By Keel H.B. No. 2414
77R4224 ESH-D
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.
1-16 (b) The board:
1-17 (1) shall direct the agency in managing and investing
1-18 the permanent school fund; and
1-19 (2) may employ an executive director and other
1-20 employees.
1-21 SECTION 1.02. Sections 43.0031(a) and (b), Education Code,
1-22 are amended to read as follows:
1-23 (a) In addition to any other requirements provided by law,
1-24 the Permanent School Fund Investment Board [State Board of
2-1 Education] shall adopt and enforce an ethics policy that provides
2-2 standards of conduct relating to the management and investment of
2-3 the permanent school fund. The ethics policy must include
2-4 provisions that address the following issues as they apply to the
2-5 management and investment of the permanent school fund and to
2-6 persons responsible for managing and investing the fund:
2-7 (1) general ethical standards;
2-8 (2) conflicts of interest;
2-9 (3) prohibited transactions and interests;
2-10 (4) the acceptance of gifts and entertainment;
2-11 (5) compliance with applicable professional standards;
2-12 (6) ethics training; and
2-13 (7) compliance with and enforcement of the ethics
2-14 policy.
2-15 (b) The ethics policy must include provisions applicable to:
2-16 (1) members of the Permanent School Fund Investment
2-17 Board [State Board of Education];
2-18 (2) the executive director and other employees of the
2-19 board;
2-20 (3) the commissioner;
2-21 (4) [(3)] employees of the agency; [and]
2-22 (5) [(4)] any person who provides services to the
2-23 board relating to the management or investment of the permanent
2-24 school fund; and
2-25 (6) an interested person.
2-26 SECTION 1.03. Section 43.0032, Education Code, is amended to
2-27 read as follows:
3-1 Sec. 43.0032. CONFLICTS OF INTEREST. (a) This section
3-2 applies to:
3-3 (1) a [A] member of the Permanent School Fund
3-4 Investment Board;
3-5 (2) [State Board of Education,] the commissioner;
3-6 (3) [,] an employee of the agency;
3-7 (4) [, or] a person who provides services to the board
3-8 that relate to the management or investment of the permanent school
3-9 fund; and
3-10 (5) an interested person.
3-11 (b) A person to whom this section applies who has a
3-12 business, commercial, or other relationship that a reasonable
3-13 person would find likely [could reasonably be expected] to diminish
3-14 the person's independence of judgment in the performance of the
3-15 person's responsibilities relating to the management or investment
3-16 of the fund shall disclose the relationship in writing to the
3-17 board.
3-18 (c) [(b)] The board or the board's designee shall, in the
3-19 ethics policy adopted under Section 43.0031, define the kinds of
3-20 relationships that may create a possible conflict of interest.
3-21 (d) [(c)] A person who files a statement under Subsection
3-22 (b) [(a)] disclosing a possible conflict of interest may not give
3-23 advice or make decisions about a matter affected by the possible
3-24 conflict of interest unless the board, after consultation with its
3-25 legal [the general] counsel [of the agency], expressly waives this
3-26 prohibition. The board may delegate the authority to waive the
3-27 prohibition established by this subsection.
4-1 SECTION 1.04. Section 43.0033, Education Code, is amended to
4-2 read as follows:
4-3 Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
4-4 advisor, broker, money manager, investment manager, dealer, or
4-5 other person providing services to the Permanent School Fund
4-6 Investment Board [State Board of Education] relating to the
4-7 management and investment of the permanent school fund shall file
4-8 with the board regularly, as determined by the board, a report that
4-9 describes in detail any expenditure of more than $50 made by the
4-10 person on behalf of:
4-11 (1) a member of the board;
4-12 (2) the executive director or another employee of the
4-13 board;
4-14 (3) the commissioner; [or]
4-15 (4) [(3)] an employee of the agency or of a nonprofit
4-16 corporation created under Section 43.006; or
4-17 (5) an interested person.
4-18 SECTION 1.05. Section 43.0034(a), Education Code, is amended
4-19 to read as follows:
4-20 (a) The Permanent School Fund Investment Board [board] shall
4-21 prescribe forms for:
4-22 (1) statements of possible conflicts of interest and
4-23 waivers of possible conflicts of interest under Section 43.0032;
4-24 and
4-25 (2) reports of expenditures under Section 43.0033.
4-26 SECTION 1.06. Chapter 43, Education Code, is amended by
4-27 adding Sections 43.0035 and 43.0036 to read as follows:
5-1 Sec. 43.0035. FAILURE TO DISCLOSE POTENTIAL CONFLICT OF
5-2 INTEREST RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT SCHOOL
5-3 FUND. If an interested person enters into an arrangement involving
5-4 the management or investment of the permanent school fund under
5-5 which the interested person serves as a consultant, advisor,
5-6 broker, money manager, investment manager, dealer, or vendor of a
5-7 consultant, advisor, broker, money manager, investment manager, or
5-8 dealer, and the interested person fails to disclose a relationship
5-9 described by Section 43.0032(a) with another interested person:
5-10 (1) the arrangement is voidable by the Permanent
5-11 School Fund Investment Board or the comptroller; and
5-12 (2) the Permanent School Fund Investment Board or the
5-13 comptroller may enter an order declaring the person ineligible to
5-14 contract for business relating to management or investment of the
5-15 permanent school fund.
5-16 Sec. 43.0036. INFORMATION REGARDING PERSONS INTERESTED IN
5-17 INVESTMENTS OF PERMANENT SCHOOL FUND. (a) The Permanent School
5-18 Fund Investment Board shall maintain on an Internet website a
5-19 listing of each interested person. The list must include the
5-20 person's full name and business address and must be updated at
5-21 least once each calendar quarter.
5-22 (b) The board may use an Internet website established and
5-23 maintained by the agency to comply with this section.
5-24 SECTION 1.07. Section 43.004(a), Education Code, is amended
5-25 to read as follows:
5-26 (a) The Permanent School Fund Investment Board [State Board
5-27 of Education] shall develop written investment objectives
6-1 concerning the investment of the permanent school fund. The
6-2 objectives may address desired rates of return, risks involved,
6-3 investment time frames, and any other relevant considerations.
6-4 SECTION 1.08. Section 43.005, Education Code, is amended to
6-5 read as follows:
6-6 Sec. 43.005. EXTERNAL INVESTMENT MANAGERS. (a) The
6-7 Permanent School Fund Investment Board [State Board of Education]
6-8 may contract with private professional investment managers to
6-9 assist the board in making investments of the permanent school
6-10 fund. A contract under this subsection must be approved by the
6-11 board or otherwise entered into in accordance with board rules
6-12 relating to contracting authority.
6-13 (b) The Permanent School Fund Investment Board [State Board
6-14 of Education] by rule may delegate a power or duty relating to the
6-15 investment of the permanent school fund to a committee, officer,
6-16 employee, or other agent of the board.
6-17 SECTION 1.09. Chapter 43, Education Code, is amended by
6-18 adding Sections 43.0051 and 43.0052 to read as follows:
6-19 Sec. 43.0051. REQUIRED CONTRACT PROVISION. The Permanent
6-20 School Fund Investment Board shall include as a part of each
6-21 contract under which a consultant, advisor, broker, money manager,
6-22 investment manager, dealer, or other person agrees to provide
6-23 services to the board relating to the management or investment of
6-24 the permanent school fund a standard provision adopted by the
6-25 board:
6-26 (1) requiring the person to comply with all applicable
6-27 statutes and rules relating to the services provided by the person
7-1 to the board; and
7-2 (2) acknowledging that the board may terminate the
7-3 contract or any other arrangement between the board and the person
7-4 if the person fails to comply with those statutes and rules.
