77R8900 ESH-D
By Keel, Gallego, Uher, Bonnen H.B. No. 2414
Substitute the following for H.B. No. 2414:
By Olivo C.S.H.B. No. 2414
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the investment and management of the permanent school
1-3 fund.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 ARTICLE 1. PERMANENT SCHOOL FUND INVESTMENT BOARD
1-6 SECTION 1.01. Chapter 43, Education Code, is amended by
1-7 adding Sections 43.0011 and 43.0012 to read as follows:
1-8 Sec. 43.0011. DEFINITION. In this chapter, "interested
1-9 person" means a person who applies for or receives anything of
1-10 value as a direct or indirect result of permanent school fund
1-11 investments.
1-12 Sec. 43.0012. PERMANENT SCHOOL FUND INVESTMENT BOARD.
1-13 (a) The Permanent School Fund Investment Board consists of the
1-14 persons appointed as provided by Section 5(d), Article VII, Texas
1-15 Constitution. An appointment to the board is not subject to senate
1-16 confirmation. A vacancy on the board is filled in the same manner
1-17 as an original appointment.
1-18 (b) The board:
1-19 (1) shall direct the agency in managing and investing
1-20 the permanent school fund; and
1-21 (2) may employ an executive director and other
1-22 employees.
1-23 SECTION 1.02. Sections 43.0031(a) and (b), Education Code,
1-24 are amended to read as follows:
2-1 (a) In addition to any other requirements provided by law,
2-2 the Permanent School Fund Investment Board [State Board of
2-3 Education] shall adopt and enforce an ethics policy that provides
2-4 standards of conduct relating to the management and investment of
2-5 the permanent school fund. The ethics policy must include
2-6 provisions that address the following issues as they apply to the
2-7 management and investment of the permanent school fund and to
2-8 persons responsible for managing and investing the fund:
2-9 (1) general ethical standards;
2-10 (2) conflicts of interest;
2-11 (3) prohibited transactions and interests;
2-12 (4) the acceptance of gifts and entertainment;
2-13 (5) compliance with applicable professional standards;
2-14 (6) ethics training; and
2-15 (7) compliance with and enforcement of the ethics
2-16 policy.
2-17 (b) The ethics policy must include provisions applicable to:
2-18 (1) members of the Permanent School Fund Investment
2-19 Board [State Board of Education];
2-20 (2) the executive director and other employees of the
2-21 board;
2-22 (3) the commissioner;
2-23 (4) [(3)] employees of the agency; [and]
2-24 (5) [(4)] any person who provides services to the
2-25 board relating to the management or investment of the permanent
2-26 school fund; and
2-27 (6) an interested person.
3-1 SECTION 1.03. Section 43.0032, Education Code, is amended to
3-2 read as follows:
3-3 Sec. 43.0032. CONFLICTS OF INTEREST. (a) This section
3-4 applies to:
3-5 (1) a [A] member of the Permanent School Fund
3-6 Investment Board;
3-7 (2) [State Board of Education,] the commissioner;
3-8 (3) [,] an employee of the agency;
3-9 (4) [, or] a person who provides services to the board
3-10 that relate to the management or investment of the permanent school
3-11 fund; and
3-12 (5) an interested person.
3-13 (b) A person to whom this section applies who has a
3-14 business, commercial, or other relationship that a reasonable
3-15 person would find likely [could reasonably be expected] to diminish
3-16 the person's independence of judgment in the performance of the
3-17 person's responsibilities relating to the management or investment
3-18 of the fund shall disclose the relationship in writing to the
3-19 board.
3-20 (c) [(b)] The board or the board's designee shall, in the
3-21 ethics policy adopted under Section 43.0031, define the kinds of
3-22 relationships that may create a possible conflict of interest.
3-23 (d) [(c)] A person who files a statement under Subsection
3-24 (b) [(a)] disclosing a possible conflict of interest may not give
3-25 advice or make decisions about a matter affected by the possible
3-26 conflict of interest unless the board, after consultation with its
3-27 legal [the general] counsel [of the agency], expressly waives this
4-1 prohibition. The board may delegate the authority to waive the
4-2 prohibition established by this subsection.
4-3 SECTION 1.04. Section 43.0033, Education Code, is amended to
4-4 read as follows:
4-5 Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
4-6 advisor, broker, money manager, investment manager, dealer, or
4-7 other person providing services to the Permanent School Fund
4-8 Investment Board [State Board of Education] relating to the
4-9 management and investment of the permanent school fund shall file
4-10 with the board regularly, as determined by the board, a report that
4-11 describes in detail any expenditure of more than $50 made by the
4-12 person on behalf of:
4-13 (1) a member of the board;
4-14 (2) the executive director or another employee of the
4-15 board;
4-16 (3) the commissioner; [or]
4-17 (4) [(3)] an employee of the agency or of a nonprofit
4-18 corporation created under Section 43.006; or
4-19 (5) an interested person.
4-20 SECTION 1.05. Section 43.0034(a), Education Code, is amended
4-21 to read as follows:
4-22 (a) The Permanent School Fund Investment Board [board] shall
4-23 prescribe forms for:
4-24 (1) statements of possible conflicts of interest and
4-25 waivers of possible conflicts of interest under Section 43.0032;
4-26 and
4-27 (2) reports of expenditures under Section 43.0033.
5-1 SECTION 1.06. Chapter 43, Education Code, is amended by
5-2 adding Sections 43.0035 and 43.0036 to read as follows:
5-3 Sec. 43.0035. FAILURE TO DISCLOSE POTENTIAL CONFLICT OF
5-4 INTEREST RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT SCHOOL
5-5 FUND. If an interested person enters into an arrangement involving
5-6 the management or investment of the permanent school fund under
5-7 which the interested person serves as a consultant, advisor,
5-8 broker, money manager, investment manager, dealer, or vendor of a
5-9 consultant, advisor, broker, money manager, investment manager, or
5-10 dealer, and the interested person fails to disclose a relationship
5-11 described by Section 43.0032(a) with another interested person:
5-12 (1) the arrangement is voidable by the Permanent
5-13 School Fund Investment Board or the comptroller; and
5-14 (2) the Permanent School Fund Investment Board or the
5-15 comptroller may enter an order declaring the person ineligible to
5-16 contract for business relating to management or investment of the
5-17 permanent school fund.
5-18 Sec. 43.0036. INFORMATION REGARDING PERSONS INTERESTED IN
5-19 INVESTMENTS OF PERMANENT SCHOOL FUND. (a) The Permanent School
5-20 Fund Investment Board shall maintain on an Internet website a
5-21 listing of each interested person. The list must include the
5-22 person's full name and business address and must be updated at
5-23 least once each calendar quarter.
5-24 (b) The board may use an Internet website established and
5-25 maintained by the agency to comply with this section.
5-26 SECTION 1.07. Section 43.004(a), Education Code, is amended
5-27 to read as follows:
6-1 (a) The Permanent School Fund Investment Board [State Board
6-2 of Education] shall develop written investment objectives
6-3 concerning the investment of the permanent school fund. The
6-4 objectives may address desired rates of return, risks involved,
6-5 investment time frames, and any other relevant considerations.
6-6 SECTION 1.08. Section 43.005, Education Code, is amended to
6-7 read as follows:
6-8 Sec. 43.005. EXTERNAL INVESTMENT MANAGERS. (a) The
6-9 Permanent School Fund Investment Board [State Board of Education]
6-10 may contract with private professional investment managers to
6-11 assist the board in making investments of the permanent school
6-12 fund. A contract under this subsection must be approved by the
6-13 board or otherwise entered into in accordance with board rules
6-14 relating to contracting authority.
6-15 (b) The Permanent School Fund Investment Board [State Board
6-16 of Education] by rule may delegate a power or duty relating to the
6-17 investment of the permanent school fund to a committee, officer,
6-18 employee, or other agent of the board.
