LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  February 17, 1997
         
         
      TO: Honorable Barry Telford, Chair            IN RE:  House Bill No. 138
          Committee on Pensions and Investments                              By: Woolley/et al.
          House
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on HB138 ( Relating 
to authorization of the creation of Texas growth fund II.) this 
office has detemined the following:
         
         Biennial Net Impact to General Revenue Funds by HB138-As Introduced
         
Implementing the provisions of the bill would result in a net 
impact of $0 to General Revenue Related Funds through the biennium 
ending August 31, 1999.
         


The bill would authorize creation the Texas Growth Fund 
II (TGFII) as provided by Section 70(m), Article XVI, Texas 
Constitution.    The Permanent University Fund, Teacher Retirement 
System, Permanent School Fund, Employee Retirement System and 
other pension systems created under the Texas Constitution or 
state statute could invest in TGF II.   TGFII would replace 
the current Texas Growth Fund (TGF) which must be liquidated 
after November 1, 1998.   A portion of TGFII could be placed 
in venture capital investments.

The fund would be managed 
by a nine-member board consisting of four public members appointed 
by the governor and one member from each of the following:  
the University of Texas Board of Regents, the Texas A&M Board 
of Regents, the Teacher Retirement System, the Employee Retirement 
System, and the State Board of Education.  

The TGF board 
has created TGF Management Corporation to manage its investments. 
 The original contract with the management firm paid the firm 
the lesser of 1 1/2% of endowment and pension funds invested 
or $750,000.  

In addition, the management firm will receive 
deferred payments of 10% of the return to the fund in excess 
of the annual rate of return on U.S. Treasury notes if the return 
on treasury notes is between 5% and 8%. If the return on treasury 
notes is above 8% the firm receives 10% of the TGF return above 
8%.  If the treasury note return is below 5%, the firm receives 
10% of TGF returns above 5%. 

TGF Management reported expenditures 
of $625,000 in calendar year 1994, $643,000  in 1995, and $888,000 
in 1996.  It requested a budget of $1,250,000 for 1997.   Of 
the $1,250,000 in the proposed 1997 budget, $700,000 is budgeted 
for salaries for six employees. The TGF Management budgets through 
1997 reflect no deferred payments.

In addition to payments 
to the management firm, the TGF pays for the following:  expenses 
related to meeting of the TGF board including travel and expenses 
of the board members; brokerage, registration, legal, accounting 
and other professional fees.  These costs were $45,000 in 1996, 
including $1,400 in travel expenses for TGF board members. 

The 
Permanent University Fund, Teacher Retirement System and the 
Fire and Police Pension Fund of San Antonio have invested in 
the TGF.  The Teacher Retirement System and the Fire and Police 
Pension Fund of San Antonio have indicated that they are likely 
to participate in TGFII.  The Employee Retirement System, the 
Permanent University Fund, and Texas Education Agency have indicated 
that they currently have no plans to participate in the TGFII.

No 
appropriation of state funds would be required to finance the 
TGFII.  Participation in the TGF and TGFII is voluntary.  Operating 
costs would be apportioned among the participating pension funds 
and endowments.
         
 
          
No direct fiscal implication to units of local government is 
anticipated.  However, local government pension systems would 
be eligible to participate in the fund.
          
   Source:            Agencies:   304   Comptroller of Public Accounts
                                         323   Teacher Retirement System and Optional Retirement Program
                                         327   Employees Retirement System
                                         701   Texas Education Agency - Administration
                                         710   Texas A&M University System
                                         720   University of Texas System Administration
                                         
                      LBB Staff:   JK ,PE ,RS