7-5 Sec. 43.0052. COOPERATION RELATING TO INVESTIGATION OR
7-6 DISCIPLINARY ACTIONS OF CERTAIN PERSONS INTERESTED IN MANAGEMENT OR
7-7 INVESTMENT OF PERMANENT SCHOOL FUND. (a) As appropriate, the
7-8 comptroller shall provide information relating to disciplinary
7-9 actions taken by the Permanent School Fund Investment Board or the
7-10 comptroller against a consultant, advisor, broker, money manager,
7-11 investment manager, or dealer doing business with or seeking to do
7-12 business with the permanent school fund to:
7-13 (1) the United States Securities and Exchange
7-14 Commission;
7-15 (2) the securities commissioner;
7-16 (3) self-regulatory organizations, including the
7-17 National Association of Securities Dealers, Inc.; and
7-18 (4) professional organizations of persons involved in
7-19 management or investment of institutional funds, including the
7-20 Association for Investment Management and Research.
7-21 (b) The comptroller shall closely cooperate with persons
7-22 described by Subsections (a)(1)-(4) in those persons'
7-23 investigations involving consultants, brokers, or dealers doing
7-24 business with or seeking to do business with the permanent school
7-25 fund.
7-26 SECTION 1.10. Sections 43.006(a) and (d)-(f), Education Code,
7-27 are amended to read as follows:
8-1 (a) The Permanent School Fund Investment Board [State Board
8-2 of Education] may delegate investment authority and contract for
8-3 the investment of the permanent school fund to the same extent as
8-4 the governing board of an institution of higher education with
8-5 respect to an institutional fund under Chapter 163, Property Code.
8-6 (d) The board of directors of the corporation must be
8-7 members of the Permanent School Fund Investment Board [State Board
8-8 of Education].
8-9 (e) If an investment contract entered into under Subsection
8-10 (b) includes the permanent school fund within the scope of funds
8-11 under the control and management of the Permanent School Fund
8-12 Investment Board [State Board of Education] to be invested by the
8-13 corporation, the board shall provide for an annual financial audit
8-14 of the permanent school fund. The audit shall be performed by the
8-15 state auditor.
8-16 (f) The corporation shall file [quarterly] reports with the
8-17 Permanent School Fund Investment Board [State Board of Education]
8-18 concerning matters required by the board. The board may determine
8-19 the frequency of reports under this subsection.
8-20 SECTION 1.11. Chapter 43, Education Code, is amended by
8-21 adding Sections 43.0061-43.0064 to read as follows:
8-22 Sec. 43.0061. CONTRACT WITH STATE AUDITOR FOR
8-23 INVESTIGATIONS. (a) In this section, "investigation" has the
8-24 meaning assigned by Section 321.0136, Government Code.
8-25 (b) The Permanent School Fund Investment Board shall enter
8-26 into a written contract with the state auditor under Chapter 771,
8-27 Government Code, for the state auditor to investigate any
9-1 allegation made in writing to the board raising the issue of
9-2 misfeasance or malfeasance relating to the management or investment
9-3 of the permanent school fund, including an allegation relating to:
9-4 (1) the board's compliance with the investment
9-5 standards prescribed under Section 5(e), Article VII, Texas
9-6 Constitution;
9-7 (2) any violation of the ethics policy adopted by the
9-8 board under Section 43.0031;
9-9 (3) any violation of Section 43.0032;
9-10 (4) any conflict of interest that affects the board's
9-11 decisions relating to:
9-12 (A) consultant and money manager selection;
9-13 (B) asset allocation; and
9-14 (C) broker-dealer eligibility requirements; and
9-15 (5) the effect of an informal advisor on the board's
9-16 decisions relating to management or investment of the permanent
9-17 school fund.
9-18 Sec. 43.0062. BARRING CERTAIN PERSONS FROM CONTRACTING TO
9-19 PROVIDE SERVICES RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT
9-20 SCHOOL FUND. (a) An interested person may be barred from
9-21 contracting with the Permanent School Fund Investment Board or
9-22 another interested person to provide services relating to the
9-23 management or investment of the permanent school fund if it is
9-24 determined at a contested case hearing held under Section 43.0063
9-25 that the interested person who is the subject of the hearing has
9-26 violated:
9-27 (1) the ethics policy adopted by the board under
10-1 Section 43.0031; or
10-2 (2) the conflict of interest restrictions under
10-3 Section 43.0032.
10-4 (b) This section does not affect the validity of a contract
10-5 entered into before a determination is made that the interested
10-6 person should be barred from contracting with the board or another
10-7 interested person unless the contract may be voided under this
10-8 chapter.
10-9 Sec. 43.0063. HEARINGS BY STATE OFFICE OF ADMINISTRATIVE
10-10 HEARINGS. (a) The commissioner, on behalf of the Permanent School
10-11 Fund Investment Board, and the chief administrative law judge of
10-12 the State Office of Administrative Hearings shall adopt a
10-13 memorandum of understanding under which the State Office of
10-14 Administrative Hearings conducts the contested case hearings
10-15 required for purposes of Section 43.0062.
10-16 (b) The memorandum of understanding must require the chief
10-17 administrative law judge and the board to cooperate in connection
10-18 with a contested case hearing required for purposes of Section
10-19 43.0062.
10-20 (c) The memorandum of understanding must provide that the
10-21 administrative law judge who conducts a contested case hearing for
10-22 the State Office of Administrative Hearings on behalf of the board,
10-23 after completing the hearing, shall:
10-24 (1) determine whether a ground exists under Section
10-25 43.0062(a) so that an interested person should be barred from
10-26 contracting with the Permanent School Fund Investment Board or
10-27 another interested person to provide services relating to the
11-1 management or investment of the permanent school fund; and
11-2 (2) if a determination is made that the interested
11-3 person should be barred from contracting with the board or another
11-4 interested person, notwithstanding Section 2003.042, Government
11-5 Code, enter the final decision in the case concerning the period
11-6 for which the person is barred based on:
11-7 (A) whether the person has previously violated
11-8 the ethics policy or conflict of interest restrictions;
11-9 (B) the seriousness of the person's violation;
11-10 and
11-11 (C) the damage to the interests of the permanent
11-12 school fund.
11-13 (d) A person may obtain judicial review of a decision of an
11-14 administrative law judge under this section in the manner provided
11-15 by Subchapter G, Chapter 2001, Government Code.
11-16 Sec. 43.0064. MANAGEMENT AND PERFORMANCE AUDIT. (a) As
11-17 frequently as the legislative audit committee determines necessary
11-18 or advisable, the committee shall select an independent firm with
11-19 substantial experience in evaluating institutional investment
11-20 practices and performance to evaluate investment management
11-21 practices and performance relating to the permanent school fund.
11-22 (b) The legislative audit committee shall determine specific
11-23 areas to be evaluated.
11-24 (c) A firm selected under this section shall file a report
11-25 of the firm's evaluation under this section with the legislative
11-26 audit committee not later than the date specified by the committee.
11-27 (d) The agency shall pay the costs of each evaluation under
12-1 this section out of the available school fund.
12-2 SECTION 1.12. Section 43.007, Education Code, is amended to
12-3 read as follows:
12-4 Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF INVESTMENTS
12-5 [SECURITIES]. (a) The Permanent School Fund Investment Board
12-6 [State Board of Education] may authorize the purchase of all
12-7 investments [of the types of securities] in which it is authorized
12-8 by law to invest the permanent school fund [in either registered or
12-9 negotiable form]. The board may authorize the reissue of
12-10 investments [those securities] held at at any time for the account
12-11 of the permanent school fund [in either registered or negotiable
12-12 form]. The board [State Board of Education] may authorize the sale
12-13 of any investments [of the securities] held for the account of the
12-14 permanent school fund and reinvest the proceeds of sale for the
12-15 fund and may authorize the exchange of any investments [of the
12-16 securities] held for the account of the permanent school fund.
12-17 (b) In making purchases, sales, exchanges, and reissues, the
12-18 Permanent School Fund Investment Board [State Board of Education]
12-19 shall exercise the standard of care prescribed by Section 5(e),
12-20 Article VII, Texas Constitution [judgment and care under the
12-21 circumstances then prevailing that persons of ordinary prudence,
12-22 discretion, and intelligence exercise in the management of their
12-23 own affairs not in regard to speculation but in regard to the
12-24 permanent disposition of their funds, considering the probable
12-25 income as well as the probable safety of their capital].
