82R5074 CAE-D
By: Howard of Travis H.B. No. 1140
A BILL TO BE ENTITLED
AN ACT
relating to the creation of the Permanent School Fund Management
Council to manage the permanent school fund; providing a criminal
penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 43, Education Code, is amended by adding
Sections 43.0011, 43.0012, and 43.0013 and amending Sections
43.003, 43.0031, 43.0032, and 43.0033 to read as follows:
Sec. 43.0011. DEFINITION. In this chapter, "council" means
the Permanent School Fund Management Council.
Sec. 43.0012. PERMANENT SCHOOL FUND MANAGEMENT COUNCIL.
(a) The Permanent School Fund Management Council consists of the
following seven members:
(1) two members appointed by the governor;
(2) one member appointed by the governor from a list of
candidates prepared by the speaker of the house of representatives;
(3) one member appointed by the governor from a list of
candidates prepared by the State Board of Education;
(4) one member appointed by the lieutenant governor;
(5) one member appointed by the commissioner of the
General Land Office; and
(6) one member appointed by the comptroller.
(b) Council members serve staggered terms of four years,
with the terms of three members expiring on February 1 of one
odd-numbered year and the terms of four members expiring on
February 1 of the next odd-numbered year.
(c) A vacancy on the council is filled for the unexpired
portion of the member's term in the same manner as the original
appointment.
(d) The members of the council shall elect the presiding
officer of the council, who serves a term of two years expiring
February 1 of each odd-numbered year. A member may serve more than
one term as presiding officer.
(e) The council, by a majority vote of all members, shall
appoint a chief investment officer of the permanent school fund to
serve at the will of the council.
(f) The council may adopt rules and operating procedures as
necessary to administer the permanent school fund and perform other
duties imposed on the council by law.
(g) The council shall meet at least quarterly and may hold
other meetings called by the presiding officer.
(h) The council may create standing committees to advise the
council. The council shall create:
(1) an audit and ethics committee;
(2) a policy committee; and
(3) a risk committee.
(i) The council is subject to the open meetings law, Chapter
551, Government Code, except that the council is not required to
discuss an investment or potential investment with one or more
council employees or with a third party in an open meeting to the
same extent that the board of trustees of the Texas growth fund is
provided an exception from the open meetings law under Section
551.075, Government Code.
Sec. 43.0013. ADMINISTRATIVE SUPPORT AND MANAGEMENT. (a)
The council shall contract with a corporation formed by the
comptroller to provide administrative support to the council.
(b) The council may contract with the corporation described
by Subsection (a) to exercise any power or perform any duty of the
council relating to the investment of the permanent school fund.
Sec. 43.003. INVESTMENT OF PERMANENT SCHOOL FUND. (a) In
compliance with this section, the council [State Board of
Education] may invest the permanent school fund in any investment
permitted under Section 5(f), Article VII, Texas Constitution [the
types of securities], which must be carefully examined by the
council [State Board of Education] and be found to be safe and
proper investments for the fund [as specified below:
[(1) securities, bonds, or other obligations issued,
insured, or guaranteed in any manner by the United States
Government or any of its agencies and in bonds issued by this state;
[(2) obligations and pledges of The University of
Texas;
[(3) corporate bonds, debentures, or obligations of
United States corporations of at least "A" rating;
[(4) obligations of United States corporations that
mature in less than one year and are of the highest rating available
at the time of investment;
[(5) bonds issued, assumed, or guaranteed by the
Inter-American Development Bank, the International Bank of
Reconstruction and Development (the World Bank), the African
Development Bank, the Asian Development Bank, and the International
Finance Corporation;
[(6) bonds of counties, school districts,
municipalities, road precincts, drainage, irrigation, navigation,
and levee districts in this state, subject to the following
requirements:
[(A) the securities, before purchase, must have
been diligently investigated by the attorney general both as to
form and as to legal compliance with applicable laws;
[(B) the attorney general's certificate of
validity procured by the party offering the bonds, obligations, or
pledges must accompany the securities when they are submitted for
registration to the comptroller, who must preserve the
certificates;
[(C) the public securities, if purchased, and
when certified and registered as specified under Paragraph (B), are
incontestable unless issued fraudulently or in violation of a
constitutional limitation, and the certificates of the attorney
general are prima facie evidence of the validity of the bonds and
bond coupons; and
[(D) after the issuing political subdivision has
received the proceeds from the sales of the securities, the issuing
agency is estopped to deny their validity, and the securities are
valid and binding obligations;
[(7) preferred stocks and common stocks that the State
Board of Education considers proper investments for the permanent
school fund, subject to the following requirements:
[(A) in making all of those investments, the
State Board of Education shall exercise the judgment and care under
the circumstances then prevailing that persons of ordinary
prudence, discretion, and intelligence exercise in the management
of their own affairs, not in regard to speculation but in regard to
the permanent disposition of their funds, considering the probable
income as well as the probable safety of their capital;
[(B) the company issuing the stock must be
incorporated in the United States, and the stocks must have paid
dividends for five consecutive years or longer immediately before
the date of purchase and the stocks, except for bank stocks and
insurance stocks, must be listed on an exchange registered with the
Securities and Exchange Commission or its successors; and
[(C) not more than one percent of the permanent
school fund may be invested in stock issued by one corporation and
not more than five percent of the voting stock of any one
corporation will be owned; and
[(8) notwithstanding any other law or provision of
this code, first lien real estate mortgage securities insured by
the Federal Housing Administration under the National Housing Act
of the United States, or in any other first lien real estate
mortgage securities guaranteed in whole or in part by the United
States].
