1-1     By:  Duncan, Lindsay                                   S.B. No. 512
 1-2           (In the Senate - Filed February 1, 2001; February 5, 2001,
 1-3     read first time and referred to Committee on Education;
 1-4     March 13, 2001, rereferred to Committee on Finance; April 4, 2001,
 1-5     reported favorably by the following vote:  Yeas 8, Nays 2;
 1-6     April 4, 2001, sent to printer.)
 1-7                            A BILL TO BE ENTITLED
 1-8                                   AN ACT
 1-9     relating to the investment and management of the permanent school
1-10     fund.
1-11           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12           SECTION 1.  Chapter 43, Education Code, is amended by adding
1-13     Section 43.0011 to read as follows:
1-14           Sec. 43.0011.  PERMANENT SCHOOL FUND INVESTMENT BOARD.
1-15     (a)  The Permanent School Fund Investment Board consists of:
1-16                 (1)  the persons appointed as provided by Section 5(d),
1-17     Article VII, Texas Constitution; and
1-18                 (2)  the commissioner, who serves as a nonvoting ex
1-19     officio member.
1-20           (b)  The governor shall designate the presiding officer of
1-21     the board from among the appointed members.  The presiding officer
1-22     serves in that capacity at the will of the governor.
1-23           (c)  The board may:
1-24                 (1)  employ an executive director and other employees;
1-25     and
1-26                 (2)  direct the agency in managing and investing the
1-27     permanent school fund.
1-28           SECTION 2.  Subsections (a) and (b), Section 43.0031,
1-29     Education Code, are amended to read as follows:
1-30           (a)  In addition to any other requirements provided by law,
1-31     the Permanent School Fund Investment Board [State Board of
1-32     Education] shall adopt and enforce an ethics policy that provides
1-33     standards of conduct relating to the management and investment of
1-34     the permanent school fund.  The ethics policy must include
1-35     provisions that address the following issues as they apply to the
1-36     management and investment of the permanent school fund and to
1-37     persons responsible for managing and investing the fund:
1-38                 (1)  general ethical standards;
1-39                 (2)  conflicts of interest;
1-40                 (3)  prohibited transactions and interests;
1-41                 (4)  the acceptance of gifts and entertainment;
1-42                 (5)  compliance with applicable professional standards;
1-43                 (6)  ethics training; and
1-44                 (7)  compliance with and enforcement of the ethics
1-45     policy.
1-46           (b)  The ethics policy must include provisions applicable to:
1-47                 (1)  members of the Permanent School Fund Investment
1-48     Board [State Board of Education];
1-49                 (2)  the executive director and other employees of the
1-50     board;
1-51                 (3)  the commissioner;
1-52                 (4) [(3)]  employees of the agency; and
1-53                 (5) [(4)]  any person who provides services to the
1-54     board relating to the management or investment of the permanent
1-55     school fund.
1-56           SECTION 3.  Section 43.0032, Education Code, is amended to
1-57     read as follows:
1-58           Sec. 43.0032.  CONFLICTS OF INTEREST.  (a)  This section
1-59     applies to:
1-60                 (1)  a  [A] member of the Permanent School Fund
1-61     Investment Board;
1-62                 (2)  [State Board of Education,] the commissioner;
1-63                 (3)  [,] an employee of the agency; and
1-64                 (4)  [, or] a person who provides services to the board
 2-1     that relate to the management or investment of the permanent school
 2-2     fund.
 2-3           (b)  A person to whom this section applies who has a
 2-4     business, commercial, or other relationship that could reasonably
 2-5     be expected to diminish the person's independence of judgment in
 2-6     the performance of the person's responsibilities relating to the
 2-7     management or investment of the fund shall disclose the
 2-8     relationship in writing to the board.
 2-9           (c) [(b)]  The board or the board's designee shall, in the
2-10     ethics policy adopted under Section 43.0031, define the kinds of
2-11     relationships that may create a possible conflict of interest.
2-12           (d) [(c)]  A person who files a statement under Subsection
2-13     (b) [(a)] disclosing a possible conflict of interest may not give
2-14     advice or make decisions about a matter affected by the possible
2-15     conflict of interest unless the board, after consultation with the
2-16     general counsel of the agency, expressly waives this prohibition.
2-17     The board may delegate the authority to waive the prohibition
2-18     established by this subsection.