12-26 (c) When any investments [securities] are sold, reissued, or
12-27 exchanged as provided by Subsection (a), the custodian of the
13-1 investments [securities] shall deliver the investments [securities]
13-2 sold, reissued, or exchanged in accordance with the directions of
13-3 the Permanent School Fund Investment Board [State Board of
13-4 Education].
13-5 SECTION 1.13. Sections 43.008(a) and (b), Education Code, are
13-6 amended to read as follows:
13-7 (a) If the Permanent School Fund Investment Board [State
13-8 Board of Education] authorizes the payment of a premium out of the
13-9 permanent school fund for purchasing any fixed-income security as
13-10 an investment for that fund, the principal of the security and a
13-11 portion of the interest accruing from the security equal to the
13-12 premium shall be treated as principal in the investment as provided
13-13 by Subsection (c) and shall be returned to the permanent school
13-14 fund.
13-15 (b) If the Permanent School Fund Investment Board [State
13-16 Board of Education] authorizes the purchase of a fixed-income
13-17 security at less than par, the discount received in the purchase
13-18 shall be paid to the available school fund as additional interest
13-19 revenue as provided by Subsection (c).
13-20 SECTION 1.14. Sections 43.009(a)-(c), Education Code, are
13-21 amended to read as follows:
13-22 (a) The Permanent School Fund Investment Board [State Board
13-23 of Education] may authorize the governing body of any political
13-24 subdivision in this state to pay off and discharge, at any interest
13-25 paying date whether the bonds are matured or not, all or any part
13-26 of any outstanding bond indebtedness owned by the permanent school
13-27 fund.
14-1 (b) The governing body of a political subdivision desiring
14-2 to pay off and discharge any bonded indebtedness owned by the fund
14-3 shall apply in writing to the Permanent School Fund Investment
14-4 Board [State Board of Education], not later than the 30th day
14-5 before any interest paying date on the bonds, describing the bonds
14-6 or part of the bonds it desires to pay off and discharge. The
14-7 application must be accompanied by an affidavit stating that only
14-8 tax money collected from a tax levy made for the specific purpose
14-9 of providing a sinking fund and paying interest on the particular
14-10 bonds to be redeemed will be spent in redeeming, taking up, or
14-11 paying off the bonds.
14-12 (c) The Permanent School Fund Investment Board [State Board
14-13 of Education], on receiving the application and affidavit, shall
14-14 take action on them in the manner it considers best and shall
14-15 notify the applicant whether the application is refused or granted
14-16 in whole or in part.
14-17 SECTION 1.15. Section 43.010, Education Code, is amended to
14-18 read as follows:
14-19 Sec. 43.010. DEFAULT OF SCHOOL DISTRICT BONDS [SECURITIES]
14-20 HELD BY [THE] PERMANENT SCHOOL FUND. (a) If interest or principal
14-21 has not been paid for two years or more on any bonds issued by any
14-22 school district and held by the permanent school fund, the
14-23 Permanent School Fund Investment Board [State Board of Education]
14-24 may:
14-25 (1) compel the district to levy a tax sufficient to
14-26 meet the interest and principal payments then or later due; or
14-27 (2) if the district furnishes to the Permanent School
15-1 Fund Investment Board [State Board of Education] satisfactory proof
15-2 that the district's taxing ability is insufficient, require the
15-3 district to:
15-4 (A) exhaust all legal remedies in collecting
15-5 delinquent taxes; and
15-6 (B) levy a tax at the maximum lawful rate on the
15-7 bona fide valuation of taxable property located in the district.
15-8 (b) Revenue collected by either method specified by
15-9 Subsection (a) shall be distributed proportionately to all owners
15-10 of the defaulted bonds [securities] in compliance with the
15-11 following:
15-12 (1) the proportionate share for each owner is based on
15-13 the interest and principal requirements of the original bond
15-14 [security] before authorized refunding; and
15-15 (2) prior acceptance of refunding bonds [securities]
15-16 does not reduce an owner's proportionate share.
15-17 (c) As long as any school district is delinquent in its
15-18 payments of principal or interest on any of its bonds owned by the
15-19 permanent school fund, the Permanent School Fund Investment Board
15-20 [State Board of Education] may specify the method of crediting
15-21 payments to the state made by the district as to principal and
15-22 interest.
15-23 (d) The comptroller may not issue any warrant from the
15-24 foundation school fund to or for the benefit of any district that
15-25 has been for as long as two years in default in the payment of
15-26 principal or interest on any bond [security] owned by the permanent
15-27 school fund until the Permanent School Fund Investment Board [State
16-1 Board of Education] certifies that the district has satisfactorily
16-2 complied with the appropriate provisions of this section, in which
16-3 event the comptroller shall resume making payments to or for the
16-4 benefit of the district, including the making of pretermitted
16-5 payments.
16-6 SECTION 1.16. Sections 43.011(a)-(e), Education Code, are
16-7 amended to read as follows:
16-8 (a) In compliance with this section, the Permanent School
16-9 Fund Investment Board [State Board of Education] may revise,
16-10 readjust, modify, refinance, or refund defaulted bonds issued by
16-11 any school district in this state and owned by either the permanent
16-12 school fund or the available school fund.
16-13 (b) Application must be made to the Permanent School Fund
16-14 Investment Board [State Board of Education] by the district that
16-15 issued the bonds and must show that:
16-16 (1) delinquent interest totals at least 50 percent of
16-17 the principal amount of the bonds; and
16-18 (2) taxable valuation has decreased to such an extent
16-19 that a full application of the proceeds of the voted authorized tax
16-20 authorized to be levied on the $100 taxable property valuation will
16-21 not meet interest and principal annually maturing on the bonds.
16-22 (c) The Permanent School Fund Investment Board [State Board
16-23 of Education] may effect a refunding of the debt due and to become
16-24 due only if the board finds that:
16-25 (1) the district is unable to pay the sums already
16-26 matured and the sums contracted to be paid as they mature by paying
16-27 annually to the Permanent School Fund Investment Board [State Board
17-1 of Education] the full proceeds of a 50-cent tax levy on the $100
17-2 of all taxable valuation of property in the district;
17-3 (2) the taxable valuation of property in the district
17-4 has decreased at least 75 percent since the bonds were issued and
17-5 that the decrease was not caused by the district or any of its
17-6 officials;
17-7 (3) the district for a period of at least five years
17-8 before applying to the Permanent School Fund Investment Board
17-9 [State Board of Education] for refunding has levied a tax of 50
17-10 cents on the $100 of taxable valuation of property in the district,
17-11 and that despite such levies, the aggregate amount due the
17-12 Permanent School Fund Investment Board [State Board of Education]
17-13 exceeds the aggregate amount due at the beginning of the period;
17-14 (4) the district has not authorized and sold
17-15 additional bonds during the five-year period immediately preceding
17-16 the application; and
17-17 (5) the district has in good faith endeavored to pay
17-18 its debt in accordance with the contract evidenced by the bonds
17-19 held for the account of the permanent school fund or the available
17-20 school fund.