6-19 SECTION 1.09. Chapter 43, Education Code, is amended by
6-20 adding Sections 43.0051 and 43.0052 to read as follows:
6-21 Sec. 43.0051. REQUIRED CONTRACT PROVISION. The Permanent
6-22 School Fund Investment Board shall include as a part of each
6-23 contract under which a consultant, advisor, broker, money manager,
6-24 investment manager, dealer, or other person agrees to provide
6-25 services to the board relating to the management or investment of
6-26 the permanent school fund a standard provision adopted by the
6-27 board:
7-1 (1) requiring the person to comply with all applicable
7-2 statutes and rules relating to the services provided by the person
7-3 to the board; and
7-4 (2) acknowledging that the board may terminate the
7-5 contract or any other arrangement between the board and the person
7-6 if the person fails to comply with those statutes and rules.
7-7 Sec. 43.0052. COOPERATION RELATING TO INVESTIGATION OR
7-8 DISCIPLINARY ACTIONS OF CERTAIN PERSONS INTERESTED IN MANAGEMENT OR
7-9 INVESTMENT OF PERMANENT SCHOOL FUND. (a) As appropriate, the
7-10 comptroller shall provide information relating to disciplinary
7-11 actions taken by the Permanent School Fund Investment Board or the
7-12 comptroller against a consultant, advisor, broker, money manager,
7-13 investment manager, or dealer doing business with or seeking to do
7-14 business with the permanent school fund to:
7-15 (1) the United States Securities and Exchange
7-16 Commission;
7-17 (2) the securities commissioner;
7-18 (3) self-regulatory organizations, including the
7-19 National Association of Securities Dealers, Inc.; and
7-20 (4) professional organizations of persons involved in
7-21 management or investment of institutional funds, including the
7-22 Association for Investment Management and Research.
7-23 (b) The comptroller shall closely cooperate with persons
7-24 described by Subsections (a)(1)-(4) in those persons'
7-25 investigations involving consultants, brokers, or dealers doing
7-26 business with or seeking to do business with the permanent school
7-27 fund.
8-1 SECTION 1.10. Sections 43.006(a) and (d)-(f), Education Code,
8-2 are amended to read as follows:
8-3 (a) The Permanent School Fund Investment Board [State Board
8-4 of Education] may delegate investment authority and contract for
8-5 the investment of the permanent school fund to the same extent as
8-6 the governing board of an institution of higher education with
8-7 respect to an institutional fund under Chapter 163, Property Code.
8-8 (d) The board of directors of the corporation must be
8-9 members of the Permanent School Fund Investment Board [State Board
8-10 of Education].
8-11 (e) If an investment contract entered into under Subsection
8-12 (b) includes the permanent school fund within the scope of funds
8-13 under the control and management of the Permanent School Fund
8-14 Investment Board [State Board of Education] to be invested by the
8-15 corporation, the board shall provide for an annual financial audit
8-16 of the permanent school fund. The audit shall be performed by the
8-17 state auditor.
8-18 (f) The corporation shall file [quarterly] reports with the
8-19 Permanent School Fund Investment Board [State Board of Education]
8-20 concerning matters required by the board. The board may determine
8-21 the frequency of reports under this subsection.
8-22 SECTION 1.11. Chapter 43, Education Code, is amended by
8-23 adding Sections 43.0061-43.0064 to read as follows:
8-24 Sec. 43.0061. CONTRACT WITH STATE AUDITOR FOR
8-25 INVESTIGATIONS. (a) In this section, "investigation" has the
8-26 meaning assigned by Section 321.0136, Government Code.
8-27 (b) The Permanent School Fund Investment Board shall enter
9-1 into a written contract with the state auditor under Chapter 771,
9-2 Government Code, for the state auditor to investigate any
9-3 allegation made in writing to the board raising the issue of
9-4 misfeasance or malfeasance relating to the management or investment
9-5 of the permanent school fund, including an allegation relating to:
9-6 (1) the board's compliance with the investment
9-7 standards prescribed under Section 5(e), Article VII, Texas
9-8 Constitution;
9-9 (2) any violation of the ethics policy adopted by the
9-10 board under Section 43.0031;
9-11 (3) any violation of Section 43.0032;
9-12 (4) any conflict of interest that affects the board's
9-13 decisions relating to:
9-14 (A) consultant and money manager selection;
9-15 (B) asset allocation; and
9-16 (C) broker-dealer eligibility requirements; and
9-17 (5) the effect of an informal advisor on the board's
9-18 decisions relating to management or investment of the permanent
9-19 school fund.
9-20 Sec. 43.0062. BARRING CERTAIN PERSONS FROM CONTRACTING TO
9-21 PROVIDE SERVICES RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT
9-22 SCHOOL FUND. (a) An interested person may be barred from
9-23 contracting with the Permanent School Fund Investment Board or
9-24 another interested person to provide services relating to the
9-25 management or investment of the permanent school fund if it is
9-26 determined at a contested case hearing held under Section 43.0063
9-27 that the interested person who is the subject of the hearing has
10-1 violated:
10-2 (1) the ethics policy adopted by the board under
10-3 Section 43.0031; or
10-4 (2) the conflict of interest restrictions under
10-5 Section 43.0032.
10-6 (b) This section does not affect the validity of a contract
10-7 entered into before a determination is made that the interested
10-8 person should be barred from contracting with the board or another
10-9 interested person unless the contract may be voided under this
10-10 chapter.
10-11 Sec. 43.0063. HEARINGS BY STATE OFFICE OF ADMINISTRATIVE
10-12 HEARINGS. (a) The commissioner, on behalf of the Permanent School
10-13 Fund Investment Board, and the chief administrative law judge of
10-14 the State Office of Administrative Hearings shall adopt a
10-15 memorandum of understanding under which the State Office of
10-16 Administrative Hearings conducts the contested case hearings
10-17 required for purposes of Section 43.0062.
10-18 (b) The memorandum of understanding must require the chief
10-19 administrative law judge and the board to cooperate in connection
10-20 with a contested case hearing required for purposes of Section
10-21 43.0062.
10-22 (c) The memorandum of understanding must provide that the
10-23 administrative law judge who conducts a contested case hearing for
10-24 the State Office of Administrative Hearings on behalf of the board,
10-25 after completing the hearing, shall:
10-26 (1) determine whether a ground exists under Section
10-27 43.0062(a) so that an interested person should be barred from
11-1 contracting with the Permanent School Fund Investment Board or
11-2 another interested person to provide services relating to the
11-3 management or investment of the permanent school fund; and
11-4 (2) if a determination is made that the interested
11-5 person should be barred from contracting with the board or another
11-6 interested person, notwithstanding Section 2003.042, Government
11-7 Code, enter the final decision in the case concerning the period
11-8 for which the person is barred based on:
11-9 (A) whether the person has previously violated
11-10 the ethics policy or conflict of interest restrictions;
11-11 (B) the seriousness of the person's violation;
11-12 and
11-13 (C) the damage to the interests of the permanent
11-14 school fund.
11-15 (d) A person may obtain judicial review of a decision of an
11-16 administrative law judge under this section in the manner provided
11-17 by Subchapter G, Chapter 2001, Government Code.
11-18 Sec. 43.0064. MANAGEMENT AND PERFORMANCE AUDIT. (a) As
11-19 frequently as the legislative audit committee determines necessary
11-20 or advisable, the committee shall select an independent firm with
11-21 substantial experience in evaluating institutional investment
11-22 practices and performance to evaluate investment management
11-23 practices and performance relating to the permanent school fund.
11-24 (b) The legislative audit committee shall determine specific
11-25 areas to be evaluated.
11-26 (c) A firm selected under this section shall file a report
11-27 of the firm's evaluation under this section with the legislative
12-1 audit committee not later than the date specified by the committee.
12-2 (d) The agency shall pay the costs of each evaluation under
12-3 this section out of the available school fund.
