80R15128 EJI/ESH-F
 
  By: McCall H.B. No. 3699
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the management of public school land and the investment
  of the permanent school fund.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Sections 51.011(a) and (a-1), Natural Resources
  Code, are amended to read as follows:
         (a)  Any land, mineral or royalty interest, real estate
  investment, or other interest, including revenue received from
  those sources, that is set apart to the permanent school fund under
  the constitution and laws of this state together with the mineral
  estate in riverbeds, channels, and the tidelands, including
  islands, shall be subject to the sole and exclusive management and
  control of the school land board and the commissioner under the
  provisions of this chapter and other applicable law.
         (a-1)  The board may acquire, sell, lease, trade, improve,
  maintain, protect, or otherwise manage, control, or use land,
  mineral and royalty interests, real estate investments, or other
  interests, including revenue received from those sources, that are
  [is] set apart to the permanent school fund in any manner, at such
  prices, and under such terms and conditions as the board finds to be
  in the best interest of the fund.
         SECTION 2.  The heading to Section 51.401, Natural Resources
  Code, is amended to read as follows:
         Sec. 51.401.  REAL ESTATE SPECIAL FUND ACCOUNT.  
         SECTION 3.  Sections 51.401(a) and (b), Natural Resources
  Code, are amended to read as follows:
         (a)  The board may designate funds received from any land,
  mineral or royalty interest, real estate investment, or other
  interest, including revenue received from those sources, that is
  set apart to the permanent school fund under the constitution and
  laws of this state together with the mineral estate in riverbeds,
  channels, and the tidelands, including islands, [the sale of
  permanent school fund land under this chapter and the proceeds of
  future mineral leases and royalties generated from existing and
  future leases of permanent school fund mineral interests received
  under Chapters 52 and 53] for deposit in the real estate [a] special
  fund account of the permanent school fund in the State Treasury to
  be used by the board as provided by this subchapter.
         (b)  The real estate special fund account must be an
  interest-bearing account, and the interest received on the account
  shall be deposited in the State Treasury to the credit of the real
  estate special fund account of the permanent school fund.
         SECTION 4.  Subchapter I, Chapter 51, Natural Resources
  Code, is amended by adding Section 51.4011 to read as follows:
         Sec. 51.4011.  DESIGNATION OF BOARD AS MANAGER OF REAL
  ESTATE SPECIAL FUND ACCOUNT. The board shall manage and control the
  real estate special fund account for purposes of Section 4, Article
  VII, Texas Constitution.
         SECTION 5.  Section 51.402, Natural Resources Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (b-1) to read as follows:
         (a)  The board may use the money designated under Section
  51.401 for any of the following purposes:
               (1)  to add to a tract of public school land to form a
  tract of sufficient size to be manageable;
               (2)  to add contiguous land to public school land;
               (3)  to acquire, as public school land, interests in
  real property for biological, commercial, geological, cultural, or
  recreational purposes;
               (4)  to acquire mineral and royalty interests for the
  use and benefit of the permanent school fund;
               (5)  to protect, maintain, or enhance the value of
  public school land;
               (6)  to acquire interests in real estate; [or]
               (7)  to pay reasonable fees for professional services
  related to a permanent school fund investment; or
               (8)  to acquire, sell, lease, trade, improve, maintain,
  protect, or use land, mineral or royalty interests, real estate
  investments, or other interests at prices and under terms the board
  determines to be in the best interest of the permanent school fund.
         (b)  Before using funds under Subsection (a), the board must
  determine, using the prudent investor standard, that the use of the
  funds for the intended purpose is authorized by Subsection (a) and
  in the best interest of the permanent school fund. A determination
  by the board on the use of funds under this section is conclusive
  unless the determination was made as a result of fraud or obvious
  error.
         (b-1)  The board may confer with one or more employees of the
  board or with a third party regarding an investment or potential
  investment in real estate, including the acquisition or potential
  acquisition of interests in real estate, to the extent permitted to
  the board of trustees of the Texas growth fund under Section
  551.075, Government Code.