17-21 (d) If the conditions specified by Subsection (c) are found
17-22 to exist, the district is, for purposes of this section, insolvent,
17-23 and the Permanent School Fund Investment Board [State Board of
17-24 Education] may exchange the bonds, interest coupons, and other
17-25 evidences of indebtedness for new refunding bonds of the district
17-26 issued in compliance with the following:
17-27 (1) the principal amount of the refunding bonds may
18-1 not be less than the total amount of the bonds, matured interest
18-2 coupons, accrued interest, and interest on delinquent interest then
18-3 actually due to the permanent school fund or the available school
18-4 fund; and
18-5 (2) the rate of interest to be borne by the refunding
18-6 bonds may be lower than that borne by the bonds to be refunded if
18-7 in consideration of the interest reduction the district agrees to
18-8 levy a tax each year for a period of 40 years at a rate sufficient
18-9 to produce annually a sum equal to 90 percent of the amount that
18-10 can be calculated by the levy of a tax at the rate of 50 cents on
18-11 the $100 of taxable valuation of property as determined by the
18-12 latest approved tax roll of the district, and in determining the
18-13 rate of interest to be borne by the refunding bonds, the Permanent
18-14 School Fund Investment Board [State Board of Education] shall be
18-15 governed by the following:
18-16 (A) the Permanent School Fund Investment Board
18-17 [State Board of Education] may require the rate to be an annual [a]
18-18 percent [per annum] as in its judgment will represent the maximum
18-19 rate that can be paid by the district and still permit an orderly
18-20 and certain retirement of the refunding bonds within 40 years from
18-21 their date;
18-22 (B) the interest rate of refunding bonds to be
18-23 received in exchange for bonds owned by the permanent school fund
18-24 may not be less than the minimum rate at which bonds may then be
18-25 purchased as investments for the permanent school fund; and
18-26 (C) the rate of interest of refunding bonds to
18-27 be received in exchange for bonds owned by the available school
19-1 fund may be set by the Permanent School Fund Investment Board
19-2 [State Board of Education] at any rate the board considers
19-3 feasible, and the refunding bonds may, at the discretion of the
19-4 board [State Board of Education], be made non-interest bearing to a
19-5 date fixed by the board.
19-6 (e) The Permanent School Fund Investment Board [State Board
19-7 of Education] may not make a revision, readjustment, modification,
19-8 refinancing, or refunding that will release or extinguish any debt
19-9 or obligation then due and payable to the permanent school fund or
19-10 to the available school fund.
19-11 SECTION 1.17. Sections 43.012(a) and (c)-(f), Education Code,
19-12 are amended to read as follows:
19-13 (a) Defaulted obligations, other than bonds of school
19-14 districts as provided by Section 43.011, due the available school
19-15 fund may be refinanced or refunded with the approval of the
19-16 Permanent School Fund Investment Board [State Board of Education]
19-17 in compliance with this section.
19-18 (c) The obligor must apply to the Permanent School Fund
19-19 Investment Board [State Board of Education] and show:
19-20 (1) that the obligations due the available school fund
19-21 have been in default in whole or in part for a continuous period of
19-22 at least 15 years; and
19-23 (2) that the obligor is not in default in the payment
19-24 of the principal of any bonds owned by the permanent school fund.
19-25 (d) If the Permanent School Fund Investment Board [State
19-26 Board of Education] finds that the requirements provided by
19-27 Subsection (c) have been met, it may approve a refinancing or the
20-1 issuance of refunding bonds on the conditions:
20-2 (1) that the refunding bonds must mature serially in
20-3 not exceeding 40 years from the date of issuance;
20-4 (2) that the principal amount of the refunding bonds
20-5 may be not less than the total amount of the obligations then in
20-6 default and due the available school fund; and
20-7 (3) that the refunding bonds must bear interest at a
20-8 rate or rates determined by the Permanent School Fund Investment
20-9 Board [State Board of Education] to be for the best interest of the
20-10 available school fund.
20-11 (e) The Permanent School Fund Investment Board [State Board
20-12 of Education] may accept refunding bonds in lieu of either matured
20-13 or unmatured bonds held for the benefit of the permanent school
20-14 fund if the rate of interest on the new refunding bonds is at least
20-15 the same rate as that of the bonds being refunded.
20-16 (f) Refunding bonds issued with the approval or pursuant to
20-17 a refunding agreement with the Permanent School Fund Investment
20-18 Board [State Board of Education] in compliance with either this
20-19 section or Section 43.011 shall, on the order of the board [State
20-20 Board of Education], be exchanged by the comptroller for the
20-21 defaulted obligations they have been issued to refund.
20-22 SECTION 1.18. The heading to Section 43.014, Education Code,
20-23 is amended to read as follows:
20-24 Sec. 43.014. DUTIES OF COMPTROLLER RELATING TO AVAILABLE
20-25 SCHOOL FUND.
20-26 SECTION 1.19. Section 43.014(a), Education Code, is amended
20-27 to read as follows:
21-1 (a) On or before July 1 of each year, the comptroller shall
21-2 estimate the amount of the available school fund receivable from
21-3 every source during the following school year and report the
21-4 estimate to the Permanent School Fund Investment Board [State Board
21-5 of Education].
21-6 SECTION 1.20. The heading to Section 43.015, Education Code,
21-7 is amended to read as follows:
21-8 Sec. 43.015. ADDITIONAL DUTIES OF COMPTROLLER.
21-9 SECTION 1.21. Sections 43.015(b), (e), and (f), Education
21-10 Code, are amended to read as follows:
21-11 (b) The comptroller shall provide the Permanent School Fund
21-12 Investment Board [State Board of Education] with the reports
21-13 specified by Subsection (a) and with additional reports concerning
21-14 those funds requested by the board [State Board of Education].
21-15 (e) On order of the Permanent School Fund Investment Board
21-16 [State Board of Education], the comptroller shall exchange or
21-17 accept refunding bonds in lieu of:
21-18 (1) either matured or unmatured bonds held for the
21-19 benefit of the permanent school fund, which are being refunded
21-20 under this chapter;
21-21 (2) defaulted obligations held for the benefit of the
21-22 available school fund if the refunding bonds are issued in
21-23 compliance with Section 43.012;
21-24 (3) defaulted obligations of any school district of
21-25 this state held for the benefit of the permanent school fund or the
21-26 available school fund if the refunding bonds are issued in
21-27 compliance with Section 43.011; or
22-1 (4) refunding bonds of any school district of this
22-2 state for school bonds not matured held by the comptroller for the
22-3 permanent school fund if the new refunding bonds are issued by the
22-4 school district in compliance with this code.
22-5 (f) The comptroller shall be the custodian of investments
22-6 [all securities enumerated in Section 43.003(6) and of other
22-7 securities as] designated by the Permanent School Fund Investment
22-8 Board [State Board of Education] in which the school funds of the
22-9 state are invested. The comptroller shall keep those investments
22-10 [securities] in the comptroller's custody until paid off,
22-11 discharged, delivered as required by the Permanent School Fund
22-12 Investment Board [State Board of Education], or otherwise disposed
22-13 of by the proper authorities of the state, and on the proper
22-14 installment of any interest or dividend, shall see that the proper
22-15 credit is given, and the coupons on bonds, when paid, shall be
22-16 separated from the bonds and cancelled by the comptroller.
22-17 SECTION 1.22. Sections 43.017-43.019, Education Code, are
22-18 amended to read as follows:
22-19 Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
22-20 COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
22-21 The Permanent School Fund Investment Board [State Board of
22-22 Education] may contract with one or more commercial banks to
22-23 receive payments of dividends and interest on investments
22-24 [securities] in which the state permanent school funds are invested
22-25 and transmit that money with identification of its source to the
22-26 comptroller for the account of the available school fund by the
22-27 fastest available means.
23-1 (b) In choosing each commercial bank with which to contract
23-2 as authorized by Subsection (a), the Permanent School Fund
23-3 Investment Board [State Board of Education] shall assure itself of:
23-4 (1) the financial stability of the bank;
23-5 (2) the location of the bank with respect to its
23-6 proximity to the banks on which checks are drawn in payment of
23-7 dividends and interest on investments [securities] of the permanent
23-8 school fund;
23-9 (3) the experience and reliability of the bank in
23-10 acting as agent for others in the similar collection and
23-11 expeditious remittance of money; and
23-12 (4) the reasonableness of the bank's charges for the
23-13 services, both in amount of the charges and in relation to the
23-14 increased investment earnings of the available school fund that
23-15 will result from speedier receipt by the comptroller of the money.
23-16 Sec. 43.018. PARTICIPATION IN FULLY SECURED SECURITIES LOAN
23-17 PROGRAMS. (a) The Permanent School Fund Investment Board [State
23-18 Board of Education] may contract with a commercial bank to serve
23-19 both as a custodian of securities in which the state permanent
23-20 school funds are invested and to lend those securities, under the
23-21 conditions prescribed by Subsection (b), to securities brokers and
23-22 dealers on short-term loan.