(b) The council and the School Land Board shall enter into a
memorandum of understanding under which the council agrees not to
invest in real estate without the consent of the board.
Sec. 43.0031. PERMANENT SCHOOL FUND ETHICS POLICY. [(a)]
In addition to any other requirements provided by law, the council
must comply with, and is subject to, the [State Board of Education
shall adopt and enforce an] ethics policy adopted by the
corporation that the council contracts with as required by Section
43.0013. If the corporation does not have an ethics policy the
council must adopt and comply with an ethics policy. The
comptroller shall enforce the ethics policy, regardless of whether
the policy is adopted by the corporation or the council [that
provides standards of conduct relating to the management and
investment of the permanent school fund. The ethics policy must
include provisions that address the following issues as they apply
to the management and investment of the permanent school fund and to
persons responsible for managing and investing the fund:
[(1) general ethical standards;
[(2) conflicts of interest;
[(3) prohibited transactions and interests;
[(4) the acceptance of gifts and entertainment;
[(5) compliance with applicable professional
standards;
[(6) ethics training; and
[(7) compliance with and enforcement of the ethics
policy.
[(b) The ethics policy must include provisions applicable
to:
[(1) members of the State Board of Education;
[(2) the commissioner;
[(3) employees of the agency; and
[(4) any person who provides services to the board
relating to the management or investment of the permanent school
fund.
[(c) Not later than the 45th day before the date on which the
board intends to adopt a proposed ethics policy or an amendment to
or revision of an adopted ethics policy, the board shall submit a
copy of the proposed policy, amendment, or revision to the Texas
Ethics Commission and the state auditor for review and comments.
The board shall consider any comments from the commission or state
auditor before adopting the proposed policy.
[(d) The provisions of the ethics policy that apply to a
person who provides services to the board relating to the
management or investment of the permanent school fund must be based
on the Code of Ethics and the Standards of Professional Conduct
prescribed by the Association for Investment Management and
Research or other ethics standards adopted by another appropriate
professionally recognized entity.
[(e) The board shall ensure that applicable provisions of
the ethics policy are included in any contract under which a person
provides services to the board relating to the management and
investment of the permanent school fund].
Sec. 43.0032. CONFLICTS OF INTEREST. (a) A member of the
council [State Board of Education], [the commissioner,] an employee
of the council [agency], or a person who provides services to the
council [board] that relate to the management or investment of the
permanent school fund who has a business, commercial, or other
relationship that could reasonably be expected to diminish the
person's independence of judgment in the performance of the
person's responsibilities relating to the management or investment
of the fund shall disclose the relationship in writing to the
council [board].
(b) [The board or the board's designee shall, in the ethics
policy adopted under Section 43.0031, define the kinds of
relationships that may create a possible conflict of interest.
[(c)] A person who files a statement under Subsection (a)
disclosing a possible conflict of interest may not give advice or
make decisions about a matter affected by the possible conflict of
interest unless the council [board, after consultation with the
general counsel of the agency,] expressly waives this prohibition.
The council [board] may delegate the authority to waive the
prohibition established by this subsection.
Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
advisor, broker, or other person providing services to the council
[State Board of Education] relating to the management and
investment of the permanent school fund shall file with the council
[board] regularly, as determined by the council [board], a report
that describes in detail any expenditure of more than $50 made by
the person on behalf of:
(1) a member of the council [board]; or
(2) [the commissioner; or
[(3)] an employee of the council, [agency or of] a
nonprofit corporation created under Section 43.006, or a
corporation contracting with the council under Section 43.0013.