         SECTION 6.  Section 51.4021, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.4021.  APPOINTMENT OF REAL ESTATE SPECIAL FUND
  MANAGERS, INVESTMENT CONSULTANTS, OR ADVISORS.  (a) The board may
  appoint investment managers, consultants, or advisors to invest or
  assist the board in investing the money designated under Section
  51.401 by contracting for professional investment management or
  investment advisory services with one or more organizations that
  are in the business of managing or advising on the management of
  real estate investments.
         (b)  To be eligible for appointment under this section, an
  investment manager, consultant, or advisor shall agree to abide by
  the [must be:
               [(1)     registered under the Investment Advisers Act of
  1940 (15 U.S.C. Section 80b-1 et seq.);
               [(2)  a bank as defined by that Act; or
               [(3)     an insurance company qualified to perform real
  estate investment services under the laws of more than one state.
         [(c)     In a contract under this section, the board shall
  specify any] policies, requirements, or restrictions, including
  ethical standards and disclosure policies and criteria for
  determining the quality of investments and for the use of standard
  rating services, that the board adopts for real estate investments
  of the permanent school fund. Money designated under Section 51.401
  may not be invested in a real estate investment trust, as defined by
  Section 200.001, Business Organizations Code.
         (c) [(d)]  Compensation paid to an investment manager,
  consultant, or advisor by the board must be consistent with the
  compensation standards of the investment industry and compensation
  paid by similarly situated institutional investors.
         (d) [(e)]  Chapter 2263, Government Code, applies to
  investment managers, consultants, or advisors appointed under this
  section. The board by rule shall adopt standards of conduct for
  investment managers, consultants, or advisors appointed under this
  section as required by Section 2263.004, Government Code, and shall
  implement the disclosure requirements of Section 2263.005 of that
  code.
         SECTION 7.  Section 51.412(a), Natural Resources Code, is
  amended to read as follows:
         (a)  Not later than September 1 of each even-numbered year,
  the board shall submit to the legislature a report that,
  specifically and in detail, assesses the direct and indirect
  economic impact, as anticipated by the board, of the investment of
  funds designated under Section 51.401 for deposit in the real
  estate special fund account of the permanent school fund. The board
  may not disclose information under this section that is
  confidential under applicable state or federal law. The report
  must include the following information:
               (1)  the total amount of money designated by Section
  51.401 for deposit in the real estate special fund account of the
  permanent school fund that the board intends to invest;
               (2)  the rate of return the board expects to attain on
  the investment;
               (3)  the amount of money the board expects to
  distribute to the available school fund or the investment special
  fund account of the permanent school fund after making the
  investments;
               (4)  the distribution of the board's investments by
  county;
               (5)  the effect of the board's investments on the level
  of employment, personal income, and capital investment in the
  state; and
               (6)  any other information the board considers
  necessary to include in the report.
         SECTION 8.  Subchapter I, Chapter 51, Natural Resources
  Code, is amended by adding Section 51.413 to read as follows:
         Sec. 51.413.  TRANSFERS FROM REAL ESTATE SPECIAL FUND
  ACCOUNT TO AVAILABLE SCHOOL FUND. On the first working day of each
  month in a state fiscal year, the comptroller shall transfer from
  the real estate special fund account of the permanent school fund to
  the available school fund an amount equal to one-twelfth of the
  annual distribution from the real estate special fund account of
  the permanent school fund to the available school fund as provided
  by Section 4, Article VII, Texas Constitution, for the fiscal year.
         SECTION 9.  Section 43.001(b), Education Code, as amended by
  Chapters 201 and 328, Acts of the 78th Legislature, Regular
  Session, 2003, is reenacted and amended to read as follows:
         (b)  The available school fund, which shall be apportioned
  annually to each county according to its scholastic population,
  consists of:
               (1)  the distributions to the fund from the investment
  special fund account of the permanent school fund as provided by
  Section 5(a), Article VII, Texas Constitution;
               (2)  the distributions to the fund from the real estate
  special fund account of the permanent school fund as provided by
  Section 4(a), Article VII, Texas Constitution;
               (3) one-fourth of all revenue derived from all state
  occupation taxes, exclusive of delinquencies and cost of
  collection;
               (4) [(3)]  one-fourth of revenue derived from state
  gasoline and special fuels excise taxes as provided by law; and
               (5) [(4)]  all other appropriations to the available
  school fund made by the legislature for public school purposes.