23-23 (b) The Permanent School Fund Investment Board [State Board
23-24 of Education] may contract with a commercial bank pursuant to this
23-25 section only if:
23-26 (1) the bank is located in a city having a major stock
23-27 exchange;
24-1 (2) the bank is experienced in the operation of a
24-2 fully secured securities loan program;
24-3 (3) the bank has adequate capital in the prudent
24-4 judgment of the Permanent School Fund Investment Board [State Board
24-5 of Education] to assure the safety of the securities entrusted to
24-6 it as a custodian;
24-7 (4) the bank will require of any securities broker or
24-8 dealer to which it lends securities owned by the state permanent
24-9 school fund that the broker or dealer deliver to it cash collateral
24-10 for the loan of securities, and that the cash collateral will at
24-11 all times be not less than 100 percent of the market value of the
24-12 securities lent;
24-13 (5) the bank executes an indemnification agreement,
24-14 satisfactory in form and content to the Permanent School Fund
24-15 Investment Board [State Board of Education], fully indemnifying the
24-16 permanent and available school funds against loss resulting from
24-17 borrower default or the failure of the bank to properly execute the
24-18 responsibilities of the bank under the applicable securities
24-19 lending agreement [the bank's service as custodian of securities of
24-20 the permanent school fund and its operation of a securities loan
24-21 program using securities of the permanent school fund];
24-22 (6) the bank will speedily collect and remit on the
24-23 day of collection by the fastest available means to the comptroller
24-24 any dividends and interest collectible by it on securities held by
24-25 it as custodian, together with identification as to the source of
24-26 the dividends or interest; and
24-27 (7) the bank is the bank agreeing to pay to the
25-1 available school fund the largest sum or highest percentage of the
25-2 income derived by the bank from use of the securities of the
25-3 permanent school fund in the operation of a securities loan
25-4 program.
25-5 Sec. 43.019. ACCOUNTING TREATMENT OF CERTAIN EXCHANGES. The
25-6 Permanent School Fund Investment Board [State Board of Education]
25-7 may account for the exchange of permanent school fund securities in
25-8 a closely related sale and purchase transaction in a manner in
25-9 which the gain or loss on the sale is deferred as an adjustment to
25-10 the book value of the security purchased, if:
25-11 (1) the security sold and the security purchased have
25-12 a fixed maturity value;
25-13 (2) the board is authorized by law to invest the
25-14 permanent school fund in the security purchased;
25-15 (3) the sale is made in clear contemplation of
25-16 reinvesting substantially all of the proceeds;
25-17 (4) substantially all of the proceeds are reinvested;
25-18 (5) the transaction is completed within a reasonable
25-19 time after the sale, not to exceed 30 business days; and
25-20 (6) the transaction results in an improvement in
25-21 effective income yield, taking into consideration the deferral of
25-22 any gain or loss on the sale.
25-23 SECTION 1.23. Section 45.051(1), Education Code, is amended
25-24 to read as follows:
25-25 (1) "Board" means the Permanent School Fund Investment
25-26 Board [State Board of Education].
25-27 SECTION 1.24. Section 7.108(a), Education Code, is amended to
26-1 read as follows:
26-2 (a) A [person interested in selling bonds of any type or a]
26-3 person engaged in manufacturing, shipping, selling, or advertising
26-4 textbooks or otherwise connected with the textbook business commits
26-5 an offense if the person makes or authorizes a political
26-6 contribution to or takes part in, directly or indirectly, the
26-7 campaign of any person seeking election to or serving on the board.
26-8 SECTION 1.25. Section 321.013, Government Code, is amended by
26-9 adding Subsection (j) to read as follows:
26-10 (j) The State Auditor shall enter into a written contract
26-11 with the Permanent School Fund Investment Board for the State
26-12 Auditor to investigate an allegation relating to the management and
26-13 investment of the permanent school fund as prescribed by Section
26-14 43.0061, Education Code. After an investigation of an allegation
26-15 is completed, the State Auditor shall prepare a written report of
26-16 the results of that investigation. The State Auditor shall submit
26-17 the report to the committee before publication. The State Auditor
26-18 shall file a copy of the report with the governor, the lieutenant
26-19 governor, the speaker of the house of representatives, each member
26-20 of the Permanent School Fund Investment Board, and each member of
26-21 the standing committees of the senate and of the house of
26-22 representatives with primary jurisdiction over the Permanent School
26-23 Fund Investment Board.
26-24 SECTION 1.26. Section 7.102(c)(31), Education Code, is
26-25 repealed.
26-26 SECTION 1.27. (a) The ethics policy adopted by the State
26-27 Board of Education under Section 43.0031, Education Code, as that
27-1 section existed before amendment by this article, remains in effect
27-2 until altered by the Permanent School Fund Investment Board. A
27-3 complaint regarding a violation of the ethics policy pending before
27-4 the State Board of Education is transferred without change in
27-5 status to the Permanent School Fund Investment Board.
27-6 (b) A form prescribed by the State Board of Education under
27-7 Section 43.0034, Education Code, as that section existed before
27-8 amendment by this article, remains in effect as a form of the
27-9 Permanent School Fund Investment Board until altered by that board.
27-10 (c) Written investment objectives developed by the State
27-11 Board of Education under Section 43.004, Education Code, as that
27-12 section existed before amendment by this article, remain in effect
27-13 as written investment objectives of the Permanent School Fund
27-14 Investment Board until altered by that board.
27-15 (d) All contracts of the State Board of Education relating
27-16 to management and investment of the permanent school fund are
27-17 transferred to the Permanent School Fund Investment Board on the
27-18 date of the first meeting of the Permanent School Fund Investment
27-19 Board.
27-20 SECTION 1.28. Sections 43.0035 and 43.0051, Education Code,
27-21 as added by this article, apply only to an arrangement or contract
27-22 entered into on or after January 1, 2002.
27-23 SECTION 1.29. Not later than March 1, 2002, the Permanent
27-24 School Fund Investment Board shall post on an Internet website the
27-25 information required by Section 43.0036, Education Code, as added
27-26 by this article.
27-27 SECTION 1.30. Not later than May 1, 2002, the commissioner of
28-1 education, on behalf of the Permanent School Fund Investment Board,
28-2 and the chief administrative law judge of the State Office of
28-3 Administrative Hearings shall adopt a memorandum of understanding
28-4 as prescribed by Section 43.0063, Education Code, as added by this
28-5 article.
28-6 SECTION 1.31. Not later than March 1, 2002, the legislative
28-7 audit committee shall select an independent firm to evaluate
28-8 investment management practices and performance relating to the
28-9 permanent school fund as required by Section 43.0064, Education
28-10 Code, as added by this article. The evaluation must include a
28-11 comprehensive analysis of the State Board of Education's investment
28-12 program relating to the permanent school fund.
28-13 SECTION 1.32. A reference in law to the State Board of
28-14 Education that relates to management or investment of the permanent
28-15 school fund means the Permanent School Fund Investment Board.
28-16 SECTION 1.33. This article takes effect January 1, 2002, but
28-17 only if the constitutional amendment proposed by the 77th
28-18 Legislature, Regular Session, 2001, providing for the transfer of
28-19 authority to invest and manage the permanent school fund from the
28-20 State Board of Education to the Permanent School Fund Investment
28-21 Board, is approved by the voters. If the proposed constitutional
28-22 amendment is not approved by the voters, this article has no
28-23 effect.
28-24 ARTICLE 2. PERMANENT SCHOOL FUND ADVISORY COMMITTEE
28-25 SECTION 2.01. Subchapter D, Chapter 7, Education Code, is
28-26 amended by adding Section 7.113 to read as follows:
28-27 Sec. 7.113. CONTRACT WITH STATE AUDITOR FOR INVESTIGATIONS.
