1-1 By: Ratliff S.B. No. 409 1-2 (In the Senate - Filed February 23, 1995; February 27, 1995, 1-3 read first time and referred to Committee on Education; 1-4 March 8, 1995, rereferred to Committee on Finance; March 16, 1995, 1-5 reported adversely, with favorable Committee Substitute by the 1-6 following vote: Yeas 10, Nays 0; March 16, 1995, sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 409 By: Ratliff 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to the accounting treatment of premium and discount 1-11 associated with the purchase of certain securities for the 1-12 permanent school fund. 1-13 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-14 SECTION 1. Chapter 2256, Government Code, is amended by 1-15 adding Subchapter D to read as follows: 1-16 SUBCHAPTER D. INVESTMENT OF PERMANENT SCHOOL FUND 1-17 Sec. 2256.151. TREATMENT OF PREMIUM AND DISCOUNT. (a) If 1-18 the State Board of Education authorizes the payment of a premium 1-19 out of the permanent school fund in the purchase of any 1-20 fixed-income security as an investment for that fund, then the 1-21 principal of the security and a portion of the interest accruing 1-22 thereon equal to the premium shall be treated as principal in such 1-23 investment as provided by Subsection (c) and shall be returned to 1-24 the permanent school fund. 1-25 (b) If the State Board of Education authorizes the purchase 1-26 of a fixed-income security at less than par, the discount received 1-27 in the purchase shall be paid to the available school fund as 1-28 additional interest revenue as provided by Subsection (c). 1-29 (c) The amount of an interest payment treated as principal 1-30 under Subsection (a) or the amount of a discount treated as 1-31 additional revenue under Subsection (b) shall be determined at the 1-32 end of a period using an interest method that produces a periodic 1-33 interest revenue or expenditure, including amortization, that 1-34 represents a level effective interest rate on the sum of the 1-35 maturity value of the fixed-income security and its unamortized 1-36 premium or discount at the beginning of the period. The difference 1-37 between the amount computed and the stated interest revenue on the 1-38 outstanding amount of the fixed-income security is the amount of 1-39 the periodic amortization. 1-40 (d) In this section: 1-41 (1) "Effective interest rate" means the interest rate 1-42 that, when used to discount debt service payments, produces a 1-43 present value equal to the debt proceeds. 1-44 (2) "Fixed-income security" means a government or 1-45 corporate obligation with a specified maturity date, interest rate, 1-46 and interest payment dates. 1-47 (3) "Stated interest revenue" means the face value or 1-48 coupon interest rate multiplied by the maturity value of the 1-49 fixed-income security. 1-50 SECTION 2. This Act takes effect September 1, 1995. 1-51 SECTION 3. This Act applies to each fixed-income security 1-52 purchased as an investment for the permanent school fund regardless 1-53 of the date of purchase. 1-54 SECTION 4. To the extent this Act conflicts with any other 1-55 Act of the 74th Legislature, including S.B. No. 1, Acts of the 74th 1-56 Legislature, Regular Session, 1995, this Act prevails. 1-57 SECTION 5. The importance of this legislation and the 1-58 crowded condition of the calendars in both houses create an 1-59 emergency and an imperative public necessity that the 1-60 constitutional rule requiring bills to be read on three several 1-61 days in each house be suspended, and this rule is hereby suspended. 1-62 * * * * *