12-4 SECTION 1.12. Section 43.007, Education Code, is amended to
12-5 read as follows:
12-6 Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF INVESTMENTS
12-7 [SECURITIES]. (a) The Permanent School Fund Investment Board
12-8 [State Board of Education] may authorize the purchase of all
12-9 investments [of the types of securities] in which it is authorized
12-10 by law to invest the permanent school fund [in either registered or
12-11 negotiable form]. The board may authorize the reissue of
12-12 investments [those securities] held at at any time for the account
12-13 of the permanent school fund [in either registered or negotiable
12-14 form]. The board [State Board of Education] may authorize the sale
12-15 of any investments [of the securities] held for the account of the
12-16 permanent school fund and reinvest the proceeds of sale for the
12-17 fund and may authorize the exchange of any investments [of the
12-18 securities] held for the account of the permanent school fund.
12-19 (b) In making purchases, sales, exchanges, and reissues, the
12-20 Permanent School Fund Investment Board [State Board of Education]
12-21 shall exercise the standard of care prescribed by Section 5(e),
12-22 Article VII, Texas Constitution [judgment and care under the
12-23 circumstances then prevailing that persons of ordinary prudence,
12-24 discretion, and intelligence exercise in the management of their
12-25 own affairs not in regard to speculation but in regard to the
12-26 permanent disposition of their funds, considering the probable
12-27 income as well as the probable safety of their capital].
13-1 (c) When any investments [securities] are sold, reissued, or
13-2 exchanged as provided by Subsection (a), the custodian of the
13-3 investments [securities] shall deliver the investments [securities]
13-4 sold, reissued, or exchanged in accordance with the directions of
13-5 the Permanent School Fund Investment Board [State Board of
13-6 Education].
13-7 SECTION 1.13. Sections 43.008(a) and (b), Education Code, are
13-8 amended to read as follows:
13-9 (a) If the Permanent School Fund Investment Board [State
13-10 Board of Education] authorizes the payment of a premium out of the
13-11 permanent school fund for purchasing any fixed-income security as
13-12 an investment for that fund, the principal of the security and a
13-13 portion of the interest accruing from the security equal to the
13-14 premium shall be treated as principal in the investment as provided
13-15 by Subsection (c) and shall be returned to the permanent school
13-16 fund.
13-17 (b) If the Permanent School Fund Investment Board [State
13-18 Board of Education] authorizes the purchase of a fixed-income
13-19 security at less than par, the discount received in the purchase
13-20 shall be paid to the available school fund as additional interest
13-21 revenue as provided by Subsection (c).
13-22 SECTION 1.14. Sections 43.009(a)-(c), Education Code, are
13-23 amended to read as follows:
13-24 (a) The Permanent School Fund Investment Board [State Board
13-25 of Education] may authorize the governing body of any political
13-26 subdivision in this state to pay off and discharge, at any interest
13-27 paying date whether the bonds are matured or not, all or any part
14-1 of any outstanding bond indebtedness owned by the permanent school
14-2 fund.
14-3 (b) The governing body of a political subdivision desiring
14-4 to pay off and discharge any bonded indebtedness owned by the fund
14-5 shall apply in writing to the Permanent School Fund Investment
14-6 Board [State Board of Education], not later than the 30th day
14-7 before any interest paying date on the bonds, describing the bonds
14-8 or part of the bonds it desires to pay off and discharge. The
14-9 application must be accompanied by an affidavit stating that only
14-10 tax money collected from a tax levy made for the specific purpose
14-11 of providing a sinking fund and paying interest on the particular
14-12 bonds to be redeemed will be spent in redeeming, taking up, or
14-13 paying off the bonds.
14-14 (c) The Permanent School Fund Investment Board [State Board
14-15 of Education], on receiving the application and affidavit, shall
14-16 take action on them in the manner it considers best and shall
14-17 notify the applicant whether the application is refused or granted
14-18 in whole or in part.
14-19 SECTION 1.15. Section 43.010, Education Code, is amended to
14-20 read as follows:
14-21 Sec. 43.010. DEFAULT OF SCHOOL DISTRICT BONDS [SECURITIES]
14-22 HELD BY [THE] PERMANENT SCHOOL FUND. (a) If interest or principal
14-23 has not been paid for two years or more on any bonds issued by any
14-24 school district and held by the permanent school fund, the
14-25 Permanent School Fund Investment Board [State Board of Education]
14-26 may:
14-27 (1) compel the district to levy a tax sufficient to
15-1 meet the interest and principal payments then or later due; or
15-2 (2) if the district furnishes to the Permanent School
15-3 Fund Investment Board [State Board of Education] satisfactory proof
15-4 that the district's taxing ability is insufficient, require the
15-5 district to:
15-6 (A) exhaust all legal remedies in collecting
15-7 delinquent taxes; and
15-8 (B) levy a tax at the maximum lawful rate on the
15-9 bona fide valuation of taxable property located in the district.
15-10 (b) Revenue collected by either method specified by
15-11 Subsection (a) shall be distributed proportionately to all owners
15-12 of the defaulted bonds [securities] in compliance with the
15-13 following:
15-14 (1) the proportionate share for each owner is based on
15-15 the interest and principal requirements of the original bond
15-16 [security] before authorized refunding; and
15-17 (2) prior acceptance of refunding bonds [securities]
15-18 does not reduce an owner's proportionate share.
15-19 (c) As long as any school district is delinquent in its
15-20 payments of principal or interest on any of its bonds owned by the
15-21 permanent school fund, the Permanent School Fund Investment Board
15-22 [State Board of Education] may specify the method of crediting
15-23 payments to the state made by the district as to principal and
15-24 interest.
15-25 (d) The comptroller may not issue any warrant from the
15-26 foundation school fund to or for the benefit of any district that
15-27 has been for as long as two years in default in the payment of
16-1 principal or interest on any bond [security] owned by the permanent
16-2 school fund until the Permanent School Fund Investment Board [State
16-3 Board of Education] certifies that the district has satisfactorily
16-4 complied with the appropriate provisions of this section, in which
16-5 event the comptroller shall resume making payments to or for the
16-6 benefit of the district, including the making of pretermitted
16-7 payments.
16-8 SECTION 1.16. Sections 43.011(a)-(e), Education Code, are
16-9 amended to read as follows:
16-10 (a) In compliance with this section, the Permanent School
16-11 Fund Investment Board [State Board of Education] may revise,
16-12 readjust, modify, refinance, or refund defaulted bonds issued by
16-13 any school district in this state and owned by either the permanent
16-14 school fund or the available school fund.
16-15 (b) Application must be made to the Permanent School Fund
16-16 Investment Board [State Board of Education] by the district that
16-17 issued the bonds and must show that:
16-18 (1) delinquent interest totals at least 50 percent of
16-19 the principal amount of the bonds; and
16-20 (2) taxable valuation has decreased to such an extent
16-21 that a full application of the proceeds of the voted authorized tax
16-22 authorized to be levied on the $100 taxable property valuation will
16-23 not meet interest and principal annually maturing on the bonds.
16-24 (c) The Permanent School Fund Investment Board [State Board
16-25 of Education] may effect a refunding of the debt due and to become
16-26 due only if the board finds that:
16-27 (1) the district is unable to pay the sums already
17-1 matured and the sums contracted to be paid as they mature by paying
17-2 annually to the Permanent School Fund Investment Board [State Board
17-3 of Education] the full proceeds of a 50-cent tax levy on the $100
17-4 of all taxable valuation of property in the district;
17-5 (2) the taxable valuation of property in the district
17-6 has decreased at least 75 percent since the bonds were issued and
17-7 that the decrease was not caused by the district or any of its
17-8 officials;
17-9 (3) the district for a period of at least five years
17-10 before applying to the Permanent School Fund Investment Board
17-11 [State Board of Education] for refunding has levied a tax of 50
17-12 cents on the $100 of taxable valuation of property in the district,
17-13 and that despite such levies, the aggregate amount due the
17-14 Permanent School Fund Investment Board [State Board of Education]
17-15 exceeds the aggregate amount due at the beginning of the period;
17-16 (4) the district has not authorized and sold
17-17 additional bonds during the five-year period immediately preceding
17-18 the application; and
17-19 (5) the district has in good faith endeavored to pay
17-20 its debt in accordance with the contract evidenced by the bonds
17-21 held for the account of the permanent school fund or the available
17-22 school fund.
