86R15231 GCB-D
By: King of Hemphill H.B. No. 3467
A BILL TO BE ENTITLED
AN ACT
relating to the acquisition and management of certain real property
assets by the School Land Board for the use and benefit of the
permanent school fund and the transfer of certain permanent school
fund assets from the control of the School Land Board to the State
Board of Education.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 51.011, Natural Resources Code, is
amended by amending Subsection (a) and adding Subsections (a-3) and
(a-4) to read as follows:
(a) Any land or[,] mineral or royalty interest[, real estate
investment, or other interest, including revenue received from
those sources,] that is set apart to the permanent school fund under
the constitution and laws of this state together with the mineral
estate in riverbeds, channels, and the tidelands, including
islands, shall be controlled, sold, and leased by [subject to the
sole and exclusive management and control of] the school land board
and the commissioner under the provisions of this chapter and other
applicable law.
(a-3) All revenue received from mineral or royalty
interests described by Subsection (a), including bonus payments,
surface lease revenues, royalties, and any other type of revenue
received from those interests, shall be transferred each month to
the State Board of Education for investment in the permanent school
fund.
(a-4) Revenue received from land described by Subsection
(a) that is not required to be transferred under Subsection (a-3)
shall remain with the board.
SECTION 2. Section 51.401, Natural Resources Code, is
amended by amending Subsection (a) and adding Subsections (c), (d),
and (d-1) to read as follows:
(a) The board may designate money [funds] received from the
sale of real property or [any land,] mineral or royalty interests
[interest, real estate investment, or other interest, including
revenue received from those sources, that is] set apart to the
permanent school fund under the constitution and laws of this state
together with the mineral estate in riverbeds, channels, and the
tidelands, including islands, for deposit in the real estate
special fund account of the permanent school fund in the State
Treasury to be used by the board to acquire fee or lesser interests
in real property, including mineral or royalty interests, for the
use and benefit of the permanent school fund, as provided by Section
51.402 [this subchapter].
(c) Money received from the sale of real property, including
mineral or royalty interests, and designated under this subchapter
for the acquisition of real property, including mineral or royalty
interests, must be used by the board not later than two years after
the date of the sale from which the money is derived.
(d) Any money from a specific sale that remains in the real
estate special fund account for longer than two years shall be
immediately deposited in the State Treasury to the credit of the
State Board of Education for investment in the permanent school
fund.
(d-1) Each quarter, the board shall provide a cashflow
report to the State Board of Education that specifies the use of all
funds designated under Subsection (a) and the amount of time that
money from each specific sale has remained in the real estate
special fund account.
SECTION 3. Section 51.402, Natural Resources Code, is
amended by amending Subsections (a) and (b) and adding Subsection
(a-1) to read as follows:
(a) The board may use the money designated under Section
51.401 for any of the following purposes:
(1) to add to a tract of public school land to form a
tract of sufficient size to be manageable;
(2) to add contiguous land to public school land;
(3) to acquire, as public school land, interests in
real property for biological, commercial, geological, cultural, or
recreational purposes;
(4) to acquire mineral or [and] royalty interests for
the use and benefit of the permanent school fund; or
(5) to prudently manage any internally managed
commercial real estate held or acquired by the board on or before
August 31, 2019, subject to Subsection (a-1) [to protect, maintain,
or enhance the value of public school land;
[(6) to acquire interests in real estate;
[(7) to pay reasonable fees for professional services
related to a permanent school fund investment; or
[(8) to acquire, sell, lease, trade, improve,
maintain, protect, or use land, mineral and royalty interests, or
real estate investments, an investment or interest in public
infrastructure, or other interests, at such prices and under such
terms and conditions the board determines to be in the best interest
of the permanent school fund].
(a-1) Not later than September 1, 2023, the board shall
divest itself of all interests in assets described by Subsection
(a)(5), except any asset for which divestment by that date would
cause substantial loss to the permanent school fund. The board
shall divest itself of an asset described by Subsection (a)(5) that
is not divested on or before September 1, 2023, as soon as prudently
practicable, and the board shall take direction from the State
Board of Education regarding the timing of the divestment of that
asset with respect to the best interest of the permanent school
fund.
(b) Before acquiring real property, including mineral or
royalty interests, [using funds] under Subsection (a), the board
must determine, using the prudent investor standard, that the
acquisition is [use of the funds for the intended purpose is
authorized by Subsection (a) and] in the best interest of the
permanent school fund. [A determination by the board on the use of
funds under this section is conclusive unless the determination was
made as a result of fraud or obvious error.]
SECTION 4. Sections 51.4021(a) and (b), Natural Resources
Code, are amended to read as follows:
(a) The board may appoint investment managers, consultants,
or advisors to invest or assist the board in investing the money
designated under Section 51.401, to the extent the investment of
the money is authorized under this chapter, by contracting for
professional investment management or investment advisory services
with one or more organizations that are in the business of managing
or advising on the management of real estate investments.
(b) To be eligible for appointment under this section, an
investment manager, consultant, or advisor shall agree to abide by
the policies, requirements, or restrictions, including ethical
standards and disclosure policies and criteria for determining the
quality of investments and for the use of standard rating services,
that the board adopts for real estate investments of the permanent
school fund. Money designated under Section 51.401 may only be
invested to the extent the board has the authority under this
chapter to make the investment, and may not be invested in a real
estate investment trust, as defined by Section 200.001, Business
Organizations Code, or otherwise invested in a manner not
authorized under this chapter.