29-1 (a) In this section, "investigation" has the meaning assigned by
29-2 Section 321.0136, Government Code.
29-3 (b) The board shall enter into a written contract with the
29-4 state auditor under Chapter 771, Government Code, for the state
29-5 auditor to investigate any allegation made in writing to the board
29-6 raising the issue of misfeasance or malfeasance relating to the
29-7 management or investment of the permanent school fund, including an
29-8 allegation relating to:
29-9 (1) the board's compliance with the investment
29-10 standards prescribed under Section 5(d), Article VII, Texas
29-11 Constitution;
29-12 (2) any violation of the ethics policy adopted by the
29-13 board under Section 43.0031;
29-14 (3) any violation of Section 43.0032;
29-15 (4) any conflict of interest that affects the board's
29-16 decisions relating to:
29-17 (A) consultant and money manager selection;
29-18 (B) asset allocation; and
29-19 (C) broker-dealer eligibility requirements; and
29-20 (5) the effect of an informal advisor on the board's
29-21 decisions relating to management or investment of the permanent
29-22 school fund.
29-23 SECTION 2.02. Chapter 43, Education Code, is amended by
29-24 adding Sections 43.0011 and 43.0012 to read as follows:
29-25 Sec. 43.0011. DEFINITION. In this chapter, "interested
29-26 person" means a person who applies for or receives anything of
29-27 value as a direct or indirect result of permanent school fund
30-1 investments.
30-2 Sec. 43.0012. PERMANENT SCHOOL FUND INVESTMENT ADVISORY
30-3 COMMITTEE. (a) The permanent school fund investment advisory
30-4 committee shall advise the State Board of Education regarding
30-5 management and investment of the permanent school fund.
30-6 (b) The committee is composed of:
30-7 (1) three members appointed by the governor, who are
30-8 not subject to confirmation by the senate;
30-9 (2) three members appointed by the lieutenant
30-10 governor; and
30-11 (3) three members appointed by the speaker of the
30-12 house of representatives.
30-13 (c) A member of the committee serves at the will of the
30-14 member's appointing authority.
30-15 (d) A person appointed to the committee must possess
30-16 substantial experience and expertise in investments, as determined
30-17 by the appointing authority.
30-18 (e) The committee shall select a presiding officer from
30-19 among its members and shall meet at the call of the presiding
30-20 officer.
30-21 (f) A member of the committee may not receive compensation
30-22 but is entitled to reimbursement for travel expenses incurred by
30-23 the member while conducting the business of the committee as
30-24 provided by the General Appropriations Act.
30-25 (g) The committee is not subject to Chapter 2110, Government
30-26 Code.
30-27 SECTION 2.03. Section 43.0031(b), Education Code, is amended
31-1 to read as follows:
31-2 (b) The ethics policy must include provisions applicable to:
31-3 (1) members of the State Board of Education;
31-4 (2) members of the permanent school fund investment
31-5 advisory committee;
31-6 (3) the commissioner;
31-7 (4) [(3)] employees of the agency; [and]
31-8 (5) [(4)] any person who provides services to the
31-9 board relating to the management or investment of the permanent
31-10 school fund; and
31-11 (6) an interested person.
31-12 SECTION 2.04. Section 43.0032, Education Code, is amended to
31-13 read as follows:
31-14 Sec. 43.0032. CONFLICTS OF INTEREST. (a) This section
31-15 applies to:
31-16 (1) a [A] member of the State Board of Education;
31-17 (2) a member of the permanent school fund advisory
31-18 committee;
31-19 (3) [,] the commissioner;
31-20 (4) [,] an employee of the agency;
31-21 (5) [, or] a person who provides services to the board
31-22 that relate to the management or investment of the permanent school
31-23 fund; and
31-24 (6) an interested person.
31-25 (b) A person to whom this section applies who has a
31-26 business, commercial, or other relationship that a reasonable
31-27 person would find likely [could reasonably be expected] to diminish
32-1 the person's independence of judgment in the performance of the
32-2 person's responsibilities relating to the management or investment
32-3 of the fund shall disclose the relationship in writing to the
32-4 board.
32-5 (c) [(b)] The board or the board's designee shall, in the
32-6 ethics policy adopted under Section 43.0031, define the kinds of
32-7 relationships that may create a possible conflict of interest.
32-8 (d) [(c)] A person who files a statement under Subsection
32-9 (b) [(a)] disclosing a possible conflict of interest may not give
32-10 advice or make decisions about a matter affected by the possible
32-11 conflict of interest unless the board, after consultation with the
32-12 general counsel of the agency, expressly waives this prohibition.
32-13 The board may delegate the authority to waive the prohibition
32-14 established by this subsection.
32-15 SECTION 2.05. Section 43.0033, Education Code, is amended to
32-16 read as follows:
32-17 Sec. 43.0033. REPORTS OF EXPENDITURES. A consultant,
32-18 advisor, broker, money manager, investment manager, dealer, or
32-19 other person providing services to the State Board of Education
32-20 relating to the management and investment of the permanent school
32-21 fund shall file with the board regularly, as determined by the
32-22 board, a report that describes in detail any expenditure of more
32-23 than $50 made by the person on behalf of:
32-24 (1) a member of the board;
32-25 (2) a member of the permanent school fund advisory
32-26 committee;
32-27 (3) the commissioner; [or]
33-1 (4) [(3)] an employee of the agency or of a nonprofit
33-2 corporation created under Section 43.006; or
33-3 (5) an interested person.
33-4 SECTION 2.06. Chapter 43, Education Code, is amended by
33-5 adding Sections 43.0035, 43.0036, 43.0051, and 43.0052 to read as
33-6 follows:
33-7 Sec. 43.0035. FAILURE TO DISCLOSE POTENTIAL CONFLICT OF
33-8 INTEREST RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT SCHOOL
33-9 FUND. If an interested person enters into an arrangement involving
33-10 the management or investment of the permanent school fund under
33-11 which the interested person serves as a consultant, advisor,
33-12 broker, money manager, investment manager, dealer, or vendor of a
33-13 consultant, advisor, broker, money manager, investment manager, or
33-14 dealer, and the interested person fails to disclose a relationship
33-15 described by Section 43.0032(a) with another interested person:
33-16 (1) the arrangement is voidable by the State Board of
33-17 Education or the comptroller; and
33-18 (2) the State Board of Education or the comptroller
33-19 may enter an order declaring the person ineligible to contract for
33-20 business relating to management or investment of the permanent
33-21 school fund.
33-22 Sec. 43.0036. INFORMATION REGARDING PERSONS INTERESTED IN
33-23 INVESTMENTS OF PERMANENT SCHOOL FUND. (a) The State Board of
33-24 Education shall maintain on an Internet website a listing of each
33-25 interested person. The list must include the person's full name
33-26 and business address and must be updated at least once each
33-27 calendar quarter.
34-1 (b) The board may use an Internet website established and
34-2 maintained by the agency to comply with this section.
34-3 Sec. 43.0051. REQUIRED CONTRACT PROVISION. The State Board
34-4 of Education shall include as a part of each contract under which a
34-5 consultant, advisor, broker, money manager, investment manager,
34-6 dealer, or other person agrees to provide services to the board
34-7 relating to the management or investment of the permanent school
34-8 fund a standard provision adopted by the board:
34-9 (1) requiring the person to comply with all applicable
34-10 statutes and rules relating to the services provided by the person
34-11 to the board; and
34-12 (2) acknowledging that the board may terminate the
34-13 contract or any other arrangement between the board and the person
34-14 if the person fails to comply with those statutes and rules.