2-19           SECTION 4.  Section 43.0033, Education Code, is amended to
2-20     read as follows:
2-21           Sec. 43.0033.  REPORTS OF EXPENDITURES.  A consultant,
2-22     advisor, broker, or other person providing services to the
2-23     Permanent School Fund Investment Board [State Board of Education]
2-24     relating to the management and investment of the permanent school
2-25     fund shall file with the board regularly, as determined by the
2-26     board, a report that describes in detail any expenditure of more
2-27     than $50 made by the person on behalf of:
2-28                 (1)  a member of the board;
2-29                 (2)  the executive director or another employee of the
2-30     board;
2-31                 (3)  the commissioner; or
2-32                 (4) [(3)]  an employee of the agency or of a nonprofit
2-33     corporation created under Section 43.006.
2-34           SECTION 5.  Subsection (a), Section 43.0034, Education Code,
2-35     is amended to read as follows:
2-36           (a)  The Permanent School Fund Investment Board [board] shall
2-37     prescribe forms for:
2-38                 (1)  statements of possible conflicts of interest and
2-39     waivers of possible conflicts of interest under Section 43.0032;
2-40     and
2-41                 (2)  reports of expenditures under Section 43.0033.
2-42           SECTION 6.  Subsection (a), Section 43.004, Education Code,
2-43     is amended to read as follows:
2-44           (a)  The Permanent School Fund Investment Board [State Board
2-45     of Education] shall develop written investment objectives
2-46     concerning the investment of the permanent school fund.  The
2-47     objectives may address desired rates of return, risks involved,
2-48     investment time frames, and any other relevant considerations.
2-49           SECTION 7.  Section 43.005, Education Code, is amended to
2-50     read as follows:
2-51           Sec. 43.005.  EXTERNAL INVESTMENT MANAGERS.  (a)  The
2-52     Permanent School Fund Investment Board [State Board of Education]
2-53     may contract with private professional investment managers to
2-54     assist the board in making investments of the permanent school
2-55     fund.  A contract under this subsection must be approved by the
2-56     board or otherwise entered into in accordance with board rules
2-57     relating to contracting authority.
2-58           (b)  The Permanent School Fund Investment Board [State Board
2-59     of Education] by rule may delegate a power or duty relating to the
2-60     investment of the permanent school fund to a committee, officer,
2-61     employee, or other agent of the board.
2-62           SECTION 8.  Subsections (a), (d), (e), and (f), Section
2-63     43.006, Education Code, are amended to read as follows:
2-64           (a)  The Permanent School Fund Investment Board [State Board
2-65     of Education] may delegate investment authority and contract for
2-66     the investment of the permanent school fund to the same extent as
2-67     the governing board of an institution of higher education with
2-68     respect to an institutional fund under Chapter 163, Property Code.
2-69           (d)  The board of directors of the corporation must be
 3-1     members of the Permanent School Fund Investment Board [State Board
 3-2     of Education].
 3-3           (e)  If an investment contract entered into under Subsection
 3-4     (b) includes the permanent school fund within the scope of funds
 3-5     under the control and management of the Permanent School Fund
 3-6     Investment Board [State Board of Education] to be invested by the
 3-7     corporation, the board shall provide for an annual financial audit
 3-8     of the permanent school fund.  The audit shall be performed by the
 3-9     state auditor.
3-10           (f)  The corporation shall file quarterly reports with the
3-11     Permanent School Fund Investment Board [State Board of Education]
3-12     concerning matters required by the board.
3-13           SECTION 9.  Section 43.007, Education Code, is amended to
3-14     read as follows:
3-15           Sec. 43.007.  PURCHASE AND SALE OR EXCHANGE OF SECURITIES.
3-16     (a)  The Permanent School Fund Investment Board [State Board of
3-17     Education] may authorize the purchase of all of the types of
3-18     securities in which it is authorized by law to invest the permanent
3-19     school fund in either registered or negotiable form.  The board may
3-20     authorize the reissue of those securities held at any time for the
3-21     account of the permanent school fund in either registered or
3-22     negotiable form.  The  board [State Board of Education] may
3-23     authorize the sale of any of the securities held for the account of
3-24     the permanent school fund and reinvest the proceeds of sale for the
3-25     fund and may authorize the exchange of any of the securities held
3-26     for the account of the permanent school fund.
