S.B. No. 709
AN ACT
1-1 relating to the management, investment, and expenditure of funds
1-2 held by public institutions of higher education.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 163.002, Property Code, is amended to
1-5 read as follows:
1-6 Sec. 163.002. Legislative Findings and Purpose. (a) The
1-7 legislature finds that:
1-8 (1) publicly and privately supported educational,
1-9 religious, and charitable organizations perform essential and
1-10 needed services in the state;
1-11 (2) uncertainty regarding legal restrictions on the
1-12 management, investment, and expenditure of endowment funds of the
1-13 organizations has in many instances precluded obtaining the highest
1-14 available return on endowment funds; and
1-15 (3) the organizations, their officers, directors, and
1-16 trustees, and the citizens of this state will benefit from removal
1-17 of the uncertainty and by permitting endowment funds to be invested
1-18 for the long-term goals of achieving growth and maintaining
1-19 purchasing power without adversely affecting availability of funds
1-20 for current expenditure.
1-21 (b) The purpose of this chapter is to provide guidelines for
1-22 the management, investment, and expenditure of endowment funds of
1-23 publicly and privately supported educational, religious, and
1-24 charitable organizations in order to eliminate the uncertainty
2-1 regarding legal restrictions on the management, investment, and
2-2 expenditure of the funds and to enable the organizations to
2-3 maximize their resources.
2-4 SECTION 2. Section 163.003, Property Code, is amended by
2-5 amending Subdivision (5) and adding Subdivision (7) to read as
2-6 follows:
2-7 (5) "Institution" means an incorporated or
2-8 unincorporated organization organized and operated exclusively for
2-9 educational, religious, or charitable purposes, an institution of
2-10 higher education, or a foundation chartered for the benefit of an
2-11 institution of higher education. The term does not include<:>
2-12 <(A) an institution of higher education as
2-13 defined by Section 61.003, Education Code, or other governmental
2-14 entity, or a foundation chartered for the benefit of that type of
2-15 institution or entity, or the benefit of a component of that type
2-16 of institution or entity; or>
2-17 <(B)> a private foundation as defined by Section
2-18 509(a) of the Internal Revenue Code of 1986.
2-19 (7) "Institution of higher education" has the meaning
2-20 assigned by Section 61.003, Education Code.
2-21 SECTION 3. Section 163.004, Property Code, is amended by
2-22 amending Subsection (a) and adding Subsection (e) to read as
2-23 follows:
2-24 (a) Except as provided by Subsection (e), the <The>
2-25 governing board may appropriate for expenditure, for the uses and
2-26 purposes for which the fund is established, the net appreciation,
2-27 realized and unrealized, in the fair market value of the assets of
3-1 an endowment fund over the historic dollar value of the fund to the
3-2 extent prudent under the standard provided by Section 163.007.
3-3 (e) The governing board of an institution of higher
3-4 education as defined by Section 61.003(8), Education Code, may not
3-5 appropriate for expenditure the net unrealized appreciation of the
3-6 assets of an endowment fund.
3-7 SECTION 4. Section 51.0031, Education Code, is amended to
3-8 read as follows:
3-9 Sec. 51.0031. DEPOSITS AND INVESTMENTS. (a) A governing
3-10 board may deposit funds under its control as provided in Section
3-11 51.003 of this code, may invest funds under its control in
3-12 financial instruments eligible for investment of funds in the state
3-13 treasury and, with regard to donations, gifts, and trusts, may
3-14 establish endowment funds that operate as trusts and are managed
3-15 under prudent person standards.
3-16 (b) Funds described in this section may also be invested in
3-17 cash management and fixed income funds held by organizations exempt
3-18 from federal taxation under Section 501(f) of the Internal Revenue
3-19 Code of 1986 (26 U.S.C. Section 501(f)), as that section may be
3-20 amended.
3-21 (c) If a governing board has under its control at least $25
3-22 million in book value of endowment funds, such governing board may
3-23 invest all funds described in this section under prudent person
3-24 standards.
3-25 (d) As used in this section, "prudent person standard" is
3-26 the standard of care described in Article VII, Section 11b, of the
3-27 Texas Constitution, and means that standard of judgment and care
4-1 that persons of ordinary prudence, discretion, and intelligence
4-2 exercise in the management of their affairs in regard to the
4-3 investments of their funds considering probable income as well as
4-4 probable safety of their capital.
4-5 SECTION 5. The importance of this legislation and the
4-6 crowded condition of the calendars in both houses create an
4-7 emergency and an imperative public necessity that the
4-8 constitutional rule requiring bills to be read on three several
4-9 days in each house be suspended, and this rule is hereby suspended,
4-10 and that this Act take effect and be in force from and after its
4-11 passage, and it is so enacted.