SECTION 2. Sections 43.0034(a) and (c), Education Code, are
amended to read as follows:
(a) The council [board] shall prescribe forms for:
(1) statements of possible conflicts of interest and
waivers of possible conflicts of interest under Section 43.0032;
and
(2) reports of expenditures under Section 43.0033.
(c) The council [board] shall designate an employee of the
council [agency] to act as custodian of statements, waivers, and
reports described by Subsection (a) for purposes of public
disclosure.
SECTION 3. Chapter 43, Education Code, is amended by adding
Sections 43.0035, 43.0036, and 43.0037 and amending Sections
43.004, 43.005, and 43.0051 to read as follows:
Sec. 43.0035. APPEARANCE BY FORMER COUNCIL MEMBER. (a) A
former member of the council may not make any communication to or
appearance before the council or a member, chief investment
officer, or employee of the council before the second anniversary
of the date the individual ceased to be a member of the council if
the communication or appearance is made:
(1) with the intent to influence council action; and
(2) on behalf of any person in connection with any
matter on which the person seeks action by the council.
(b) A person commits an offense if the person violates this
section. An offense under this section is a Class A misdemeanor.
Sec. 43.0036. FINANCIAL AUDIT. (a) The state auditor shall
conduct an annual financial audit of the permanent school fund.
(b) The state auditor may contract with an independent and
internationally recognized accounting firm with substantial
experience in auditing investment accounts to conduct the financial
audit of the permanent school fund.
(c) The council shall reimburse the state auditor for the
cost of the audit.
(d) The state auditor or the accounting firm selected to
conduct the audit shall report the results of the audit directly to
the council.
(e) Not later than the 30th day after the date the council
receives a copy of the audit report, the council shall file a copy
of the audit report with the governor, the lieutenant governor, the
speaker of the house of representatives, the commissioner, and the
comptroller.
Sec. 43.0037. REPORTS. (a) Before December 1 of each year,
the council shall prepare a written report detailing the council's
investment and fiduciary practices and policies.
(b) Not later than January 1 of each year, the council shall
distribute the report to the governor, the lieutenant governor, the
speaker of the house of representatives, the presiding officers of
the standing committees of each house of the legislature with
primary jurisdiction over primary and secondary education, the
presiding officers of the standing committees of each house of the
legislature with primary jurisdiction over state finance or
appropriations, and the state auditor.
Sec. 43.004. WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
EVALUATION. (a) The council [State Board of Education] shall
develop written investment objectives concerning the investment of
the permanent school fund. The objectives may address desired
rates of return, risks involved, investment time frames, and any
other relevant considerations.
(b) The council [board] shall employ a well-recognized
performance measurement service to evaluate and analyze the
investment results of the permanent school fund. The service shall
compare investment results with the written investment objectives
developed by the council [board], and shall also compare the
investment of the permanent school fund with the investment of
other public and private funds.
Sec. 43.005. EXTERNAL INVESTMENT MANAGERS. (a) The
council [State Board of Education] may contract with private
professional investment managers to assist the council [board] in
making investments of the permanent school fund. A contract under
this subsection must be approved by the council [board] or
otherwise entered into in accordance with council [board] rules
relating to contracting authority.
(b) The council [State Board of Education] by rule may
delegate a power or duty relating to the investment of the permanent
school fund to a committee, officer, employee, or other agent of the
council [board].
Sec. 43.0051. TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT
OF THE PERMANENT SCHOOL FUND. The council [State Board of
Education] may transfer funds from the portion of the permanent
school fund managed by the council [State Board of Education] to the
real estate special fund account of the permanent school fund if the
council [State Board of Education] determines, using the standard
of care set forth in Subsection (f), Section 5, Article VII, Texas
Constitution, that such transfer is in the best interest of the
permanent school fund.
SECTION 4. Sections 43.006(a), (b), (c), (d), and (f),
Education Code, are amended to read as follows:
(a) The council [State Board of Education] may delegate
investment authority for the investment of the permanent school
fund to the same extent as an institution with respect to an
institutional fund under Chapter 163, Property Code.
(b) The council [board] may enter into a contract with a
nonprofit corporation for the corporation to invest funds under the
control and management of the council [board], including the
permanent school fund, as designated by the council [board]. The
corporation may not engage in any business other than investing
funds designated by the council [board] under the contract.