17-23 (d) If the conditions specified by Subsection (c) are found
17-24 to exist, the district is, for purposes of this section, insolvent,
17-25 and the Permanent School Fund Investment Board [State Board of
17-26 Education] may exchange the bonds, interest coupons, and other
17-27 evidences of indebtedness for new refunding bonds of the district
18-1 issued in compliance with the following:
18-2 (1) the principal amount of the refunding bonds may
18-3 not be less than the total amount of the bonds, matured interest
18-4 coupons, accrued interest, and interest on delinquent interest then
18-5 actually due to the permanent school fund or the available school
18-6 fund; and
18-7 (2) the rate of interest to be borne by the refunding
18-8 bonds may be lower than that borne by the bonds to be refunded if
18-9 in consideration of the interest reduction the district agrees to
18-10 levy a tax each year for a period of 40 years at a rate sufficient
18-11 to produce annually a sum equal to 90 percent of the amount that
18-12 can be calculated by the levy of a tax at the rate of 50 cents on
18-13 the $100 of taxable valuation of property as determined by the
18-14 latest approved tax roll of the district, and in determining the
18-15 rate of interest to be borne by the refunding bonds, the Permanent
18-16 School Fund Investment Board [State Board of Education] shall be
18-17 governed by the following:
18-18 (A) the Permanent School Fund Investment Board
18-19 [State Board of Education] may require the rate to be an annual [a]
18-20 percent [per annum] as in its judgment will represent the maximum
18-21 rate that can be paid by the district and still permit an orderly
18-22 and certain retirement of the refunding bonds within 40 years from
18-23 their date;
18-24 (B) the interest rate of refunding bonds to be
18-25 received in exchange for bonds owned by the permanent school fund
18-26 may not be less than the minimum rate at which bonds may then be
18-27 purchased as investments for the permanent school fund; and
19-1 (C) the rate of interest of refunding bonds to
19-2 be received in exchange for bonds owned by the available school
19-3 fund may be set by the Permanent School Fund Investment Board
19-4 [State Board of Education] at any rate the board considers
19-5 feasible, and the refunding bonds may, at the discretion of the
19-6 board [State Board of Education], be made non-interest bearing to a
19-7 date fixed by the board.
19-8 (e) The Permanent School Fund Investment Board [State Board
19-9 of Education] may not make a revision, readjustment, modification,
19-10 refinancing, or refunding that will release or extinguish any debt
19-11 or obligation then due and payable to the permanent school fund or
19-12 to the available school fund.
19-13 SECTION 1.17. Sections 43.012(a) and (c)-(f), Education Code,
19-14 are amended to read as follows:
19-15 (a) Defaulted obligations, other than bonds of school
19-16 districts as provided by Section 43.011, due the available school
19-17 fund may be refinanced or refunded with the approval of the
19-18 Permanent School Fund Investment Board [State Board of Education]
19-19 in compliance with this section.
19-20 (c) The obligor must apply to the Permanent School Fund
19-21 Investment Board [State Board of Education] and show:
19-22 (1) that the obligations due the available school fund
19-23 have been in default in whole or in part for a continuous period of
19-24 at least 15 years; and
19-25 (2) that the obligor is not in default in the payment
19-26 of the principal of any bonds owned by the permanent school fund.
19-27 (d) If the Permanent School Fund Investment Board [State
20-1 Board of Education] finds that the requirements provided by
20-2 Subsection (c) have been met, it may approve a refinancing or the
20-3 issuance of refunding bonds on the conditions:
20-4 (1) that the refunding bonds must mature serially in
20-5 not exceeding 40 years from the date of issuance;
20-6 (2) that the principal amount of the refunding bonds
20-7 may be not less than the total amount of the obligations then in
20-8 default and due the available school fund; and
20-9 (3) that the refunding bonds must bear interest at a
20-10 rate or rates determined by the Permanent School Fund Investment
20-11 Board [State Board of Education] to be for the best interest of the
20-12 available school fund.
20-13 (e) The Permanent School Fund Investment Board [State Board
20-14 of Education] may accept refunding bonds in lieu of either matured
20-15 or unmatured bonds held for the benefit of the permanent school
20-16 fund if the rate of interest on the new refunding bonds is at least
20-17 the same rate as that of the bonds being refunded.
20-18 (f) Refunding bonds issued with the approval or pursuant to
20-19 a refunding agreement with the Permanent School Fund Investment
20-20 Board [State Board of Education] in compliance with either this
20-21 section or Section 43.011 shall, on the order of the board [State
20-22 Board of Education], be exchanged by the comptroller for the
20-23 defaulted obligations they have been issued to refund.
20-24 SECTION 1.18. The heading to Section 43.014, Education Code,
20-25 is amended to read as follows:
20-26 Sec. 43.014. DUTIES OF COMPTROLLER RELATING TO AVAILABLE
20-27 SCHOOL FUND.
21-1 SECTION 1.19. Section 43.014(a), Education Code, is amended
21-2 to read as follows:
21-3 (a) On or before July 1 of each year, the comptroller shall
21-4 estimate the amount of the available school fund receivable from
21-5 every source during the following school year and report the
21-6 estimate to the Permanent School Fund Investment Board [State Board
21-7 of Education].
21-8 SECTION 1.20. The heading to Section 43.015, Education Code,
21-9 is amended to read as follows:
21-10 Sec. 43.015. ADDITIONAL DUTIES OF COMPTROLLER.
21-11 SECTION 1.21. Sections 43.015(b), (e), and (f), Education
21-12 Code, are amended to read as follows:
21-13 (b) The comptroller shall provide the Permanent School Fund
21-14 Investment Board [State Board of Education] with the reports
21-15 specified by Subsection (a) and with additional reports concerning
21-16 those funds requested by the board [State Board of Education].
21-17 (e) On order of the Permanent School Fund Investment Board
21-18 [State Board of Education], the comptroller shall exchange or
21-19 accept refunding bonds in lieu of:
21-20 (1) either matured or unmatured bonds held for the
21-21 benefit of the permanent school fund, which are being refunded
21-22 under this chapter;
21-23 (2) defaulted obligations held for the benefit of the
21-24 available school fund if the refunding bonds are issued in
21-25 compliance with Section 43.012;
21-26 (3) defaulted obligations of any school district of
21-27 this state held for the benefit of the permanent school fund or the
22-1 available school fund if the refunding bonds are issued in
22-2 compliance with Section 43.011; or
22-3 (4) refunding bonds of any school district of this
22-4 state for school bonds not matured held by the comptroller for the
22-5 permanent school fund if the new refunding bonds are issued by the
22-6 school district in compliance with this code.
22-7 (f) The comptroller shall be the custodian of investments
22-8 [all securities enumerated in Section 43.003(6) and of other
22-9 securities as] designated by the Permanent School Fund Investment
22-10 Board [State Board of Education] in which the school funds of the
22-11 state are invested. The comptroller shall keep those investments
22-12 [securities] in the comptroller's custody until paid off,
22-13 discharged, delivered as required by the Permanent School Fund
22-14 Investment Board [State Board of Education], or otherwise disposed
22-15 of by the proper authorities of the state, and on the proper
22-16 installment of any interest or dividend, shall see that the proper
22-17 credit is given, and the coupons on bonds, when paid, shall be
22-18 separated from the bonds and cancelled by the comptroller.
22-19 SECTION 1.22. Sections 43.017-43.019, Education Code, are
22-20 amended to read as follows:
22-21 Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
22-22 COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
22-23 The Permanent School Fund Investment Board [State Board of
22-24 Education] may contract with one or more commercial banks to
22-25 receive payments of dividends and interest on investments
22-26 [securities] in which the state permanent school funds are invested
22-27 and transmit that money with identification of its source to the
23-1 comptroller for the account of the available school fund by the
23-2 fastest available means.
