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.