By Ratliff S.B. No. 409
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.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
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.