(c) The council [board] must approve the:
(1) articles of incorporation and bylaws of the
corporation and any amendment to the articles of incorporation or
bylaws;
(2) investment policies of the corporation, including
changes to those policies;
(3) audit and ethics committee of the corporation; and
(4) code of ethics of the corporation.
(d) The board of directors of the corporation must be
members of the council [State Board of Education].
(f) The corporation shall file quarterly reports with the
council [State Board of Education] concerning matters required by
the council [board].
SECTION 5. Section 43.007, Education Code, is amended to
read as follows:
Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF SECURITIES.
(a) The council [State Board of Education] may authorize the
purchase of all of the types of securities in which it is authorized
by law to invest the permanent school fund in either registered or
negotiable form. The council [board] may authorize the reissue of
those securities held at any time for the account of the permanent
school fund in either registered or negotiable form. The council
[State Board of Education] may authorize the sale of any of the
securities held for the account of the permanent school fund and
reinvest the proceeds of sale for the fund and may authorize the
exchange of any of the securities held for the account of the
permanent school fund.
(b) In making purchases, sales, exchanges, and reissues,
the council [State Board of Education] shall exercise the judgment
and care prescribed by Section 5(f), Article VII, Texas
Constitution [under the circumstances then prevailing that persons
of ordinary prudence, discretion, and intelligence exercise in the
management of their own affairs not in regard to speculation but in
regard to the permanent disposition of their funds, considering the
probable income as well as the probable safety of their capital].
(c) When any securities are sold, reissued, or exchanged as
provided by Subsection (a), the custodian of the securities shall
deliver the securities sold, reissued, or exchanged in accordance
with the directions of the council [State Board of Education].
SECTION 6. Sections 43.009(a), (b), and (c), Education
Code, are amended to read as follows:
(a) The council [State Board of Education] may authorize the
governing body of any political subdivision in this state to pay off
and discharge, at any interest paying date whether the bonds are
matured or not, all or any part of any outstanding bond indebtedness
owned by the permanent school fund.
(b) The governing body of a political subdivision desiring
to pay off and discharge any bonded indebtedness owned by the fund
shall apply in writing to the council [State Board of Education],
not later than the 30th day before any interest paying date on the
bonds, describing the bonds or part of the bonds it desires to pay
off and discharge. The application must be accompanied by an
affidavit stating that only tax money collected from a tax levy made
for the specific purpose of providing a sinking fund and paying
interest on the particular bonds to be redeemed will be spent in
redeeming, taking up, or paying off the bonds.
(c) The council [State Board of Education], on receiving the
application and affidavit, shall take action on them in the manner
it considers best and shall notify the applicant whether the
application is refused or granted in whole or in part.
SECTION 7. Sections 43.010(a), (c), and (d), Education
Code, are amended to read as follows:
(a) If interest or principal has not been paid for two years
or more on any bonds issued by any school district and held by the
permanent school fund, the council [State Board of Education] may
direct the commissioner to:
(1) compel the district to levy a tax sufficient to
meet the interest and principal payments then or later due; or
(2) if the district furnishes to the council [State
Board of Education] satisfactory proof that the district's taxing
ability is insufficient, direct the commissioner to require the
district to:
(A) exhaust all legal remedies in collecting
delinquent taxes; and
(B) levy a tax at the maximum lawful rate on the
bona fide valuation of taxable property located in the district.
(c) As long as any school district is delinquent in its
payments of principal or interest on any of its bonds owned by the
permanent school fund, the council [State Board of Education] may
specify the method of crediting payments to the state made by the
district as to principal and interest.
(d) The comptroller may not issue any warrant from the
foundation school fund to or for the benefit of any district that
has been for as long as two years in default in the payment of
principal or interest on any security owned by the permanent school
fund until the council [State Board of Education] certifies that
the district has satisfactorily complied with the appropriate
provisions of this section, in which event the comptroller shall
resume making payments to or for the benefit of the district,
including the making of pretermitted payments.
SECTION 8. Sections 43.011(a), (b), (c), (d), and (e),
Education Code, are amended to read as follows:
(a) In compliance with this section, the council or State
Board of Education, as applicable, may revise, readjust, modify,
refinance, or refund defaulted bonds issued by any school district
in this state and owned by either the permanent school fund or the
available school fund.
(b) Application must be made to the council or State Board
of Education by the district that issued the bonds and must show
that:
(1) delinquent interest totals at least 50 percent of
the principal amount of the bonds; and
(2) taxable valuation has decreased to such an extent
that a full application of the proceeds of the voted authorized tax
authorized to be levied on the $100 taxable property valuation will
not meet interest and principal annually maturing on the bonds.
