank with respect to its
559	559	proximity to the banks on which checks are drawn in payment of
560	560	dividends and interest on securities of the permanent school fund;
561	561	(3) the experience and reliability of the bank in
562	562	acting as agent for others in the similar collection and
563	563	expeditious remittance of money; and
564	564	(4) the reasonableness of the bank's charges for the
565	565	services, both in amount of the charges and in relation to the
566	566	increased investment earnings of the available school fund that
567	567	will result from speedier receipt by the comptroller of the money.
568	568	SECTION 13. Sections 43.018 and 43.019, Education Code, are
569	569	amended to read as follows:
570	570	Sec. 43.018. PARTICIPATION IN FULLY SECURED SECURITIES LOAN
571	571	PROGRAMS. (a) The council [State Board of Education] may contract
572	572	with a commercial bank to serve both as a custodian of securities in
573	573	which the state permanent school funds are invested and to lend
574	574	those securities, under the conditions prescribed by Subsection
575	575	(b), to securities brokers and dealers on short-term loan.
576	576	(b) The council [State Board of Education] may contract with
577	577	a commercial bank pursuant to this section only if:
578	578	(1) the bank is located in a city having a major stock
579	579	exchange;
580	580	(2) the bank is experienced in the operation of a fully
581	581	secured securities loan program;
582	582	(3) the bank has adequate capital in the prudent
583	583	judgment of the council [State Board of Education] to assure the
584	584	safety of the securities entrusted to it as a custodian;
585	585	(4) the bank will require of any securities broker or
586	586	dealer to which it lends securities owned by the state permanent
587	587	school fund that the broker or dealer deliver to it cash collateral
588	588	for the loan of securities, and that the cash collateral will at all
589	589	times be not less than 100 percent of the market value of the
590	590	securities lent;
591	591	(5) the bank executes an indemnification agreement,
592	592	satisfactory in form and content to the council [State Board of
593	593	Education], fully indemnifying the permanent and available school
594	594	funds against loss resulting from the bank's service as custodian
595	595	of securities of the permanent school fund and its operation of a
596	596	securities loan program using securities of the permanent school
597	597	fund;
598	598	(6) the bank will speedily collect and remit on the day
599	599	of collection by the fastest available means to the comptroller any
600	600	dividends and interest collectible by it on securities held by it as
601	601	custodian, together with identification as to the source of the
602	602	dividends or interest; and
603	603	(7) the bank is the bank agreeing to pay to the
604	604	available school fund the largest sum or highest percentage of the
605	605	income derived by the bank from use of the securities of the
606	606	permanent school fund in the operation of a securities loan
607	607	program.
608	608	Sec. 43.019. ACCOUNTING TREATMENT OF CERTAIN EXCHANGES.
609	609	The council [State Board of Education] may account for the exchange
610	610	of permanent school fund securities in a closely related sale and
611	611	purchase transaction in a manner in which the gain or loss on the
612	612	sale is deferred as an adjustment to the book value of the security
613	613	purchased, if:
614	614	(1) the security sold and the security purchased have
615	615	a fixed maturity value;
616	616	(2) the council [board] is authorized by law to invest
617	617	the permanent school fund in the security purchased;
618	618	(3) the sale is made in clear contemplation of
619	619	reinvesting substantially all of the proceeds;
620	620	(4) substantially all of the proceeds are reinvested;
621	621	(5) the transaction is completed within a reasonable
622	622	time after the sale, not to exceed 30 business days; and
623	623	(6) the transaction results in an improvement in
624	624	effective income yield, taking into consideration the deferral of
625	625	any gain or loss on the sale.
626	626	SECTION 14. Sections 45.053(a), (c), and (d), Education
627	627	Code, are amended to read as follows:
628	628	(a) Except as provided by Subsection (d), the commissioner
629	629	may not approve bonds for guarantee if the approval would result in
630	630	the total amount of outstanding guaranteed bonds exceeding an
631	631	amount equal to 2-1/2 times the cost value of the permanent school
632	632	fund, as estimated by the Permanent School Fund Management Council
633	633	[board] and certified by the state auditor.