23-3 (b) In choosing each commercial bank with which to contract
23-4 as authorized by Subsection (a), the Permanent School Fund
23-5 Investment Board [State Board of Education] shall assure itself of:
23-6 (1) the financial stability of the bank;
23-7 (2) the location of the bank with respect to its
23-8 proximity to the banks on which checks are drawn in payment of
23-9 dividends and interest on investments [securities] of the permanent
23-10 school fund;
23-11 (3) the experience and reliability of the bank in
23-12 acting as agent for others in the similar collection and
23-13 expeditious remittance of money; and
23-14 (4) the reasonableness of the bank's charges for the
23-15 services, both in amount of the charges and in relation to the
23-16 increased investment earnings of the available school fund that
23-17 will result from speedier receipt by the comptroller of the money.
23-18 Sec. 43.018. PARTICIPATION IN FULLY SECURED SECURITIES LOAN
23-19 PROGRAMS. (a) The Permanent School Fund Investment Board [State
23-20 Board of Education] may contract with a commercial bank to serve
23-21 both as a custodian of securities in which the state permanent
23-22 school funds are invested and to lend those securities, under the
23-23 conditions prescribed by Subsection (b), to securities brokers and
23-24 dealers on short-term loan.
23-25 (b) The Permanent School Fund Investment Board [State Board
23-26 of Education] may contract with a commercial bank pursuant to this
23-27 section only if:
24-1 (1) the bank is located in a city having a major stock
24-2 exchange;
24-3 (2) the bank is experienced in the operation of a
24-4 fully secured securities loan program;
24-5 (3) the bank has adequate capital in the prudent
24-6 judgment of the Permanent School Fund Investment Board [State Board
24-7 of Education] to assure the safety of the securities entrusted to
24-8 it as a custodian;
24-9 (4) the bank will require of any securities broker or
24-10 dealer to which it lends securities owned by the state permanent
24-11 school fund that the broker or dealer deliver to it cash collateral
24-12 for the loan of securities, and that the cash collateral will at
24-13 all times be not less than 100 percent of the market value of the
24-14 securities lent;
24-15 (5) the bank executes an indemnification agreement,
24-16 satisfactory in form and content to the Permanent School Fund
24-17 Investment Board [State Board of Education], fully indemnifying the
24-18 permanent and available school funds against loss resulting from
24-19 borrower default or the failure of the bank to properly execute the
24-20 responsibilities of the bank under the applicable securities
24-21 lending agreement [the bank's service as custodian of securities of
24-22 the permanent school fund and its operation of a securities loan
24-23 program using securities of the permanent school fund];
24-24 (6) the bank will speedily collect and remit on the
24-25 day of collection by the fastest available means to the comptroller
24-26 any dividends and interest collectible by it on securities held by
24-27 it as custodian, together with identification as to the source of
25-1 the dividends or interest; and
25-2 (7) the bank is the bank agreeing to pay to the
25-3 available school fund the largest sum or highest percentage of the
25-4 income derived by the bank from use of the securities of the
25-5 permanent school fund in the operation of a securities loan
25-6 program.
25-7 Sec. 43.019. ACCOUNTING TREATMENT OF CERTAIN EXCHANGES. The
25-8 Permanent School Fund Investment Board [State Board of Education]
25-9 may account for the exchange of permanent school fund securities in
25-10 a closely related sale and purchase transaction in a manner in
25-11 which the gain or loss on the sale is deferred as an adjustment to
25-12 the book value of the security purchased, if:
25-13 (1) the security sold and the security purchased have
25-14 a fixed maturity value;
25-15 (2) the board is authorized by law to invest the
25-16 permanent school fund in the security purchased;
25-17 (3) the sale is made in clear contemplation of
25-18 reinvesting substantially all of the proceeds;
25-19 (4) substantially all of the proceeds are reinvested;
25-20 (5) the transaction is completed within a reasonable
25-21 time after the sale, not to exceed 30 business days; and
25-22 (6) the transaction results in an improvement in
25-23 effective income yield, taking into consideration the deferral of
25-24 any gain or loss on the sale.
25-25 SECTION 1.23. Section 45.051(1), Education Code, is amended
25-26 to read as follows:
25-27 (1) "Board" means the Permanent School Fund Investment
26-1 Board [State Board of Education].
26-2 SECTION 1.24. Section 7.108(a), Education Code, is amended to
26-3 read as follows:
26-4 (a) A [person interested in selling bonds of any type or a]
26-5 person engaged in manufacturing, shipping, selling, or advertising
26-6 textbooks or otherwise connected with the textbook business commits
26-7 an offense if the person makes or authorizes a political
26-8 contribution to or takes part in, directly or indirectly, the
26-9 campaign of any person seeking election to or serving on the board.
26-10 SECTION 1.25. Section 321.013, Government Code, is amended by
26-11 adding Subsection (j) to read as follows:
26-12 (j) The State Auditor shall enter into a written contract
26-13 with the Permanent School Fund Investment Board for the State
26-14 Auditor to investigate an allegation relating to the management and
26-15 investment of the permanent school fund as prescribed by Section
26-16 43.0061, Education Code. After an investigation of an allegation
26-17 is completed, the State Auditor shall prepare a written report of
26-18 the results of that investigation. The State Auditor shall submit
26-19 the report to the committee before publication. The State Auditor
26-20 shall file a copy of the report with the governor, the lieutenant
26-21 governor, the speaker of the house of representatives, each member
26-22 of the Permanent School Fund Investment Board, and each member of
26-23 the standing committees of the senate and of the house of
26-24 representatives with primary jurisdiction over the Permanent School
26-25 Fund Investment Board.
26-26 SECTION 1.26. Section 7.102(c)(31), Education Code, is
26-27 repealed.
27-1 SECTION 1.27. (a) The ethics policy adopted by the State
27-2 Board of Education under Section 43.0031, Education Code, as that
27-3 section existed before amendment by this article, remains in effect
27-4 until altered by the Permanent School Fund Investment Board. A
27-5 complaint regarding a violation of the ethics policy pending before
27-6 the State Board of Education is transferred without change in
27-7 status to the Permanent School Fund Investment Board.
27-8 (b) A form prescribed by the State Board of Education under
27-9 Section 43.0034, Education Code, as that section existed before
27-10 amendment by this article, remains in effect as a form of the
27-11 Permanent School Fund Investment Board until altered by that board.
27-12 (c) Written investment objectives developed by the State
27-13 Board of Education under Section 43.004, Education Code, as that
27-14 section existed before amendment by this article, remain in effect
27-15 as written investment objectives of the Permanent School Fund
27-16 Investment Board until altered by that board.
27-17 (d) All contracts of the State Board of Education relating
27-18 to management and investment of the permanent school fund are
27-19 transferred to the Permanent School Fund Investment Board on the
27-20 date of the first meeting of the Permanent School Fund Investment
27-21 Board.
27-22 SECTION 1.28. Sections 43.0035 and 43.0051, Education Code,
27-23 as added by this article, apply only to an arrangement or contract
27-24 entered into on or after January 1, 2002.
27-25 SECTION 1.29. Not later than March 1, 2002, the Permanent
27-26 School Fund Investment Board shall post on an Internet website the
27-27 information required by Section 43.0036, Education Code, as added
28-1 by this article.
28-2 SECTION 1.30. Not later than May 1, 2002, the commissioner of
28-3 education, on behalf of the Permanent School Fund Investment Board,
28-4 and the chief administrative law judge of the State Office of
28-5 Administrative Hearings shall adopt a memorandum of understanding
28-6 as prescribed by Section 43.0063, Education Code, as added by this
28-7 article.
28-8 SECTION 1.31. Not later than March 1, 2002, the legislative
28-9 audit committee shall select an independent firm to evaluate
28-10 investment management practices and performance relating to the
28-11 permanent school fund as required by Section 43.0064, Education
28-12 Code, as added by this article. The evaluation must include a
28-13 comprehensive analysis of the State Board of Education's investment
28-14 program relating to the permanent school fund.
28-15 SECTION 1.32. A reference in law to the State Board of
28-16 Education that relates to management or investment of the permanent
28-17 school fund means the Permanent School Fund Investment Board.
28-18 SECTION 1.33. This article takes effect January 1, 2002, but
28-19 only if the constitutional amendment proposed by the 77th
28-20 Legislature, Regular Session, 2001, providing for the transfer of
28-21 authority to invest and manage the permanent school fund from the
28-22 State Board of Education to the Permanent School Fund Investment
28-23 Board, is approved by the voters. If the proposed constitutional
28-24 amendment is not approved by the voters, this article has no
28-25 effect.