(c) The council or State Board of Education may effect a
refunding of the debt due and to become due only if the council or
board, as applicable, finds that:
(1) the district is unable to pay the sums already
matured and the sums contracted to be paid as they mature by paying
annually to the council or board [State Board of Education] the full
proceeds of a 50-cent tax levy on the $100 of all taxable valuation
of property in the district;
(2) the taxable valuation of property in the district
has decreased at least 75 percent since the bonds were issued and
that the decrease was not caused by the district or any of its
officials;
(3) the district for a period of at least five years
before applying to the council or board [State Board of Education]
for refunding has levied a tax of 50 cents on the $100 of taxable
valuation of property in the district, and that despite such
levies, the aggregate amount due the council or board [State Board
of Education] exceeds the aggregate amount due at the beginning of
the period;
(4) the district has not authorized and sold
additional bonds during the five-year period immediately preceding
the application; and
(5) the district has in good faith endeavored to pay
its debt in accordance with the contract evidenced by the bonds held
for the account of the permanent school fund or the available school
fund.
(d) If the conditions specified by Subsection (c) are found
to exist, the district is, for purposes of this section, insolvent,
and the council or State Board of Education may exchange the bonds,
interest coupons, and other evidences of indebtedness for new
refunding bonds of the district issued in compliance with the
following:
(1) the principal amount of the refunding bonds may
not be less than the total amount of the bonds, matured interest
coupons, accrued interest, and interest on delinquent interest then
actually due to the permanent school fund or the available school
fund; and
(2) the rate of interest to be borne by the refunding
bonds may be lower than that borne by the bonds to be refunded if in
consideration of the interest reduction the district agrees to levy
a tax each year for a period of 40 years at a rate sufficient to
produce annually a sum equal to 90 percent of the amount that can be
calculated by the levy of a tax at the rate of 50 cents on the $100
of taxable valuation of property as determined by the latest
approved tax roll of the district, and in determining the rate of
interest to be borne by the refunding bonds, the council or board
[State Board of Education] shall be governed by the following:
(A) the council or board [State Board of
Education] may require the rate to be a percent per annum as in its
judgment will represent the maximum rate that can be paid by the
district and still permit an orderly and certain retirement of the
refunding bonds within 40 years from their date;
(B) the interest rate of refunding bonds to be
received in exchange for bonds owned by the permanent school fund
may not be less than the minimum rate at which bonds may then be
purchased as investments for the permanent school fund; and
(C) the rate of interest of refunding bonds to be
received in exchange for bonds owned by the available school fund
may be set by the State Board of Education at any rate the board
considers feasible, and the refunding bonds may, at the discretion
of the State Board of Education, be made non-interest bearing to a
date fixed by the board.
(e) The council or State Board of Education may not make a
revision, readjustment, modification, refinancing, or refunding
that will release or extinguish any debt or obligation then due and
payable to the permanent school fund or to the available school
fund.
SECTION 9. Sections 43.012(e) and (f), Education Code, are
amended to read as follows:
(e) The council [State Board of Education] may accept
refunding bonds in lieu of either matured or unmatured bonds held
for the benefit of the permanent school fund if the rate of interest
on the new refunding bonds is at least the same rate as that of the
bonds being refunded.
(f) Refunding bonds issued with the approval or pursuant to
a refunding agreement with the council or the State Board of
Education in compliance with either this section or Section 43.011
shall, on the order of the council or board [State Board of
Education], be exchanged by the comptroller for the defaulted
obligations they have been issued to refund.
SECTION 10. Section 43.014(a), Education Code, is amended
to read as follows:
(a) On or before July 1 of each year, the comptroller shall
estimate the amount of the available school fund receivable from
every source during the following school year and report the
estimate to the council and the State Board of Education.
SECTION 11. Sections 43.015(b), (e), and (f), Education
Code, are amended to read as follows:
(b) The comptroller shall provide the council and the State
Board of Education with the reports specified by Subsection (a) and
with additional reports concerning those funds requested by the
council or the State Board of Education.
(e) On order of the council or the State Board of Education,
as applicable, the comptroller shall exchange or accept refunding
bonds in lieu of:
(1) either matured or unmatured bonds held for the
benefit of the permanent school fund, which are being refunded
under this chapter;
(2) defaulted obligations held for the benefit of the
available school fund if the refunding bonds are issued in
compliance with Section 43.012;
(3) defaulted obligations of any school district of
this state held for the benefit of the permanent school fund or the
available school fund if the refunding bonds are issued in
compliance with Section 43.011; or
(4) refunding bonds of any school district of this
state for school bonds not matured held by the comptroller for the
permanent school fund if the new refunding bonds are issued by the
school district in compliance with this code.