634	634	(c) The commissioner shall prepare and the Permanent School
635	635	Fund Management Council [board] shall adopt an annual report on the
636	636	status of the guaranteed bond program.
637	637	(d) The Permanent School Fund Management Council [board] by
638	638	rule may increase the limit prescribed by Subsection (a) to an
639	639	amount not to exceed five times the cost value of the permanent
640	640	school fund, provided that the increased limit is consistent with
641	641	federal law and regulations and does not prevent the bonds to be
642	642	guaranteed from receiving the highest available credit rating, as
643	643	determined by the council [board]. The council [board] shall at
644	644	least annually consider whether to change any limit in accordance
645	645	with this subsection. This subsection may not be construed in a
646	646	manner that impairs, limits, or removes the guarantee of bonds that
647	647	have been approved by the commissioner.
648	648	SECTION 15. Section 45.055(c), Education Code, is amended
649	649	to read as follows:
650	650	(c) The application must be accompanied by a fee set by rule
651	651	of the Permanent School Fund Management Council [board] in an
652	652	amount designed to cover the costs of administering the guarantee
653	653	program.
654	654	SECTION 16. Section 45.061(b), Education Code, is amended
655	655	to read as follows:
656	656	(b) In accordance with the rules of the Permanent School
657	657	Fund Management Council [board], the commissioner may authorize
658	658	reimbursement to the permanent school fund with interest in a
659	659	manner other than that provided by this section.
660	660	SECTION 17. Section 45.063, Education Code, is amended to
661	661	read as follows:
662	662	Sec. 45.063. RULES. The Permanent School Fund Management
663	663	Council [board] may adopt rules necessary for the administration of
664	664	the bond guarantee program.
665	665	SECTION 18. Section 51.412(a), Natural Resources Code, is
666	666	amended to read as follows:
667	667	(a) Not later than September 1 of each even-numbered year,
668	668	the board shall submit to the legislature a report that,
669	669	specifically and in detail, assesses the direct and indirect
670	670	economic impact, as anticipated by the board, of the investment of
671	671	funds designated under Section 51.401 for deposit in the real
672	672	estate special fund account of the permanent school fund. The board
673	673	may not disclose information under this section that is
674	674	confidential under applicable state or federal law. The report
675	675	must include the following information:
676	676	(1) the total amount of money designated by Section
677	677	51.401 for deposit in the real estate special fund account of the
678	678	permanent school fund that the board intends to invest;
679	679	(2) the rate of return the board expects to attain on
680	680	the investment;
681	681	(3) the amount of money the board expects to
682	682	distribute to the available school fund or the Permanent School
683	683	Fund Management Council [State Board of Education] for investment
684	684	in the permanent school fund after making the investments;
685	685	(4) the distribution of the board's investments by
686	686	county;
687	687	(5) the effect of the board's investments on the level
688	688	of employment, personal income, and capital investment in the
689	689	state; and
690	690	(6) any other information the board considers
691	691	necessary to include in the report.
692	692	SECTION 19. Section 51.413, Natural Resources Code, is
693	693	amended to read as follows:
694	694	Sec. 51.413. TRANSFERS FROM THE REAL ESTATE SPECIAL FUND
695	695	ACCOUNT TO THE AVAILABLE SCHOOL FUND AND THE PERMANENT SCHOOL FUND.
696	696	The board may, by a resolution adopted at a regular meeting, release
697	697	from the real estate special fund account funds previously
698	698	designated under Section 51.401 of this chapter or managed, used,
699	699	or encumbered under Section 51.402 or Section 51.4021 of this
700	700	chapter to be deposited in the State Treasury to the credit of:
701	701	(1) the available school fund; or
702	702	(2) the Permanent School Fund Management Council
703	703	[State Board of Education] for investment in the permanent school
704	704	fund.
705	705	SECTION 20. Sections 7.102(c)(31), 43.006(e), and
706	706	45.051(1), Education Code, are repealed.