28-26 ARTICLE 2. PERMANENT SCHOOL FUND ADVISORY COMMITTEE
28-27 SECTION 2.01. Subchapter D, Chapter 7, Education Code, is
29-1 amended by adding Section 7.113 to read as follows:
29-2 Sec. 7.113. CONTRACT WITH STATE AUDITOR FOR INVESTIGATIONS.
29-3 (a) In this section, "investigation" has the meaning assigned by
29-4 Section 321.0136, Government Code.
29-5 (b) The board shall enter into a written contract with the
29-6 state auditor under Chapter 771, Government Code, for the state
29-7 auditor to investigate any allegation made in writing to the board
29-8 raising the issue of misfeasance or malfeasance relating to the
29-9 management or investment of the permanent school fund, including an
29-10 allegation relating to:
29-11 (1) the board's compliance with the investment
29-12 standards prescribed under Section 5(d), Article VII, Texas
29-13 Constitution;
29-14 (2) any violation of the ethics policy adopted by the
29-15 board under Section 43.0031;
29-16 (3) any violation of Section 43.0032;
29-17 (4) any conflict of interest that affects the board's
29-18 decisions relating to:
29-19 (A) consultant and money manager selection;
29-20 (B) asset allocation; and
29-21 (C) broker-dealer eligibility requirements; and
29-22 (5) the effect of an informal advisor on the board's
29-23 decisions relating to management or investment of the permanent
29-24 school fund.
29-25 SECTION 2.02. Chapter 43, Education Code, is amended by
29-26 adding Sections 43.0011 and 43.0012 to read as follows:
29-27 Sec. 43.0011. DEFINITION. In this chapter, "interested
30-1 person" means a person who applies for or receives anything of
30-2 value as a direct or indirect result of permanent school fund
30-3 investments.
30-4 Sec. 43.0012. PERMANENT SCHOOL FUND INVESTMENT ADVISORY
30-5 COMMITTEE. (a) The permanent school fund investment advisory
30-6 committee shall advise the State Board of Education regarding
30-7 management and investment of the permanent school fund.
30-8 (b) The committee is composed of:
30-9 (1) three members appointed by the governor, who are
30-10 not subject to confirmation by the senate;
30-11 (2) three members appointed by the lieutenant
30-12 governor; and
30-13 (3) three members appointed by the speaker of the
30-14 house of representatives.
30-15 (c) A member of the committee serves at the will of the
30-16 member's appointing authority.
30-17 (d) A person appointed to the committee must possess
30-18 substantial experience and expertise in investments, as determined
30-19 by the appointing authority.
30-20 (e) The committee shall select a presiding officer from
30-21 among its members and shall meet at the call of the presiding
30-22 officer.
30-23 (f) A member of the committee may not receive compensation
30-24 but is entitled to reimbursement for travel expenses incurred by
30-25 the member while conducting the business of the committee as
30-26 provided by the General Appropriations Act.
30-27 (g) The committee is not subject to Chapter 2110, Government
31-1 Code.
31-2 SECTION 2.03. Section 43.0031(b), Education Code, is amended
31-3 to read as follows:
31-4 (b) The ethics policy must include provisions applicable to:
31-5 (1) members of the State Board of Education;
31-6 (2) members of the permanent school fund investment
31-7 advisory committee;
31-8 (3) the commissioner;
31-9 (4) [(3)] employees of the agency; [and]
31-10 (5) [(4)] any person who provides services to the
31-11 board relating to the management or investment of the permanent
31-12 school fund; and
31-13 (6) an interested person.
31-14 SECTION 2.04. Section 43.0032, Education Code, is amended to
31-15 read as follows:
31-16 Sec. 43.0032. CONFLICTS OF INTEREST. (a) This section
31-17 applies to:
31-18 (1) a [A] member of the State Board of Education;
31-19 (2) a member of the permanent school fund advisory
31-20 committee;
31-21 (3) [,] the commissioner;
31-22 (4) [,] an employee of the agency;
31-23 (5) [, or] a person who provides services to the board
31-24 that relate to the management or investment of the permanent school
31-25 fund; and
31-26 (6) an interested person.
31-27 (b) A person to whom this section applies who has a
32-1 business, commercial, or other relationship that a reasonable
32-2 person would find likely [could reasonably be expected] to diminish
32-3 the person's independence of judgment in the performance of the
32-4 person's responsibilities relating to the management or investment
32-5 of the fund shall disclose the relationship in writing to the
32-6 board.
32-7 (c) [(b)] The board or the board's designee shall, in the
32-8 ethics policy adopted under Section 43.0031, define the kinds of
32-9 relationships that may create a possible conflict of interest.
32-10 (d) [(c)] A person who files a statement under Subsection
32-11 (b) [(a)] disclosing a possible conflict of interest may not give
32-12 advice or make decisions about a matter affected by the possible
32-13 conflict of interest unless the board, after consultation with the
32-14 general counsel of the agency, expressly waives this prohibition.
32-15 The board may delegate the authority to waive the prohibition
32-16 established by this subsection.
32-17 SECTION 2.05. Section 43.0033, Education Code, is amended to
32-18 read as follows:
32-19 Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
32-20 advisor, broker, money manager, investment manager, dealer, or
32-21 other person providing services to the State Board of Education
32-22 relating to the management and investment of the permanent school
32-23 fund shall file with the board regularly, as determined by the
32-24 board, a report that describes in detail any expenditure of more
32-25 than $50 made by the person on behalf of:
32-26 (1) a member of the board;
32-27 (2) a member of the permanent school fund advisory
33-1 committee;
33-2 (3) the commissioner; [or]
33-3 (4) [(3)] an employee of the agency or of a nonprofit
33-4 corporation created under Section 43.006; or
33-5 (5) an interested person.
33-6 SECTION 2.06. Chapter 43, Education Code, is amended by
33-7 adding Sections 43.0035, 43.0036, 43.0051, and 43.0052 to read as
33-8 follows:
33-9 Sec. 43.0035. FAILURE TO DISCLOSE POTENTIAL CONFLICT OF
33-10 INTEREST RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT SCHOOL
33-11 FUND. If an interested person enters into an arrangement involving
33-12 the management or investment of the permanent school fund under
33-13 which the interested person serves as a consultant, advisor,
33-14 broker, money manager, investment manager, dealer, or vendor of a
33-15 consultant, advisor, broker, money manager, investment manager, or
33-16 dealer, and the interested person fails to disclose a relationship
33-17 described by Section 43.0032(a) with another interested person:
33-18 (1) the arrangement is voidable by the State Board of
33-19 Education or the comptroller; and
33-20 (2) the State Board of Education or the comptroller
33-21 may enter an order declaring the person ineligible to contract for
33-22 business relating to management or investment of the permanent
33-23 school fund.
33-24 Sec. 43.0036. INFORMATION REGARDING PERSONS INTERESTED IN
33-25 INVESTMENTS OF PERMANENT SCHOOL FUND. (a) The State Board of
33-26 Education shall maintain on an Internet website a listing of each
33-27 interested person. The list must include the person's full name
34-1 and business address and must be updated at least once each
34-2 calendar quarter.
34-3 (b) The board may use an Internet website established and
34-4 maintained by the agency to comply with this section.
34-5 Sec. 43.0051. REQUIRED CONTRACT PROVISION. The State Board
34-6 of Education shall include as a part of each contract under which a
34-7 consultant, advisor, broker, money manager, investment manager,
34-8 dealer, or other person agrees to provide services to the board
34-9 relating to the management or investment of the permanent school
34-10 fund a standard provision adopted by the board:
34-11 (1) requiring the person to comply with all applicable
34-12 statutes and rules relating to the services provided by the person
34-13 to the board; and
34-14 (2) acknowledging that the board may terminate the
34-15 contract or any other arrangement between the board and the person
34-16 if the person fails to comply with those statutes and rules.