(f) The comptroller shall be the custodian of all
[securities enumerated in Section 43.003(6) and of other]
securities as designated by the council or the State Board of
Education in which the school funds of the state are invested. The
comptroller shall keep those securities in the comptroller's
custody until paid off, discharged, delivered as required by the
council or the board, as applicable [State Board of Education], or
otherwise disposed of by the proper authorities of the state, and on
the proper installment of any interest or dividend, shall see that
the proper credit is given, and the coupons on bonds, when paid,
shall be separated from the bonds and cancelled by the comptroller.
SECTION 12. Sections 43.017, 43.018, and 43.019, Education
Code, are amended to read as follows:
Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
The council [State Board of Education] may contract with one or more
commercial banks to receive payments of dividends and interest on
securities in which the state permanent school funds are invested
and transmit that money with identification of its source to the
comptroller for the account of the available school fund by the
fastest available means.
(b) In choosing each commercial bank with which to contract
as authorized by Subsection (a), the council [State Board of
Education] shall assure itself of:
(1) the financial stability of the bank;
(2) the location of the bank with respect to its
proximity to the banks on which checks are drawn in payment of
dividends and interest on securities of the permanent school fund;
(3) the experience and reliability of the bank in
acting as agent for others in the similar collection and
expeditious remittance of money; and
(4) the reasonableness of the bank's charges for the
services, both in amount of the charges and in relation to the
increased investment earnings of the available school fund that
will result from speedier receipt by the comptroller of the money.
Sec. 43.018. PARTICIPATION IN FULLY SECURED SECURITIES LOAN
PROGRAMS. (a) The council [State Board of Education] may contract
with a commercial bank to serve both as a custodian of securities in
which the state permanent school funds are invested and to lend
those securities, under the conditions prescribed by Subsection
(b), to securities brokers and dealers on short-term loan.
(b) The council [State Board of Education] may contract with
a commercial bank pursuant to this section only if:
(1) the bank is located in a city having a major stock
exchange;
(2) the bank is experienced in the operation of a fully
secured securities loan program;
(3) the bank has adequate capital in the prudent
judgment of the council [State Board of Education] to assure the
safety of the securities entrusted to it as a custodian;
(4) the bank will require of any securities broker or
dealer to which it lends securities owned by the state permanent
school fund that the broker or dealer deliver to it cash collateral
for the loan of securities, and that the cash collateral will at all
times be not less than 100 percent of the market value of the
securities lent;
(5) the bank executes an indemnification agreement,
satisfactory in form and content to the council [State Board of
Education], fully indemnifying the permanent and available school
funds against loss resulting from the bank's service as custodian
of securities of the permanent school fund and its operation of a
securities loan program using securities of the permanent school
fund;
(6) the bank will speedily collect and remit on the day
of collection by the fastest available means to the comptroller any
dividends and interest collectible by it on securities held by it as
custodian, together with identification as to the source of the
dividends or interest; and
(7) the bank is the bank agreeing to pay to the
available school fund the largest sum or highest percentage of the
income derived by the bank from use of the securities of the
permanent school fund in the operation of a securities loan
program.
Sec. 43.019. ACCOUNTING TREATMENT OF CERTAIN EXCHANGES.
The council [State Board of Education] may account for the exchange
of permanent school fund securities in a closely related sale and
purchase transaction in a manner in which the gain or loss on the
sale is deferred as an adjustment to the book value of the security
purchased, if:
(1) the security sold and the security purchased have
a fixed maturity value;
(2) the council [board] is authorized by law to invest
the permanent school fund in the security purchased;
(3) the sale is made in clear contemplation of
reinvesting substantially all of the proceeds;
(4) substantially all of the proceeds are reinvested;
(5) the transaction is completed within a reasonable
time after the sale, not to exceed 30 business days; and
(6) the transaction results in an improvement in
effective income yield, taking into consideration the deferral of
any gain or loss on the sale.
SECTION 13. Sections 45.053(a), (c), and (d), Education
Code, are amended to read as follows:
(a) Except as provided by Subsection (d), the commissioner
may not approve bonds for guarantee under this subchapter if the
approval would result in the total amount of outstanding guaranteed
bonds under this subchapter exceeding an amount equal to 2-1/2
times the cost value of the permanent school fund, as estimated by
the Permanent School Fund Management Council [board] and certified
by the state auditor.