3-27           (b)  In making purchases, sales, exchanges, and reissues, the
3-28     Permanent School Fund Investment Board [State Board of Education]
3-29     shall exercise the judgment and care under the circumstances then
3-30     prevailing that persons of ordinary prudence, discretion, and
3-31     intelligence exercise in the management of their own affairs not in
3-32     regard to speculation but in regard to the permanent disposition of
3-33     their funds, considering the probable income as well as the
3-34     probable safety of their capital.
3-35           (c)  When any securities are sold, reissued, or exchanged as
3-36     provided by Subsection (a), the custodian of the securities shall
3-37     deliver the securities sold, reissued, or exchanged in accordance
3-38     with the directions of the Permanent School Fund Investment Board
3-39     [State Board of Education].
3-40           SECTION 10.  Subsections (a) and (b), Section 43.008,
3-41     Education Code, are amended to read as follows:
3-42           (a)  If the Permanent School Fund Investment Board [State
3-43     Board of Education] authorizes the payment of a premium out of the
3-44     permanent school fund for purchasing any fixed-income security as
3-45     an investment for that fund, the principal of the security and a
3-46     portion of the interest accruing from the security equal to the
3-47     premium shall be treated as principal in the investment as provided
3-48     by Subsection (c) and shall be returned to the permanent school
3-49     fund.
3-50           (b)  If the Permanent School Fund Investment Board [State
3-51     Board of Education] authorizes the purchase of a fixed-income
3-52     security at less than par, the discount received in the purchase
3-53     shall be paid to the available school fund as additional interest
3-54     revenue as provided by Subsection (c).
3-55           SECTION 11.  Subsections (a), (b), and (c), Section 43.009,
3-56     Education Code, are amended to read as follows:
3-57           (a)  The Permanent School Fund Investment Board [State Board
3-58     of Education] may authorize the governing body of any political
3-59     subdivision in this state to pay off and discharge, at any interest
3-60     paying date whether the bonds are matured or not, all or any part
3-61     of any outstanding bond indebtedness owned by the permanent school
3-62     fund.
3-63           (b)  The governing body of a political subdivision desiring
3-64     to pay off and discharge any bonded indebtedness owned by the fund
3-65     shall apply in writing to the Permanent School Fund Investment
3-66     Board [State Board of Education], not later than the 30th day
3-67     before any interest paying date on the bonds, describing the bonds
3-68     or part of the bonds it desires to pay off and discharge.  The
3-69     application must be accompanied by an affidavit stating that only
 4-1     tax money collected from a tax levy made for the specific purpose
 4-2     of providing a sinking fund and paying interest on the particular
 4-3     bonds to be redeemed will be spent in redeeming, taking up, or
 4-4     paying off the bonds.
 4-5           (c)  The Permanent School Fund Investment Board [State Board
 4-6     of Education], on receiving the application and affidavit, shall
 4-7     take action on them in the manner it considers best and shall
 4-8     notify the applicant whether the application is refused or granted
 4-9     in whole or in part.
4-10           SECTION 12.  Subsections (a), (c), and (d), Section 43.010,
4-11     Education Code, are amended to read as follows:
4-12           (a)  If interest or principal has not been paid for two years
4-13     or more on any bonds issued by any school district and held by the
4-14     permanent school fund, the Permanent School Fund Investment Board
4-15     [State Board of Education] may:
4-16                 (1)  compel the district to levy a tax sufficient to
4-17     meet the interest and principal payments then or later due; or
4-18                 (2)  if the district furnishes to the Permanent School
4-19     Fund Investment Board [State Board of Education] satisfactory proof
4-20     that the district's taxing ability is insufficient, require the
4-21     district to:
4-22                       (A)  exhaust all legal remedies in collecting
4-23     delinquent taxes; and
4-24                       (B)  levy a tax at the maximum lawful rate on the
4-25     bona fide valuation of taxable property located in the district.
4-26           (c)  As long as any school district is delinquent in its
4-27     payments of principal or interest on any of its bonds owned by the
4-28     permanent school fund, the Permanent School Fund Investment Board
4-29     [State Board of Education] may specify the method of crediting
4-30     payments to the state made by the district as to principal and
4-31     interest.
4-32           (d)  The comptroller may not issue any warrant from the
4-33     foundation school fund to or for the benefit of any district that
4-34     has been for as long as two years in default in the payment of
4-35     principal or interest on any security owned by the permanent school
4-36     fund until the Permanent School Fund Investment Board [State Board
4-37     of Education] certifies that the district has satisfactorily
4-38     complied with the appropriate provisions of this section, in which
4-39     event the comptroller shall resume making payments to or for the
4-40     benefit of the district, including the making of pretermitted
4-41     payments.