34-15 Sec. 43.0052. COOPERATION RELATING TO INVESTIGATION OR
34-16 DISCIPLINARY ACTIONS OF CERTAIN PERSONS INTERESTED IN MANAGEMENT OR
34-17 INVESTMENT OF PERMANENT SCHOOL FUND. (a) As appropriate, the
34-18 comptroller shall provide information relating to disciplinary
34-19 actions taken by the State Board of Education or the comptroller
34-20 against a consultant, advisor, broker, money manager, investment
34-21 manager, or dealer doing business with or seeking to do business
34-22 with the permanent school fund to:
34-23 (1) the United States Securities and Exchange
34-24 Commission;
34-25 (2) the securities commissioner;
34-26 (3) self-regulatory organizations, including the
34-27 National Association of Securities Dealers, Inc.; and
35-1 (4) professional organizations of persons involved in
35-2 management or investment of institutional funds, including the
35-3 Association for Investment Management and Research.
35-4 (b) The comptroller shall closely cooperate with persons
35-5 described by Subsections (a)(1)-(4) in those persons'
35-6 investigations involving consultants, brokers, or dealers doing
35-7 business with or seeking to do business with the permanent school
35-8 fund.
35-9 SECTION 2.07. Section 43.006(f), Education Code, is amended
35-10 to read as follows:
35-11 (f) The corporation shall file [quarterly] reports with the
35-12 State Board of Education concerning matters required by the board.
35-13 The board may determine the frequency of reports under this
35-14 subsection.
35-15 SECTION 2.08. Chapter 43, Education Code, is amended by
35-16 adding Sections 43.0061-43.0063 to read as follows:
35-17 Sec. 43.0061. BARRING CERTAIN PERSONS FROM CONTRACTING TO
35-18 PROVIDE SERVICES RELATING TO MANAGEMENT OR INVESTMENT OF PERMANENT
35-19 SCHOOL FUND. (a) An interested person may be barred from
35-20 contracting with the State Board of Education or another interested
35-21 person to provide services relating to the management or investment
35-22 of the permanent school fund if it is determined at a contested
35-23 case hearing held under Section 43.0062 that the interested person
35-24 who is the subject of the hearing has violated:
35-25 (1) the ethics policy adopted by the board under
35-26 Section 43.0031; or
35-27 (2) the conflict of interest restrictions under
36-1 Section 43.0032.
36-2 (b) This section does not affect the validity of a contract
36-3 entered into before a determination is made that the interested
36-4 person should be barred from contracting with the board or another
36-5 interested person unless the contract may be voided under this
36-6 chapter.
36-7 Sec. 43.0062. HEARINGS BY STATE OFFICE OF ADMINISTRATIVE
36-8 HEARINGS. (a) The commissioner, on behalf of the State Board of
36-9 Education, and the chief administrative law judge of the State
36-10 Office of Administrative Hearings shall adopt a memorandum of
36-11 understanding under which the State Office of Administrative
36-12 Hearings conducts the contested case hearings required for purposes
36-13 of Section 43.0061.
36-14 (b) The memorandum of understanding must require the chief
36-15 administrative law judge and the board to cooperate in connection
36-16 with a contested case hearing required for purposes of Section
36-17 43.0061.
36-18 (c) The memorandum of understanding must provide that the
36-19 administrative law judge who conducts a contested case hearing for
36-20 the State Office of Administrative Hearings on behalf of the board,
36-21 after completing the hearing, shall:
36-22 (1) determine whether a ground exists under Section
36-23 43.0061(a) so that an interested person should be barred from
36-24 contracting with the State Board of Education or another interested
36-25 person to provide services relating to the management or investment
36-26 of the permanent school fund; and
36-27 (2) if a determination is made that the interested
37-1 person should be barred from contracting with the board or another
37-2 interested person, notwithstanding Section 2003.042, Government
37-3 Code, enter the final decision in the case concerning the period
37-4 for which the person is barred based on:
37-5 (A) whether the person has previously violated
37-6 the ethics policy or conflict of interest restrictions;
37-7 (B) the seriousness of the person's violation;
37-8 and
37-9 (C) the damage to the interests of the permanent
37-10 school fund.
37-11 (d) A person may obtain judicial review of a decision of an
37-12 administrative law judge under this section in the manner provided
37-13 by Subchapter G, Chapter 2001, Government Code.
37-14 Sec. 43.0063. MANAGEMENT AND PERFORMANCE AUDIT. (a) As
37-15 frequently as the legislative audit committee determines necessary
37-16 or advisable, the committee shall select an independent firm with
37-17 substantial experience in evaluating institutional investment
37-18 practices and performance to evaluate investment management
37-19 practices and performance relating to the permanent school fund.
37-20 (b) The legislative audit committee shall determine specific
37-21 areas to be evaluated.
37-22 (c) A firm selected under this section shall file a report
37-23 of the firm's evaluation under this section with the legislative
37-24 audit committee not later than the date specified by the committee.
37-25 (d) The agency shall pay the costs of each evaluation under
37-26 this section out of the available school fund.
37-27 SECTION 2.09. Section 43.007, Education Code, is amended to
38-1 read as follows:
38-2 Sec. 43.007. PURCHASE AND SALE OR EXCHANGE OF INVESTMENTS
38-3 [SECURITIES]. (a) The State Board of Education may authorize the
38-4 purchase of all investments [of the types of securities] in which
38-5 it is authorized by law to invest the permanent school fund [in
38-6 either registered or negotiable form]. The board may authorize the
38-7 reissue of those investments [securities] held at any time for the
38-8 account of the permanent school fund [in either registered or
38-9 negotiable form]. The State Board of Education may authorize the
38-10 sale of any investments [of the securities] held for the account of
38-11 the permanent school fund and reinvest the proceeds of sale for the
38-12 fund and may authorize the exchange of any investments [of the
38-13 securities] held for the account of the permanent school fund.
38-14 (b) In making purchases, sales, exchanges, and reissues, the
38-15 State Board of Education shall exercise the standard of care
38-16 prescribed by Section 5(d), Article VII, Texas Constitution
38-17 [judgment and care under the circumstances then prevailing that
38-18 persons of ordinary prudence, discretion, and intelligence exercise
38-19 in the management of their own affairs not in regard to speculation
38-20 but in regard to the permanent disposition of their funds,
38-21 considering the probable income as well as the probable safety of
38-22 their capital].
38-23 (c) When any investments [securities] are sold, reissued, or
38-24 exchanged as provided by Subsection (a), the custodian of the
38-25 investments [securities] shall deliver the investments [securities]
38-26 sold, reissued, or exchanged in accordance with the directions of
38-27 the State Board of Education.
39-1 SECTION 2.10. The heading to Section 43.010, Education Code,
39-2 is amended to read as follows:
39-3 Sec. 43.010. DEFAULT OF SCHOOL DISTRICT BONDS [SECURITIES]
39-4 HELD BY [THE] PERMANENT SCHOOL FUND.
39-5 SECTION 2.11. Sections 43.010(b) and (d), Education Code, are
39-6 amended to read as follows:
39-7 (b) Revenue collected by either method specified by
39-8 Subsection (a) shall be distributed proportionately to all owners
39-9 of the defaulted bonds [securities] in compliance with the
39-10 following:
39-11 (1) the proportionate share for each owner is based on
39-12 the interest and principal requirements of the original bond
39-13 [security] before authorized refunding; and
39-14 (2) prior acceptance of refunding bonds [securities]
39-15 does not reduce an owner's proportionate share.
39-16 (d) The comptroller may not issue any warrant from the
39-17 foundation school fund to or for the benefit of any district that
39-18 has been for as long as two years in default in the payment of
39-19 principal or interest on any bond [security] owned by the permanent
39-20 school fund until the State Board of Education certifies that the
39-21 district has satisfactorily complied with the appropriate
39-22 provisions of this section, in which event the comptroller shall
39-23 resume making payments to or for the benefit of the district,
39-24 including the making of pretermitted payments.
39-25 SECTION 2.12. Section 43.015(f), Education Code, is amended
39-26 to read as follows:
39-27 (f) The comptroller shall be the custodian of investments
40-1 [all securities enumerated in Section 43.003(6) and of other
40-2 securities as] designated by the State Board of Education in which
40-3 the school funds of the state are invested. The comptroller shall
40-4 keep those investments [securities] in the comptroller's custody
40-5 until paid off, discharged, delivered as required by the State
40-6 Board of Education, or otherwise disposed of by the proper
40-7 authorities of the state, and on the proper installment of any
40-8 interest or dividend, shall see that the proper credit is given,
40-9 and the coupons on bonds, when paid, shall be separated from the
40-10 bonds and cancelled by the comptroller.