(c) The commissioner shall prepare and the Permanent School
Fund Management Council [board] shall adopt an annual report on the
status of the guaranteed bond program under this subchapter.
(d) The Permanent School Fund Management Council [board] by
rule may increase the limit prescribed by Subsection (a) to an
amount not to exceed five times the cost value of the permanent
school fund, provided that the increased limit is consistent with
federal law and regulations and does not prevent the bonds to be
guaranteed from receiving the highest available credit rating, as
determined by the council [board]. The council [board] shall at
least annually consider whether to change any limit in accordance
with this subsection. This subsection may not be construed in a
manner that impairs, limits, or removes the guarantee of bonds that
have been approved by the commissioner.
SECTION 14. Sections 45.0531(a), (b), and (c), Education
Code, are amended to read as follows:
(a) In addition to the limitation on the approval of bonds
for guarantee under Section 45.053, the Permanent School Fund
Management Council [board] by rule may establish a percentage of
the cost value of the permanent school fund to be reserved from use
in guaranteeing bonds under this subchapter.
(b) If the Permanent School Fund Management Council [board]
has reserved a portion of the permanent school fund under
Subsection (a), each year, the state auditor shall analyze the
status of the reserved portion compared to the cost value of the
permanent school fund. Based on that analysis, the state auditor
shall certify whether the portion of the permanent school fund
reserved from use in guaranteeing bonds under this subchapter
satisfies the reserve percentage established.
(c) If the Permanent School Fund Management Council [board]
has reserved a portion of the permanent school fund under
Subsection (a), the council [board] shall at least annually
consider whether to change the reserve percentage established to
ensure that the reserve percentage allows compliance with federal
law and regulations and serves to enable bonds guaranteed under
this subchapter to receive the highest available credit rating, as
determined by the council [board].
SECTION 15. Section 45.055(c), Education Code, is amended
to read as follows:
(c) An application under Subsection (a) must be accompanied
by a fee set by rule of the commissioner [board] in an amount
designed to cover the costs of administering the programs to
provide the guarantee or credit enhancement of eligible bonds.
SECTION 16. Section 45.061(b), Education Code, is amended
to read as follows:
(b) In accordance with the rules of the Permanent School
Fund Management Council [board], the commissioner may authorize
reimbursement to the permanent school fund with interest in a
manner other than that provided by this section.
SECTION 17. Section 45.063, Education Code, is amended to
read as follows:
Sec. 45.063. RULES. The Permanent School Fund Management
Council [board] may adopt rules necessary for the administration of
the bond guarantee program.
SECTION 18. Section 45.2541(a), Education Code, is amended
to read as follows:
(a) Money appropriated for the Foundation School Program
that may be used for the purpose under this subchapter and under any
other law, rule, or regulation shall be used to provide credit
enhancement for eligible bonds as provided by this subchapter, the
General Appropriations Act, and commissioner [board] rule if using
the permanent school fund to guarantee particular bonds would
result in:
(1) a total amount of outstanding bonds guaranteed by
the permanent school fund exceeding the amount authorized under:
(A) Section 45.053; or
(B) federal law or regulations; or
(2) the use of a portion of the cost value of the
permanent school fund reserved under Section 45.0531, as determined
by the Permanent School Fund Investment Council [board].
SECTION 19. Section 45.255(b), Education Code, is amended
to read as follows:
(b) An application under Subsection (a) must:
(1) include the information required by Section
45.055(b); and
(2) be accompanied by a fee set by commissioner
[board] rule in an amount designed to cover the costs of
administering the programs to provide the guarantee or credit
enhancement of eligible bonds.
SECTION 20. Section 51.017, Natural Resources Code, is
amended to read as follows:
Sec. 51.017. FURNISHING DATA TO STATE BOARD OF EDUCATION
AND PERMANENT SCHOOL FUND MANAGEMENT COUNCIL. On request, the
commissioner shall furnish to the State Board of Education and the
Permanent School Fund Management Council all available data.
SECTION 21. Section 51.412(a), Natural Resources Code, is
amended to read as follows:
(a) Not later than September 1 of each even-numbered year,
the board shall submit to the legislature a report that,
specifically and in detail, assesses the direct and indirect
economic impact, as anticipated by the board, of the investment of
funds designated under Section 51.401 for deposit in the real
estate special fund account of the permanent school fund. The board
may not disclose information under this section that is
confidential under applicable state or federal law. The report
must include the following information:
(1) the total amount of money designated by Section
51.401 for deposit in the real estate special fund account of the
permanent school fund that the board intends to invest;
(2) the rate of return the board expects to attain on
the investment;
(3) the amount of money the board expects to
distribute to the available school fund or the Permanent School
Fund Management Council [State Board of Education] for investment
in the permanent school fund after making the investments;
(4) the distribution of the board's investments by
county;
(5) the effect of the board's investments on the level
of employment, personal income, and capital investment in the
state; and
(6) any other information the board considers
necessary to include in the report.