4-42           SECTION 13.  Subsections (a) through (e), Section 43.011,
4-43     Education Code, are amended to read as follows:
4-44           (a)  In compliance with this section, the Permanent School
4-45     Fund Investment Board [State Board of Education] may revise,
4-46     readjust, modify, refinance, or refund defaulted bonds issued by
4-47     any school district in this state and owned by either the permanent
4-48     school fund or the available school fund.
4-49           (b)  Application must be made to the Permanent School Fund
4-50     Investment Board [State Board of Education] by the district that
4-51     issued the bonds and must show that:
4-52                 (1)  delinquent interest totals at least 50 percent of
4-53     the principal amount of the bonds; and
4-54                 (2)  taxable valuation has decreased to such an extent
4-55     that a full application of the proceeds of the voted authorized tax
4-56     authorized to be levied on the $100 taxable property valuation will
4-57     not meet interest and principal annually maturing on the bonds.
4-58           (c)  The Permanent School Fund Investment Board [State Board
4-59     of Education] may effect a refunding of the debt due and to become
4-60     due only if the board finds that:
4-61                 (1)  the district is unable to pay the sums already
4-62     matured and the sums contracted to be paid as they mature by paying
4-63     annually to the Permanent School Fund Investment Board [State Board
4-64     of Education] the full proceeds of a 50-cent tax levy on the $100
4-65     of all taxable valuation of property in the district;
4-66                 (2)  the taxable valuation of property in the district
4-67     has decreased at least 75 percent since the bonds were issued and
4-68     that the decrease was not caused by the district or any of its
4-69     officials;
 5-1                 (3)  the district for a period of at least five years
 5-2     before applying to the Permanent School Fund Investment Board
 5-3     [State Board of Education] for refunding has levied a tax of 50
 5-4     cents on the $100 of taxable valuation of property in the district,
 5-5     and that despite such levies, the aggregate amount due the
 5-6     Permanent School Fund Investment Board [State Board of Education]
 5-7     exceeds the aggregate amount due at the beginning of the period;
 5-8                 (4)  the district has not authorized and sold
 5-9     additional bonds during the five-year period immediately preceding
5-10     the application; and
5-11                 (5)  the district has in good faith endeavored to pay
5-12     its debt in accordance with the contract evidenced by the bonds
5-13     held for the account of the permanent school fund or the available
5-14     school fund.
5-15           (d)  If the conditions specified by Subsection (c) are found
5-16     to exist, the district is, for purposes of this section, insolvent,
5-17     and the Permanent School Fund Investment Board [State Board of
5-18     Education] may exchange the bonds, interest coupons, and other
5-19     evidences of indebtedness for new refunding bonds of the district
5-20     issued in compliance with the following:
5-21                 (1)  the principal amount of the refunding bonds may
5-22     not be less than the total amount of the bonds, matured interest
5-23     coupons, accrued interest, and interest on delinquent interest then
5-24     actually due to the permanent school fund or the available school
5-25     fund; and
5-26                 (2)  the rate of interest to be borne by the refunding
5-27     bonds may be lower than that borne by the bonds to be refunded if
5-28     in consideration of the interest reduction the district agrees to
5-29     levy a tax each year for a period of 40 years at a rate sufficient
5-30     to produce annually a sum equal to 90 percent of the amount that
5-31     can be calculated by the levy of a tax at the rate of 50 cents on
5-32     the $100 of taxable valuation of property as determined by the
5-33     latest approved tax roll of the district, and in determining the
5-34     rate of interest to be borne by the refunding bonds, the Permanent
5-35     School Fund Investment Board [State Board of Education] shall be
5-36     governed by the following:
5-37                       (A)  the Permanent School Fund Investment Board
5-38     [State Board of Education] may require the rate to be an annual [a]
5-39     percent [per annum] as in its judgment will represent the maximum
5-40     rate that can be paid by the district and still permit an orderly
5-41     and certain retirement of the refunding bonds within 40 years from
5-42     their date;
5-43                       (B)  the interest rate of refunding bonds to be
5-44     received in exchange for bonds owned by the permanent school fund
5-45     may not be less than the minimum rate at which bonds may then be
5-46     purchased as investments for the permanent school fund; and
5-47                       (C)  the rate of interest of refunding bonds to
5-48     be received in exchange for bonds owned by the available school
5-49     fund may be set by the Permanent School Fund Investment Board
5-50     [State Board of Education] at any rate the board considers
5-51     feasible, and the refunding bonds may, at the discretion of the
5-52     board [State Board of Education], be made non-interest bearing to a
5-53     date fixed by the board.