40-11 SECTION 2.13. Section 43.017, Education Code, is amended to
40-12 read as follows:
40-13 Sec. 43.017. USE OF COMMERCIAL BANKS AS AGENTS FOR
40-14 COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)
40-15 The State Board of Education may contract with one or more
40-16 commercial banks to receive payments of dividends and interest on
40-17 investments [securities] in which the state permanent school funds
40-18 are invested and transmit that money with identification of its
40-19 source to the comptroller for the account of the available school
40-20 fund by the fastest available means.
40-21 (b) In choosing each commercial bank with which to contract
40-22 as authorized by Subsection (a), the State Board of Education shall
40-23 assure itself of:
40-24 (1) the financial stability of the bank;
40-25 (2) the location of the bank with respect to its
40-26 proximity to the banks on which checks are drawn in payment of
40-27 dividends and interest on investments [securities] of the permanent
41-1 school fund;
41-2 (3) the experience and reliability of the bank in
41-3 acting as agent for others in the similar collection and
41-4 expeditious remittance of money; and
41-5 (4) the reasonableness of the bank's charges for the
41-6 services, both in amount of the charges and in relation to the
41-7 increased investment earnings of the available school fund that
41-8 will result from speedier receipt by the comptroller of the money.
41-9 SECTION 2.14. Section 43.018(b), Education Code, is amended
41-10 to read as follows:
41-11 (b) The State Board of Education may contract with a
41-12 commercial bank pursuant to this section only if:
41-13 (1) the bank is located in a city having a major stock
41-14 exchange;
41-15 (2) the bank is experienced in the operation of a
41-16 fully secured securities loan program;
41-17 (3) the bank has adequate capital in the prudent
41-18 judgment of the State Board of Education to assure the safety of
41-19 the securities entrusted to it as a custodian;
41-20 (4) the bank will require of any securities broker or
41-21 dealer to which it lends securities owned by the state permanent
41-22 school fund that the broker or dealer deliver to it cash collateral
41-23 for the loan of securities, and that the cash collateral will at
41-24 all times be not less than 100 percent of the market value of the
41-25 securities lent;
41-26 (5) the bank executes an indemnification agreement,
41-27 satisfactory in form and content to the State Board of Education,
42-1 fully indemnifying the permanent and available school funds against
42-2 loss resulting from borrower default or the failure of the bank to
42-3 properly execute the responsibilities of the bank under the
42-4 applicable securities lending agreement [the bank's service as
42-5 custodian of securities of the permanent school fund and its
42-6 operation of a securities loan program using securities of the
42-7 permanent school fund];
42-8 (6) the bank will speedily collect and remit on the
42-9 day of collection by the fastest available means to the comptroller
42-10 any dividends and interest collectible by it on securities held by
42-11 it as custodian, together with identification as to the source of
42-12 the dividends or interest; and
42-13 (7) the bank is the bank agreeing to pay to the
42-14 available school fund the largest sum or highest percentage of the
42-15 income derived by the bank from use of the securities of the
42-16 permanent school fund in the operation of a securities loan
42-17 program.
42-18 SECTION 2.15. Section 321.013, Government Code, is amended by
42-19 adding Subsection (j) to read as follows:
42-20 (j) The State Auditor shall enter into a written contract
42-21 with the State Board of Education for the State Auditor to
42-22 investigate an allegation relating to the management and investment
42-23 of the permanent school fund as prescribed by Section 7.113,
42-24 Education Code. After an investigation of an allegation is
42-25 completed, the State Auditor shall prepare a written report of the
42-26 results of that investigation. The State Auditor shall submit the
42-27 report to the committee before publication. The State Auditor shall
43-1 file a copy of the report with the governor, the lieutenant
43-2 governor, the speaker of the house of representatives, each member
43-3 of the State Board of Education, and each member of the standing
43-4 committees of the senate and of the house of representatives with
43-5 primary jurisdiction over the State Board of Education.
43-6 SECTION 2.16. Not later than March 1, 2002, the governor,
43-7 lieutenant governor, and speaker of the house of representatives
43-8 shall appoint members of the investment advisory committee, as
43-9 required by Section 43.0012, Education Code, as added by this
43-10 article.
43-11 SECTION 2.17. Sections 43.0035 and 43.0051, Education Code,
43-12 as added by this article, apply only to an arrangement or contract
43-13 entered into on or after January 1, 2002.
43-14 SECTION 2.18. Not later than March 1, 2002, the State Board
43-15 of Education shall post on an Internet website the information
43-16 required by Section 43.0036, Education Code, as added by this
43-17 article.
43-18 SECTION 2.19. Not later than March 1, 2002, the commissioner
43-19 of education, on behalf of the State Board of Education, and the
43-20 chief administrative law judge of the State Office of
43-21 Administrative Hearings shall adopt a memorandum of understanding
43-22 as prescribed by Section 43.0062, Education Code, as added by this
43-23 article.
43-24 SECTION 2.20. Not later than March 1, 2002, the legislative
43-25 audit committee shall select an independent firm to evaluate
43-26 investment management practices and performance relating to the
43-27 permanent school fund as required by Section 43.0063, Education
44-1 Code, as added by this article. The evaluation must include a
44-2 comprehensive analysis of the State Board of Education's investment
44-3 program relating to the permanent school fund.
44-4 SECTION 2.21. This article takes effect January 1, 2002, but
44-5 only if the constitutional amendment proposed by the 77th
44-6 Legislature, Regular Session, 2001, providing for the transfer of
44-7 authority to manage and invest the permanent school fund from the
44-8 State Board of Education to the Permanent School Fund Investment
44-9 Board, is not approved by the voters. If the proposed
44-10 constitutional amendment is approved by the voters, this article
44-11 has no effect.
44-12 ARTICLE 3. COMPOSITION OF AND AUTHORIZED INVESTMENTS FOR
44-13 PERMANENT SCHOOL FUND
44-14 SECTION 3.01. Section 43.003, Education Code, is repealed.
44-15 SECTION 3.02. Sections 43.001(a) and (b), Education Code, are
44-16 amended to read as follows:
44-17 (a) The permanent school fund, which is a perpetual
44-18 endowment for the public schools of this state, consists of:
44-19 (1) all land appropriated for the public schools by
44-20 the constitution and laws of this state;
44-21 (2) all of the unappropriated public domain remaining
44-22 in this state, including all land recovered by the state by suit or
44-23 otherwise except pine forest land as defined by Section 88.111;
44-24 (3) all proceeds from the authorized sale of permanent
44-25 school fund land;
44-26 (4) all proceeds from the lawful sale of any other
44-27 properties belonging to the permanent school fund;
45-1 (5) all investments [authorized by Section 43.003] of
45-2 properties belonging to the permanent school fund; and
45-3 (6) all income from the mineral development of
45-4 permanent school fund land, including income from mineral
45-5 development of riverbeds and other submerged land.
45-6 (b) The available school fund, which shall be apportioned
45-7 annually to each county according to its scholastic population,
45-8 consists of:
45-9 (1) the interest and dividends arising from any
45-10 investments [securities] or funds belonging to the permanent school
45-11 fund;
45-12 (2) all interest derivable from the proceeds of the
45-13 sale of land set apart for the permanent school fund;
45-14 (3) all money derived from the lease of land belonging
45-15 to the permanent school fund;
45-16 (4) one-fourth of all revenue derived from all state
45-17 occupation taxes, exclusive of delinquencies and cost of
45-18 collection;
45-19 (5) one-fourth of revenue derived from state gasoline
45-20 and special fuels excise taxes as provided by law; and
45-21 (6) all other appropriations to the available school
45-22 fund made by the legislature for public school purposes.
45-23 SECTION 3.03. This article takes effect September 1, 2001.