By: Ratliff S.B. No. 409 A BILL TO BE ENTITLED AN ACT 1-1 relating to the accounting treatment of premium and discount 1-2 associated with the purchase of certain securities for the 1-3 permanent school fund. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Chapter 2256, Government Code, is amended by 1-6 adding Subchapter D to read as follows: 1-7 SUBCHAPTER D. INVESTMENT OF PERMANENT SCHOOL FUND 1-8 Sec. 2256.151. TREATMENT OF PREMIUM AND DISCOUNT. (a) If 1-9 the State Board of Education authorizes the payment of a premium 1-10 out of the permanent school fund in the purchase of any 1-11 fixed-income security as an investment for that fund, then the 1-12 principal of the security and a portion of the interest accruing 1-13 thereon equal to the premium shall be treated as principal in such 1-14 investment as provided by Subsection (c) and shall be returned to 1-15 the permanent school fund. 1-16 (b) If the State Board of Education authorizes the purchase 1-17 of a fixed-income security at less than par, the discount received 1-18 in the purchase shall be paid to the available school fund as 1-19 additional interest revenue as provided by Subsection (c). 1-20 (c) The amount of an interest payment treated as principal 1-21 under Subsection (a) or the amount of a discount treated as 1-22 additional revenue under Subsection (b) shall be determined at the 1-23 end of a period using an interest method that produces a periodic 1-24 interest revenue or expenditure, including amortization, that 2-1 represents a level effective interest rate on the sum of the 2-2 maturity value of the fixed-income security and its unamortized 2-3 premium or discount at the beginning of the period. The difference 2-4 between the amount computed and the stated interest revenue on the 2-5 outstanding amount of the fixed-income security is the amount of 2-6 the periodic amortization. 2-7 (d) In this section: 2-8 (1) "Effective interest rate" means the interest rate 2-9 that, when used to discount debt service payments, produces a 2-10 present value equal to the debt proceeds. 2-11 (2) "Fixed-income security" means a government or 2-12 corporate obligation with a specified maturity date, interest rate, 2-13 and interest payment dates. 2-14 (3) "Stated interest revenue" means the face value or 2-15 coupon interest rate multiplied by the maturity value of the 2-16 fixed-income security. 2-17 SECTION 2. This Act applies to each fixed-income security 2-18 purchased as an investment for the permanent school fund regardless 2-19 of the date of purchase. 2-20 SECTION 3. To the extent this Act conflicts with any other 2-21 Act of the 74th Legislature, including S.B. No. 1, Acts of the 74th 2-22 Legislature, Regular Session, 1995, this Act prevails. 2-23 SECTION 4. The importance of this legislation and the 2-24 crowded condition of the calendars in both houses create an 2-25 emergency and an imperative public necessity that the 2-26 constitutional rule requiring bills to be read on three several 2-27 days in each house be suspended, and this rule is hereby suspended, 3-1 and that this Act take effect and be in force from and after its 3-2 passage, and it is so enacted.