5-54           (e)  The Permanent School Fund Investment Board [State Board
5-55     of Education] may not make a revision, readjustment, modification,
5-56     refinancing, or refunding that will release or extinguish any debt
5-57     or obligation then due and payable to the permanent school fund or
5-58     to the available school fund.
5-59           SECTION 14.  Subsections (a) and (c) through (f), Section
5-60     43.012, Education Code, are amended to read as follows:
5-61           (a)  Defaulted obligations, other than bonds of school
5-62     districts as provided by Section 43.011, due the available school
5-63     fund may be refinanced or refunded with the approval of the
5-64     Permanent School Fund Investment Board [State Board of Education]
5-65     in compliance with this section.
5-66           (c)  The obligor must apply to the Permanent School Fund
5-67     Investment Board [State Board of Education] and show:
5-68                 (1)  that the obligations due the available school fund
5-69     have been in default in whole or in part for a continuous period of
 6-1     at least 15 years; and
 6-2                 (2)  that the obligor is not in default in the payment
 6-3     of the principal of any bonds owned by the permanent school fund.
 6-4           (d)  If the Permanent School Fund Investment Board [State
 6-5     Board of Education] finds that the requirements provided by
 6-6     Subsection (c) have been met, it may approve a refinancing or the
 6-7     issuance of refunding bonds on the conditions:
 6-8                 (1)  that the refunding bonds must mature serially in
 6-9     not exceeding 40 years from the date of issuance;
6-10                 (2)  that the principal amount of the refunding bonds
6-11     may be not less than the total amount of the obligations then in
6-12     default and due the available school fund; and
6-13                 (3)  that the refunding bonds must bear interest at a
6-14     rate or rates determined by the Permanent School Fund Investment
6-15     Board [State Board of Education] to be for the best interest of the
6-16     available school fund.
6-17           (e)  The Permanent School Fund Investment Board [State Board
6-18     of Education] may accept refunding bonds in lieu of either matured
6-19     or unmatured bonds held for the benefit of the permanent school
6-20     fund if the rate of interest on the new refunding bonds is at least
6-21     the same rate as that of the bonds being refunded.
6-22           (f)  Refunding bonds issued with the approval or pursuant to
6-23     a refunding agreement with the Permanent School Fund Investment
6-24     Board [State Board of Education] in compliance with either this
6-25     section or Section 43.011 shall, on the order of the board [State
6-26     Board of Education], be exchanged by the comptroller for the
6-27     defaulted obligations they have been issued to refund.
6-28           SECTION 15.  The heading to Section 43.014, Education Code,
6-29     is amended to read as follows:
6-30           Sec. 43.014.  DUTIES OF COMPTROLLER RELATING TO AVAILABLE
6-31     SCHOOL FUND.
6-32           SECTION 16.  Subsection (a), Section 43.014, Education Code,
6-33     is amended to read as follows:
6-34           (a)  On or before July 1 of each year, the comptroller shall
6-35     estimate the amount of the available school fund receivable from
6-36     every source during the following school year and report the
6-37     estimate to the Permanent School Fund Investment Board [State Board
6-38     of Education].
6-39           SECTION 17.  The heading to Section 43.015, Education Code,
6-40     is amended to read as follows:
6-41           Sec. 43.015.  ADDITIONAL DUTIES OF COMPTROLLER.
6-42           SECTION 18.  Subsections (b), (e), and (f), Section 43.015,
6-43     Education Code, are amended to read as follows:
6-44           (b)  The comptroller shall provide the Permanent School Fund
6-45     Investment Board [State Board of Education] with the reports
6-46     specified by Subsection (a) and with additional reports concerning
6-47     those funds requested by the board [State Board of Education].
