By Ratliff                                             S.B. No. 409
       74R5506 KKA-D
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to the accounting treatment of premium and discount
    1-3  associated with the purchase of certain securities for the
    1-4  permanent school fund.
    1-6        SECTION 1.  Section 15.04, Education Code, is amended to read
    1-7  as follows:
    1-8        Sec. 15.04.  Treatment of Premium and Discount.  (a)  If the
    1-9  State Board of Education authorizes the payment of a premium out of
   1-10  the permanent school fund in the purchase of any fixed-income
   1-11  security <bond, obligation, or pledge> as an investment for that
   1-12  fund, then the principal of the security <such securities> and a
   1-13  portion <an amount> of the interest <first> accruing thereon equal
   1-14  to the premium <so paid> shall be treated as principal in such
   1-15  investment as provided by Subsection (c)<,> and <when the first
   1-16  interest is collected, the amount of the premium> shall be returned
   1-17  to the permanent school fund.
   1-18        (b)  If the State Board of Education authorizes the purchase
   1-19  of a fixed-income <public> security at less than par, the discount
   1-20  received in the purchase shall be paid to the available school fund
   1-21  as additional interest revenue as provided by Subsection (c) <when
   1-22  the bonds, obligations, or pledges are paid off and discharged>.
   1-23        (c)  The amount of an interest payment treated as principal
   1-24  under Subsection (a) or the amount of a discount treated as
    2-1  additional revenue under Subsection (b) shall be determined at the
    2-2  end of a period using an interest method that produces a periodic
    2-3  interest revenue or expenditure, including amortization, that
    2-4  represents a level effective interest rate on the sum of the
    2-5  maturity value of the fixed-income security and its unamortized
    2-6  premium or discount at the beginning of the period.  The difference
    2-7  between the amount computed and the stated interest revenue on the
    2-8  outstanding amount of the fixed-income security is the amount of
    2-9  the periodic amortization.
   2-10        (d)  In this section:
   2-11              (1)  "Effective interest rate" means the interest rate
   2-12  that, when used to discount debt service payments, produces a
   2-13  present value equal to the debt proceeds.
   2-14              (2)  "Fixed-income security" means a government or
   2-15  corporate obligation with a specified maturity date, interest rate,
   2-16  and interest payment dates.
   2-17              (3)  "Stated interest revenue" means the face value or
   2-18  coupon interest rate multiplied by the maturity value of the
   2-19  fixed-income security.
   2-20        SECTION 2.  This Act takes effect September 1, 1995.
   2-21        SECTION 3.  This Act applies to each fixed-income security
   2-22  purchased as an investment for the permanent school fund regardless
   2-23  of the date of purchase.
   2-24        SECTION 4.  The importance of this legislation and the
   2-25  crowded condition of the calendars in both houses create an
   2-26  emergency and an imperative public necessity that the
   2-27  constitutional rule requiring bills to be read on three several
    3-1  days in each house be suspended, and this rule is hereby suspended.