34-17 Sec. 43.0052. COOPERATION RELATING TO INVESTIGATION OR
34-18 DISCIPLINARY ACTIONS OF CERTAIN PERSONS INTERESTED IN MANAGEMENT OR
34-19 INVESTMENT OF PERMANENT SCHOOL FUND. (a) As appropriate, the
34-20 comptroller shall provide information relating to disciplinary
34-21 actions taken by the State Board of Education or the comptroller
34-22 against a consultant, advisor, broker, money manager, investment
34-23 manager, or dealer doing business with or seeking to do business
34-24 with the permanent school fund to:
34-25 (1) the United States Securities and Exchange
34-26 Commission;
34-27 (2) the securities commissioner;
35-1 (3) self-regulatory organizations, including the
35-2 National Association of Securities Dealers, Inc.; and
35-3 (4) professional organizations of persons involved in
35-4 management or investment of institutional funds, including the
35-5 Association for Investment Management and Research.
35-6 (b) The comptroller shall closely cooperate with persons
35-7 described by Subsections (a)(1)-(4) in those persons'
35-8 investigations involving consultants, brokers, or dealers doing
35-9 business with or seeking to do business with the permanent school
35-10 fund.
35-11 SECTION 2.07. Section 43.006(f), Education Code, is amended
35-12 to read as follows:
35-13 (f) The corporation shall file [quarterly] reports with the
35-14 State Board of Education concerning matters required by the board.
35-15 The board may determine the frequency of reports under this
35-16 subsection.
35-17 SECTION 2.08. Chapter 43, Education Code, is amended by
35-18 adding Sections 43.0061-43.0063 to read as follows:
35-19 Sec. 43.0061. BARRING CERTAIN PERSONS FROM CONTRACTING TO
35-20 PROVIDE SERVICES RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT
35-21 SCHOOL FUND. (a) An interested person may be barred from
35-22 contracting with the State Board of Education or another interested
35-23 person to provide services relating to the management or investment
35-24 of the permanent school fund if it is determined at a contested
35-25 case hearing held under Section 43.0062 that the interested person
35-26 who is the subject of the hearing has violated:
35-27 (1) the ethics policy adopted by the board under
36-1 Section 43.0031; or
36-2 (2) the conflict of interest restrictions under
36-3 Section 43.0032.
36-4 (b) This section does not affect the validity of a contract
36-5 entered into before a determination is made that the interested
36-6 person should be barred from contracting with the board or another
36-7 interested person unless the contract may be voided under this
36-8 chapter.
36-9 Sec. 43.0062. HEARINGS BY STATE OFFICE OF ADMINISTRATIVE
36-10 HEARINGS. (a) The commissioner, on behalf of the State Board of
36-11 Education, and the chief administrative law judge of the State
36-12 Office of Administrative Hearings shall adopt a memorandum of
36-13 understanding under which the State Office of Administrative
36-14 Hearings conducts the contested case hearings required for purposes
36-15 of Section 43.0061.
36-16 (b) The memorandum of understanding must require the chief
36-17 administrative law judge and the board to cooperate in connection
36-18 with a contested case hearing required for purposes of Section
36-19 43.0061.
36-20 (c) The memorandum of understanding must provide that the
36-21 administrative law judge who conducts a contested case hearing for
36-22 the State Office of Administrative Hearings on behalf of the board,
36-23 after completing the hearing, shall:
36-24 (1) determine whether a ground exists under Section
36-25 43.0061(a) so that an interested person should be barred from
36-26 contracting with the State Board of Education or another interested
36-27 person to provide services relating to the management or investment
37-1 of the permanent school fund; and
37-2 (2) if a determination is made that the interested
37-3 person should be barred from contracting with the board or another
37-4 interested person, notwithstanding Section 2003.042, Government
37-5 Code, enter the final decision in the case concerning the period
37-6 for which the person is barred based on:
37-7 (A) whether the person has previously violated
37-8 the ethics policy or conflict of interest restrictions;
37-9 (B) the seriousness of the person's violation;
37-10 and
37-11 (C) the damage to the interests of the permanent
37-12 school fund.
37-13 (d) A person may obtain judicial review of a decision of an
37-14 administrative law judge under this section in the manner provided
37-15 by Subchapter G, Chapter 2001, Government Code.
37-16 Sec. 43.0063. MANAGEMENT AND PERFORMANCE AUDIT. (a) As
37-17 frequently as the legislative audit committee determines necessary
37-18 or advisable, the committee shall select an independent firm with
37-19 substantial experience in evaluating institutional investment
37-20 practices and performance to evaluate investment management
37-21 practices and performance relating to the permanent school fund.
37-22 (b) The legislative audit committee shall determine specific
37-23 areas to be evaluated.
37-24 (c) A firm selected under this section shall file a report
37-25 of the firm's evaluation under this section with the legislative
37-26 audit committee not later than the date specified by the committee.
37-27 (d) The agency shall pay the costs of each evaluation under
38-1 this section out of the available school fund.
38-2 SECTION 2.09. Section 43.007, Education Code, is amended to
38-3 read as follows:
38-4 Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF INVESTMENTS
38-5 [SECURITIES]. (a) The State Board of Education may authorize the
38-6 purchase of all investments [of the types of securities] in which
38-7 it is authorized by law to invest the permanent school fund [in
38-8 either registered or negotiable form]. The board may authorize the
38-9 reissue of those investments [securities] held at any time for the
38-10 account of the permanent school fund [in either registered or
38-11 negotiable form]. The State Board of Education may authorize the
38-12 sale of any investments [of the securities] held for the account of
38-13 the permanent school fund and reinvest the proceeds of sale for the
38-14 fund and may authorize the exchange of any investments [of the
38-15 securities] held for the account of the permanent school fund.
38-16 (b) In making purchases, sales, exchanges, and reissues, the
38-17 State Board of Education shall exercise the standard of care
38-18 prescribed by Section 5(d), Article VII, Texas Constitution
38-19 [judgment and care under the circumstances then prevailing that
38-20 persons of ordinary prudence, discretion, and intelligence exercise
38-21 in the management of their own affairs not in regard to speculation
38-22 but in regard to the permanent disposition of their funds,
38-23 considering the probable income as well as the probable safety of
38-24 their capital].
38-25 (c) When any investments [securities] are sold, reissued, or
38-26 exchanged as provided by Subsection (a), the custodian of the
38-27 investments [securities] shall deliver the investments [securities]
39-1 sold, reissued, or exchanged in accordance with the directions of
39-2 the State Board of Education.
39-3 SECTION 2.10. The heading to Section 43.010, Education Code,
39-4 is amended to read as follows:
39-5 Sec. 43.010. DEFAULT OF SCHOOL DISTRICT BONDS [SECURITIES]
39-6 HELD BY [THE] PERMANENT SCHOOL FUND.
39-7 SECTION 2.11. Sections 43.010(b) and (d), Education Code, are
39-8 amended to read as follows:
39-9 (b) Revenue collected by either method specified by
39-10 Subsection (a) shall be distributed proportionately to all owners
39-11 of the defaulted bonds [securities] in compliance with the
39-12 following:
39-13 (1) the proportionate share for each owner is based on
39-14 the interest and principal requirements of the original bond
39-15 [security] before authorized refunding; and
39-16 (2) prior acceptance of refunding bonds [securities]
39-17 does not reduce an owner's proportionate share.
39-18 (d) The comptroller may not issue any warrant from the
39-19 foundation school fund to or for the benefit of any district that
39-20 has been for as long as two years in default in the payment of
39-21 principal or interest on any bond [security] owned by the permanent
39-22 school fund until the State Board of Education certifies that the
39-23 district has satisfactorily complied with the appropriate
39-24 provisions of this section, in which event the comptroller shall
39-25 resume making payments to or for the benefit of the district,
39-26 including the making of pretermitted payments.
