BILL ANALYSIS


                                                     C.S.S.B. 409
                                                      By: Ratliff
                                                          Finance
                                                          3-20-95
                                   Committee Report (Substituted)
BACKGROUND

Generally accepted accounting principles do not apply to the
amortization of premiums and discounts on fixed income securities
in the Permanent School Fund.  A premium is paid for a security
when, due to a decline in interest rates, the purchase price of the
security exceeds its original face value.  A discount is incurred
with respect to a security when, due to a rise in interest rates,
the purchase price of the security is less than its face value.

PURPOSE

As proposed, C.S.S.B. 409 requires the amount of an interest
payment treated as principal or the amount of a discount treated as
additional revenue to be determined at the end of a period using an
interest method that produces a periodic interest revenue or
expenditure.
 
RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 2256, Government Code, by adding
Subchapter D, as follows:

        SUBCHAPTER D.  INVESTMENT OF PERMANENT SCHOOL FUND

     Sec.  2256.151.  TREATMENT OF PREMIUM AND DISCOUNT.  (a) 
     Requires the principal of the security and a portion of the
     interest accruing on a premium equal to the premium to be
     treated as principal as provided by Subsection (c) and to be
     returned to the permanent school fund if the State Board of
     Education (board) authorizes the payment of a premium out of
     the permanent school fund in the purchase of any fixed-income
     security as an investment for that fund.
     
     (b)  Requires the discount received in a purchase to be paid
       to the available school fund as additional interest revenue
       as provided by Subsection (c), if the board authorizes the
       purchase of a fixed-income security at less than par.
       
       (c)  Requires the amount of interest payment treated as
       principal under Subsection (a) or the amount of a discount
       treated as additional revenue under Subsection (b) to be
       determined at the end of a period using an interest method
       that produces a periodic interest revenue or expenditure,
       including amortization, that represents a level effective
       interest rate on the sum of the maturity value of the fixed-income security and its unamortized premium or discount at
       the beginning of the period.  Provides that the difference
       between the amount of the fixed-income security is the
       amount of the periodic amortization.
       
       (d)  Defines "effective interest rate," "fixed-income
       security," and "stated interest revenue."
     SECTION 2.     Effective date:  September 1, 1995.

SECTION 3. Provides that this Act applies to each fixed-income
security purchased as an investment for the permanent school fund
regardless of the date of purchase.

SECTION 4. Provides that this Act prevails to the extent this Act
conflicts with any other Act of the 74th Legislature, Regular
Session, 1995, including S.B. 1.

SECTION 5. Emergency clause.