707	707	SECTION 21. (a) Not later than February 1, 2010, the
708	708	appropriate appointing authorities specified in Section 43.0012,
709	709	Education Code, as added by this Act, shall appoint the initial
710	710	members of the Permanent School Fund Management Council as required
711	711	by that section.
712	712	(b) In appointing the initial members of the Permanent
713	713	School Fund Management Council:
714	714	(1) the governor shall appoint four persons as
715	715	follows:
716	716	(A) two persons for a term expiring February 1,
717	717	2011; and
718	718	(B) two persons for a term expiring February 1,
719	719	2013;
720	720	(2) the lieutenant governor shall appoint one person
721	721	for a term expiring February 1, 2013;
722	722	(3) the commissioner of the General Land Office shall
723	723	appoint one person for a term expiring February 1, 2011; and
724	724	(4) the comptroller shall appoint one person for a
725	725	term expiring February 1, 2013.
726	726	(c) The Permanent School Fund Management Council may not
727	727	take any action until all of the appointed members have taken
728	728	office.
729	729	SECTION 22. As soon as practicable after the date on which
730	730	all of the members of the Permanent School Fund Management Council
731	731	have taken office, but not later than May 1, 2010, the Permanent
732	732	School Fund Management Council, the State Board of Education, the
733	733	Texas Education Agency, and the comptroller shall develop and adopt
734	734	a memorandum of understanding that:
735	735	(1) identifies in detail the applicable powers and
736	736	duties of the State Board of Education that are being transferred to
737	737	the Permanent School Fund Management Council as a result of this
738	738	Act; and
739	739	(2) establishes a plan for the identification and
740	740	transfer of records, property, and unspent appropriations of the
741	741	State Board of Education that are used for purposes of managing the
742	742	permanent school fund to the Permanent School Fund Management
743	743	Council.
744	744	SECTION 23. (a) Not later than September 1, 2010:
745	745	(1) all full-time employees of the Texas Education
746	746	Agency who provide support to the State Board of Education relating
747	747	to the investment of the permanent school fund become employees of
748	748	the comptroller;
749	749	(2) all functions and activities performed by the
750	750	State Board of Education with respect to the management of the
751	751	permanent school fund that, as a result of this Act, are subject to
752	752	management by the Permanent School Fund Management Council are
753	753	transferred to the Permanent School Fund Management Council;
754	754	(3) a rule, form, policy, procedure, or decision
755	755	adopted by the State Board of Education relating to the management
756	756	of the permanent school fund that, as a result of this Act, is
757	757	subject to management by the Permanent School Fund Management
758	758	Council continues in effect as a rule, form, policy, procedure, or
759	759	decision of the Permanent School Fund Management Council until
760	760	amended or replaced by the Permanent School Fund Management
761	761	Council;
762	762	(4) a reference in law or an administrative rule to the
763	763	State Board of Education relating to the permanent school fund
764	764	that, as a result of this Act, is subject to management by the
765	765	Permanent School Fund Management Council is a reference to the
766	766	Permanent School Fund Management Council; and
767	767	(5) a complaint, investigation, or other proceeding
768	768	before the State Board of Education relating to the permanent
769	769	school fund that, as a result of this Act, is subject to management
770	770	by the Permanent School Fund Management Council is transferred
771	771	without change in status to the Permanent School Fund Management
772	772	Council.
773	773	(b) The Permanent School Fund Management Council assumes,
774	774	as appropriate and without a change in status, the position of the
775	775	State Board of Education under a contract or in an action or
776	776	proceeding to which the State Board of Education is a party and
777	777	that:
778	778	(1) relates to the permanent school fund; and
779	779	(2) as a result of this Act, is subject to management
780	780	by the Permanent School Fund Management Council.
781	781	SECTION 24. This Act takes effect December 1, 2009, but only
782	782	if the constitutional amendment proposed by the 81st Legislature,
783	783	Regular Session, 2009, creating the Permanent School Fund
784	784	Management Council is approved by the voters. If that amendment is
785	785	not approved by the voters, this Act has no effect.