6-48           (e)  On order of the Permanent School Fund Investment Board
6-49     [State Board of Education], the comptroller shall exchange or
6-50     accept refunding bonds in lieu of:
6-51                 (1)  either matured or unmatured bonds held for the
6-52     benefit of the permanent school fund, which are being refunded
6-53     under this chapter;
6-54                 (2)  defaulted obligations held for the benefit of the
6-55     available school fund if the refunding bonds are issued in
6-56     compliance with Section 43.012;
6-57                 (3)  defaulted obligations of any school district of
6-58     this state held for the benefit of the permanent school fund or the
6-59     available school fund if the refunding bonds are issued in
6-60     compliance with Section 43.011; or
6-61                 (4)  refunding bonds of any school district of this
6-62     state for school bonds not matured held by the comptroller for the
6-63     permanent school fund if the new refunding bonds are issued by the
6-64     school district in compliance with this code.
6-65           (f)  The comptroller shall be the custodian of all securities
6-66     [enumerated in Section 43.003(6) and of other securities as]
6-67     designated by the Permanent School Fund Investment Board [State
6-68     Board of Education] in which the school funds of the state are
6-69     invested.  The comptroller shall keep those securities in the
 7-1     comptroller's custody until paid off, discharged, delivered as
 7-2     required by the Permanent School Fund Investment Board [State Board
 7-3     of Education], or otherwise disposed of by the proper authorities
 7-4     of the state, and on the proper installment of any interest or
 7-5     dividend, shall see that the proper credit is given, and the
 7-6     coupons on bonds, when paid, shall be separated from the bonds and
 7-7     cancelled by the comptroller.
 7-8           SECTION 19.  Sections 43.017, 43.018, and 43.019, Education
 7-9     Code, are amended to read as follows:
7-10           Sec. 43.017.  USE OF COMMERCIAL BANKS AS AGENTS FOR
7-11     COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS.
7-12     (a)  The Permanent School Fund Investment Board [State Board of
7-13     Education] may contract with one or more commercial banks to
7-14     receive payments of dividends and interest on securities in which
7-15     the state permanent school funds are invested and transmit that
7-16     money with identification of its source to the comptroller for the
7-17     account of the available school fund by the fastest available
7-18     means.
7-19           (b)  In choosing each commercial bank with which to contract
7-20     as authorized by Subsection (a), the Permanent School Fund
7-21     Investment Board [State Board of Education] shall assure itself of:
7-22                 (1)  the financial stability of the bank;
7-23                 (2)  the location of the bank with respect to its
7-24     proximity to the banks on which checks are drawn in payment of
7-25     dividends and interest on securities of the permanent school fund;
7-26                 (3)  the experience and reliability of the bank in
7-27     acting as agent for others in the similar collection and
7-28     expeditious remittance of money; and
7-29                 (4)  the reasonableness of the bank's charges for the
7-30     services, both in amount of the charges and in relation to the
7-31     increased investment earnings of the available school fund that
7-32     will result from speedier receipt by the comptroller of the money.
7-33           Sec. 43.018.  PARTICIPATION IN FULLY SECURED SECURITIES LOAN
7-34     PROGRAMS.  (a)  The Permanent School Fund Investment Board [State
7-35     Board of Education] may contract with a commercial bank to serve
7-36     both as a custodian of securities in which the state permanent
7-37     school funds are invested and to lend those securities, under the
7-38     conditions prescribed by Subsection (b), to securities brokers and
7-39     dealers on short-term loan.
7-40           (b)  The Permanent School Fund Investment Board [State Board
7-41     of Education] may contract with a commercial bank pursuant to this
7-42     section only if:
7-43                 (1)  the bank is located in a city having a major stock
7-44     exchange;
7-45                 (2)  the bank is experienced in the operation of a
7-46     fully secured securities loan program;
7-47                 (3)  the bank has adequate capital in the prudent
7-48     judgment of the Permanent School Fund Investment Board [State Board
7-49     of Education] to assure the safety of the securities entrusted to
7-50     it as a custodian;
7-51                 (4)  the bank will require of any securities broker or
7-52     dealer to which it lends securities owned by the state permanent
7-53     school fund that the broker or dealer deliver to it cash collateral
7-54     for the loan of securities, and that the cash collateral will at
7-55     all times be not less than 100 percent of the market value of the
7-56     securities lent;
7-57                 (5)  the bank executes an indemnification agreement,
7-58     satisfactory in form and content to the Permanent School Fund
7-59     Investment Board [State Board of Education], fully indemnifying the
7-60     permanent and available school funds against loss resulting from
7-61     the bank's service as custodian of securities of the permanent
7-62     school fund and its operation of a securities loan program using
7-63     securities of the permanent school fund;
7-64                 (6)  the bank will speedily collect and remit on the
7-65     day of collection by the fastest available means to the comptroller
7-66     any dividends and interest collectible by it on securities held by
7-67     it as custodian, together with identification as to the source of
7-68     the dividends or interest; and
7-69                 (7)  the bank is the bank agreeing to pay to the
 8-1     available school fund the largest sum or highest percentage of the
 8-2     income derived by the bank from use of the securities of the
 8-3     permanent school fund in the operation of a securities loan
 8-4     program.
