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.
    1-5        SECTION 1.  Chapter 2256, Government Code, is amended by
    1-6  adding Subchapter D to read as follows:
    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.