39-27 SECTION 2.12. Section 43.015(f), Education Code, is amended
40-1 to read as follows:
40-2 (f) The comptroller shall be the custodian of investments
40-3 [all securities enumerated in Section 43.003(6) and of other
40-4 securities as] designated by the State Board of Education in which
40-5 the school funds of the state are invested. The comptroller shall
40-6 keep those investments [securities] in the comptroller's custody
40-7 until paid off, discharged, delivered as required by the State
40-8 Board of Education, or otherwise disposed of by the proper
40-9 authorities of the state, and on the proper installment of any
40-10 interest or dividend, shall see that the proper credit is given,
40-11 and the coupons on bonds, when paid, shall be separated from the
40-12 bonds and cancelled by the comptroller.
40-13 SECTION 2.13. Section 43.017, Education Code, is amended to
40-14 read as follows:
40-15 Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
40-16 COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
40-17 The State Board of Education may contract with one or more
40-18 commercial banks to receive payments of dividends and interest on
40-19 investments [securities] in which the state permanent school funds
40-20 are invested and transmit that money with identification of its
40-21 source to the comptroller for the account of the available school
40-22 fund by the fastest available means.
40-23 (b) In choosing each commercial bank with which to contract
40-24 as authorized by Subsection (a), the State Board of Education shall
40-25 assure itself of:
40-26 (1) the financial stability of the bank;
40-27 (2) the location of the bank with respect to its
41-1 proximity to the banks on which checks are drawn in payment of
41-2 dividends and interest on investments [securities] of the permanent
41-3 school fund;
41-4 (3) the experience and reliability of the bank in
41-5 acting as agent for others in the similar collection and
41-6 expeditious remittance of money; and
41-7 (4) the reasonableness of the bank's charges for the
41-8 services, both in amount of the charges and in relation to the
41-9 increased investment earnings of the available school fund that
41-10 will result from speedier receipt by the comptroller of the money.
41-11 SECTION 2.14. Section 43.018(b), Education Code, is amended
41-12 to read as follows:
41-13 (b) The State Board of Education may contract with a
41-14 commercial bank pursuant to this section only if:
41-15 (1) the bank is located in a city having a major stock
41-16 exchange;
41-17 (2) the bank is experienced in the operation of a
41-18 fully secured securities loan program;
41-19 (3) the bank has adequate capital in the prudent
41-20 judgment of the State Board of Education to assure the safety of
41-21 the securities entrusted to it as a custodian;
41-22 (4) the bank will require of any securities broker or
41-23 dealer to which it lends securities owned by the state permanent
41-24 school fund that the broker or dealer deliver to it cash collateral
41-25 for the loan of securities, and that the cash collateral will at
41-26 all times be not less than 100 percent of the market value of the
41-27 securities lent;
42-1 (5) the bank executes an indemnification agreement,
42-2 satisfactory in form and content to the State Board of Education,
42-3 fully indemnifying the permanent and available school funds against
42-4 loss resulting from borrower default or the failure of the bank to
42-5 properly execute the responsibilities of the bank under the
42-6 applicable securities lending agreement [the bank's service as
42-7 custodian of securities of the permanent school fund and its
42-8 operation of a securities loan program using securities of the
42-9 permanent school fund];
42-10 (6) the bank will speedily collect and remit on the
42-11 day of collection by the fastest available means to the comptroller
42-12 any dividends and interest collectible by it on securities held by
42-13 it as custodian, together with identification as to the source of
42-14 the dividends or interest; and
42-15 (7) the bank is the bank agreeing to pay to the
42-16 available school fund the largest sum or highest percentage of the
42-17 income derived by the bank from use of the securities of the
42-18 permanent school fund in the operation of a securities loan
42-19 program.
42-20 SECTION 2.15. Section 321.013, Government Code, is amended by
42-21 adding Subsection (j) to read as follows:
42-22 (j) The State Auditor shall enter into a written contract
42-23 with the State Board of Education for the State Auditor to
42-24 investigate an allegation relating to the management and investment
42-25 of the permanent school fund as prescribed by Section 7.113,
42-26 Education Code. After an investigation of an allegation is
42-27 completed, the State Auditor shall prepare a written report of the
43-1 results of that investigation. The State Auditor shall submit the
43-2 report to the committee before publication. The State Auditor shall
43-3 file a copy of the report with the governor, the lieutenant
43-4 governor, the speaker of the house of representatives, each member
43-5 of the State Board of Education, and each member of the standing
43-6 committees of the senate and of the house of representatives with
43-7 primary jurisdiction over the State Board of Education.
43-8 SECTION 2.16. Not later than March 1, 2002, the governor,
43-9 lieutenant governor, and speaker of the house of representatives
43-10 shall appoint members of the investment advisory committee, as
43-11 required by Section 43.0012, Education Code, as added by this
43-12 article.
43-13 SECTION 2.17. Sections 43.0035 and 43.0051, Education Code,
43-14 as added by this article, apply only to an arrangement or contract
43-15 entered into on or after January 1, 2002.
43-16 SECTION 2.18. Not later than March 1, 2002, the State Board
43-17 of Education shall post on an Internet website the information
43-18 required by Section 43.0036, Education Code, as added by this
43-19 article.
43-20 SECTION 2.19. Not later than March 1, 2002, the commissioner
43-21 of education, on behalf of the State Board of Education, and the
43-22 chief administrative law judge of the State Office of
43-23 Administrative Hearings shall adopt a memorandum of understanding
43-24 as prescribed by Section 43.0062, Education Code, as added by this
43-25 article.
43-26 SECTION 2.20. Not later than March 1, 2002, the legislative
43-27 audit committee shall select an independent firm to evaluate
44-1 investment management practices and performance relating to the
44-2 permanent school fund as required by Section 43.0063, Education
44-3 Code, as added by this article. The evaluation must include a
44-4 comprehensive analysis of the State Board of Education's investment
44-5 program relating to the permanent school fund.
44-6 SECTION 2.21. This article takes effect January 1, 2002, but
44-7 only if the constitutional amendment proposed by the 77th
44-8 Legislature, Regular Session, 2001, providing for the transfer of
44-9 authority to manage and invest the permanent school fund from the
44-10 State Board of Education to the Permanent School Fund Investment
44-11 Board, is not approved by the voters. If the proposed
44-12 constitutional amendment is approved by the voters, this article
44-13 has no effect.
44-14 ARTICLE 3. COMPOSITION OF AND AUTHORIZED INVESTMENTS FOR
44-15 PERMANENT SCHOOL FUND
44-16 SECTION 3.01. Section 43.003, Education Code, is repealed.
44-17 SECTION 3.02. Sections 43.001(a) and (b), Education Code, are
44-18 amended to read as follows:
44-19 (a) The permanent school fund, which is a perpetual
44-20 endowment for the public schools of this state, consists of:
44-21 (1) all land appropriated for the public schools by
44-22 the constitution and laws of this state;
44-23 (2) all of the unappropriated public domain remaining
44-24 in this state, including all land recovered by the state by suit or
44-25 otherwise except pine forest land as defined by Section 88.111;
44-26 (3) all proceeds from the authorized sale of permanent
44-27 school fund land;
45-1 (4) all proceeds from the lawful sale of any other
45-2 properties belonging to the permanent school fund;
45-3 (5) all investments [authorized by Section 43.003] of
45-4 properties belonging to the permanent school fund; and
45-5 (6) all income from the mineral development of
45-6 permanent school fund land, including income from mineral
45-7 development of riverbeds and other submerged land.
45-8 (b) The available school fund, which shall be apportioned
45-9 annually to each county according to its scholastic population,
45-10 consists of:
45-11 (1) the interest and dividends arising from any
45-12 investments [securities] or funds belonging to the permanent school
45-13 fund;
45-14 (2) all interest derivable from the proceeds of the
45-15 sale of land set apart for the permanent school fund;
45-16 (3) all money derived from the lease of land belonging
45-17 to the permanent school fund;
45-18 (4) one-fourth of all revenue derived from all state
45-19 occupation taxes, exclusive of delinquencies and cost of
45-20 collection;
45-21 (5) one-fourth of revenue derived from state gasoline
45-22 and special fuels excise taxes as provided by law; and
45-23 (6) all other appropriations to the available school
45-24 fund made by the legislature for public school purposes.
45-25 SECTION 3.03. This article takes effect September 1, 2001.