SECTION 5. Sections 51.408(a), (b), (d), and (e), Natural
Resources Code, are amended to read as follows:
(a) In addition to any other requirements provided by law,
the board shall adopt and enforce an ethics policy that provides
standards of conduct relating to the management and investment of
the funds designated for that purpose under Section 51.401. The
ethics policy must include provisions that address the following
issues as they apply to the management and investment of the funds
and to persons responsible for acquiring or managing real property
or mineral or royalty interests of the permanent school fund or
[and] investing the funds to the extent authorized by this chapter:
(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 board;
(2) the commissioner;
(3) employees of the board; and
(4) any person who provides services to the board
relating to the management [or investment] of the funds designated
under Section 51.401 or the investment of funds to the extent
authorized by this chapter.
(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 funds designated under Section
51.401 or the investment of those funds to the extent authorized by
this chapter 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 funds designated under Section 51.401 or the
investment of those funds to the extent authorized by this chapter.
SECTION 6. Section 51.409(a), Natural Resources Code, is
amended to read as follows:
(a) A member of the board, the commissioner, an employee of
the board, or a person who provides services to the board that
relate to the management [or investment] of the funds designated
under Section 51.401 or the investment of those funds to the extent
authorized under this chapter 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 of public
school lands or investment of the funds shall disclose the
relationship in writing to the board.
SECTION 7. Section 51.410, Natural Resources Code, is
amended to read as follows:
Sec. 51.410. REPORTS OF EXPENDITURES. A consultant,
advisor, broker, or other person providing services to the board
relating to the management [and investment] of the funds designated
under Section 51.401 or the investment of those funds to the extent
authorized by this chapter shall file with the board regularly, as
determined by the 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 board;
(2) the commissioner; or
(3) an employee of the board.
SECTION 8. Section 51.412, Natural Resources Code, is
amended to read as follows:
Sec. 51.412. REPORTS TO LEGISLATURE. [(a)] Not later than
September 1 of each [even-numbered] year, the board shall submit to
the legislature a report that includes [, 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 received under this
chapter and designated under [by] Section 51.401 for deposit in the
real estate special fund account of the permanent school fund that
the board intends to use for a purpose authorized under that section
[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 State Board of
Education for investment in the permanent school fund under Section
51.413 [after making the investments];
(3) [(4)] the distribution [of the board's
investments] by county of real property interests, including
mineral or royalty interests, and including the actual or expected
revenues from the interests, that were acquired by the board for the
use and benefit of the permanent school fund since the most recently
submitted report under this section;
(4) the market value of all investments and assets
managed by the board and the total market value of the permanent
school fund;
[(5) the effect of the board's investments on the level
of employment, personal income, and capital investment in the
state;] and
(5) [(6)] any other information the board considers
necessary to include in the report.
[(b) Not later than January 1 of each odd-numbered year, the
board shall submit to the legislature a report that assesses the
return and economic impact of the investments reported to the
legislature before the preceding regular legislative session.]
SECTION 9. Section 51.413(a), Natural Resources Code, is
amended to read as follows:
(a) 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 or used under Section
51.402 to acquire real property, including mineral or royalty
interests, [managed, used, or encumbered under Section 51.402 or
Section 51.4021] to be deposited in the State Treasury to the credit
of:
(1) the available school fund; or
(2) the State Board of Education for investment in the
permanent school fund.
SECTION 10. The following provisions of the Natural
Resources Code are repealed:
(1) Sections 51.011(a-1) and (a-2); and
(2) Section 51.402(c).
SECTION 11. The School Land Board shall:
(1) not later than September 30, 2019:
(A) provide the State Board of Education with a
list of every investment held by the School Land Board that was
acquired on or after September 1, 2001, other than sovereign lands,
other state lands, mineral or royalty interests, and commercial
real estate that is owned and internally managed by the School Land
Board, including information on unfunded commitments and funding
obligations related to every investment;
(B) provide to the State Board of Education a
balance of the cash holdings as of the most recent month end; and
(C) provide notice of the enactment of this Act
to the general partner or other managing entity of every investment
described by Paragraph (A) of this subdivision;
(2) not later than November 30, 2019, provide to the
State Board of Education all financial, contract, investment and
related records and documents in the possession of the School Land
Board, the General Land Office, or a service provider to the School
Land Board or General Land Office relating to an asset described by
Subdivision (1)(A) of this section;
(3) not later than July 31, 2020, transfer, at the
direction of the State Board of Education:
(A) all assets described by Subdivision (1)(A) of
this section, provided that if the State Board of Education
determines in its discretion that it cannot receive an asset, the
School Land Board shall coordinate with the State Board of
Education concerning the appropriate timing of a transfer of the
asset that is in the best interest of the permanent school fund; and
(B) all cash holdings related to or derived from
permanent school fund assets, except for an amount necessary to
make distributions to the available school fund in fiscal years
2020 and 2021, as directed by previously adopted School Land Board
resolutions; and
(4) not later than September 1, 2020, submit to the
legislature and the State Board of Education a report accounting
for every investment and all cash holdings transferred to the State
Board of Education or retained by the School Land Board in
accordance with this Act.
SECTION 12. An asset transferred in accordance with this
Act shall be managed by the State Board of Education in accordance
with applicable laws, and any investment agreement, contract, or
similar document related to the asset is assigned to the Texas
Education Agency as of the date of the transfer of the asset.
SECTION 13. This Act takes effect September 1, 2019.