SECTION 22. Section 51.413, Natural Resources Code, is
amended to read as follows:
Sec. 51.413. TRANSFERS FROM THE REAL ESTATE SPECIAL FUND
ACCOUNT TO THE AVAILABLE SCHOOL FUND AND THE PERMANENT SCHOOL FUND.
The board may, by a resolution adopted at a regular meeting, release
from the real estate special fund account funds previously
designated under Section 51.401 of this chapter or managed, used,
or encumbered under Section 51.402 or Section 51.4021 of this
chapter to be deposited in the State Treasury to the credit of:
(1) the available school fund; or
(2) the Permanent School Fund Management Council
[State Board of Education] for investment in the permanent school
fund.
SECTION 23. Sections 7.102(c)(31), 43.006(e), 45.051(1),
and 45.251(1), Education Code, are repealed.
SECTION 24. (a) Not later than February 1, 2012, the
appropriate appointing authorities specified in Section 43.0012,
Education Code, as added by this Act, shall appoint the initial
members of the Permanent School Fund Management Council as required
by that section.
(b) In appointing the initial members of the Permanent
School Fund Management Council:
(1) the governor shall appoint four persons as
follows:
(A) two persons for a term expiring February 1,
2013; and
(B) two persons for a term expiring February 1,
2015;
(2) the lieutenant governor shall appoint one person
for a term expiring February 1, 2015;
(3) the commissioner of the General Land Office shall
appoint one person for a term expiring February 1, 2013; and
(4) the comptroller shall appoint one person for a
term expiring February 1, 2015.
(c) The Permanent School Fund Management Council may not
take any action until all of the appointed members have taken
office.
SECTION 25. As soon as practicable after the date on which
all of the members of the Permanent School Fund Management Council
have taken office, but not later than May 1, 2012, the Permanent
School Fund Management Council, the State Board of Education, the
Texas Education Agency, and the comptroller shall develop and adopt
a memorandum of understanding that:
(1) identifies in detail the applicable powers and
duties of the State Board of Education that are being transferred to
the Permanent School Fund Management Council as a result of this
Act; and
(2) establishes a plan for the identification and
transfer of records, property, and unspent appropriations of the
State Board of Education that are used for purposes of managing the
permanent school fund to the Permanent School Fund Management
Council.
SECTION 26. (a) Not later than September 1, 2012:
(1) all full-time employees of the Texas Education
Agency who provide support to the State Board of Education relating
to the investment of the permanent school fund become employees of
the comptroller;
(2) all functions and activities performed by the
State Board of Education with respect to the management of the
permanent school fund that, as a result of this Act, are subject to
management by the Permanent School Fund Management Council are
transferred to the Permanent School Fund Management Council;
(3) a rule, form, policy, procedure, or decision
adopted by the State Board of Education relating to the management
of the permanent school fund that, as a result of this Act, is
subject to management by the Permanent School Fund Management
Council continues in effect as a rule, form, policy, procedure, or
decision of the Permanent School Fund Management Council until
amended or replaced by the Permanent School Fund Management
Council;
(4) a reference in law or an administrative rule to the
State Board of Education relating to the permanent school fund
that, as a result of this Act, is subject to management by the
Permanent School Fund Management Council is a reference to the
Permanent School Fund Management Council; and
(5) a complaint, investigation, or other proceeding
before the State Board of Education relating to the permanent
school fund that, as a result of this Act, is subject to management
by the Permanent School Fund Management Council is transferred
without change in status to the Permanent School Fund Management
Council.
(b) The Permanent School Fund Management Council assumes,
as appropriate and without a change in status, the position of the
State Board of Education under a contract or in an action or
proceeding to which the State Board of Education is a party and
that:
(1) relates to the permanent school fund; and
(2) as a result of this Act, is subject to management
by the Permanent School Fund Management Council.
SECTION 27. This Act takes effect December 1, 2011, but only
if the constitutional amendment proposed by the 82nd Legislature,
Regular Session, 2011, creating the Permanent School Fund
Management Council is approved by the voters. If that amendment is
not approved by the voters, this Act has no effect.