 8-5           Sec. 43.019.  ACCOUNTING TREATMENT OF CERTAIN EXCHANGES.  The
 8-6     Permanent School Fund Investment Board [State Board of Education]
 8-7     may account for the exchange of permanent school fund securities in
 8-8     a closely related sale and purchase transaction in a manner in
 8-9     which the gain or loss on the sale is deferred as an adjustment to
8-10     the book value of the security purchased, if:
8-11                 (1)  the security sold and the security purchased have
8-12     a fixed maturity value;
8-13                 (2)  the board is authorized by law to invest the
8-14     permanent school fund in the security purchased;
8-15                 (3)  the sale is made in clear contemplation of
8-16     reinvesting substantially all of the proceeds;
8-17                 (4)  substantially all of the proceeds are reinvested;
8-18                 (5)  the transaction is completed within a reasonable
8-19     time after the sale, not to exceed 30 business days; and
8-20                 (6)  the transaction results in an improvement in
8-21     effective income yield, taking into consideration the deferral of
8-22     any gain or loss on the sale.
8-23           SECTION 20.  Subdivision (1), Section 45.051, Education Code,
8-24     is amended to read as follows:
8-25                 (1)  "Board" means the Permanent School Fund Investment
8-26     Board [State Board of Education].
8-27           SECTION 21.  Subsection (a), Section 7.108, Education Code,
8-28     is amended to read as follows:
8-29           (a)  A [person interested in selling bonds of any type or a]
8-30     person engaged in manufacturing, shipping, selling, or advertising
8-31     textbooks or otherwise connected with the textbook business commits
8-32     an offense if the person makes or authorizes a political
8-33     contribution to or takes part in, directly or indirectly, the
8-34     campaign of any person seeking election to or serving on the board.
8-35           SECTION 22.  Subdivision (31), Subsection (c), Section 7.102,
8-36     and Section 43.003, Education Code, are repealed.
8-37           SECTION 23.  (a)  The ethics policy adopted by the State
8-38     Board of Education under Section 43.0031, Education Code, as that
8-39     section existed before amendment by this Act, remains in effect
8-40     until altered by the Permanent School Fund Investment Board.  A
8-41     complaint regarding a violation of the ethics policy pending before
8-42     the State Board of Education is transferred without change in
8-43     status to the Permanent School Fund Investment Board.
8-44           (b)  A form prescribed by the State Board of Education under
8-45     Section 43.0034, Education Code, as that section existed before
8-46     amendment by this Act, remains in effect as a form of the Permanent
8-47     School Fund Investment Board until altered by that board.
8-48           (c)  Written investment objectives developed by the State
8-49     Board of Education under Section 43.004, Education Code, as that
8-50     section existed before amendment by this Act, remain in effect as
8-51     written investment objectives of the Permanent School Fund
8-52     Investment Board until altered by that board.
8-53           (d)  All contracts of the State Board of Education relating
8-54     to management and investment of the permanent school fund are
8-55     transferred to the Permanent School Fund Investment Board on the
8-56     date of the first meeting of the Permanent School Fund Investment
8-57     Board.
8-58           SECTION 24.  A reference in law to the State Board of
8-59     Education that relates to management or investment of the permanent
8-60     school fund means the Permanent School Fund Investment Board.
8-61           SECTION 25.  This Act takes effect January 1, 2002, but only
8-62     if the constitutional amendment proposed by the 77th Legislature,
8-63     Regular Session, 2001, providing for the transfer of authority to
8-64     invest and manage the permanent school fund from the State Board of
8-65     Education to the Permanent School Fund Investment Board, is
8-66     approved by the voters.  If the proposed constitutional amendment
8-67     is not approved by the voters, this Act has no effect.
8-68                                  * * * * *