         SECTION 10.  The heading to Section 43.002, Education Code,
  is amended to read as follows:
         Sec. 43.002.  TRANSFERS FROM INVESTMENT SPECIAL FUND ACCOUNT
  OF PERMANENT SCHOOL FUND AND GENERAL REVENUE FUND TO AVAILABLE
  SCHOOL FUND.  
         SECTION 11.  Section 43.002(a), Education Code, is amended
  to read as follows:
         (a)  On the first working day of each month in a state fiscal
  year, the comptroller shall transfer from the investment special
  fund account of the permanent school fund to the available school
  fund an amount equal to one-twelfth of the annual distribution from
  the investment special fund account of the permanent school fund to
  the available school fund as provided by Section 5(a), Article VII,
  Texas Constitution, for the fiscal year.
         SECTION 12.  Sections 43.0031(a), (b), (d), and (e),
  Education Code, are amended to read as follows:
         (a)  In addition to any other requirements provided by law,
  the State Board of Education shall adopt and enforce an ethics
  policy that provides standards of conduct relating to the
  management and investment of the investment special fund account of
  the permanent school fund. The ethics policy must include
  provisions that address the following issues as they apply to the
  management and investment of the investment special fund account of
  the permanent school fund and to persons responsible for managing
  and investing the special fund account:
               (1)  general ethical standards;
               (2)  conflicts of interest;
               (3)  prohibited transactions and interests;
               (4)  the acceptance of gifts and entertainment;
               (5)  compliance with applicable professional
  standards;
               (6)  ethics training; and
               (7)  compliance with and enforcement of the ethics
  policy.
         (b)  The ethics policy must include provisions applicable
  to:
               (1)  members of the State Board of Education;
               (2)  the commissioner;
               (3)  employees of the agency; and
               (4)  any person who provides services to the board
  relating to the management or investment of the investment special
  fund account of the permanent school fund.
         (d)  The provisions of the ethics policy that apply to a
  person who provides services to the board relating to the
  management or investment of the investment special fund account of
  the permanent school fund must be based on the Code of Ethics and
  the Standards of Professional Conduct prescribed by the Association
  for Investment Management and Research or other ethics standards
  adopted by another appropriate professionally recognized entity.
         (e)  The board shall ensure that applicable provisions of the
  ethics policy are included in any contract under which a person
  provides services to the board relating to the management and
  investment of the investment special fund account of the permanent
  school fund.
         SECTION 13.  Section 43.0032(a), Education Code, is amended
  to read as follows:
         (a)  A member of the State Board of Education, the
  commissioner, an employee of the agency, or a person who provides
  services to the board that relate to the management or investment of
  the investment special fund account of the permanent school fund
  who has a business, commercial, or other relationship that could
  reasonably be expected to diminish the person's independence of
  judgment in the performance of the person's responsibilities
  relating to the management or investment of the fund shall disclose
  the relationship in writing to the board.
         SECTION 14.  Sections 43.0033, 43.004, and 43.005, Education
  Code, are amended to read as follows:
         Sec. 43.0033.  REPORTS OF EXPENDITURES.  A consultant,
  advisor, broker, or other person providing services to the State
  Board of Education relating to the management and investment of the
  investment special fund account of the permanent school fund shall
  file with the board regularly, as determined by the board, a report
  that describes in detail any expenditure of more than $50 made by
  the person on behalf of:
               (1)  a member of the board;
               (2)  the commissioner; or
               (3)  an employee of the agency or of a nonprofit
  corporation created under Section 43.006.
         Sec. 43.004.  WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
  EVALUATION.  (a) The State Board of Education shall develop written
  investment objectives concerning the investment of the investment
  special fund account of the permanent school fund. The objectives
  may address desired rates of return, risks involved, investment
  time frames, and any other relevant considerations.
         (b)  The board shall employ a well-recognized performance
  measurement service to evaluate and analyze the investment results
  of the investment special fund account of the permanent school
  fund. The service shall compare investment results with the
  written investment objectives developed by the board, and shall
  also compare the investment of the investment special fund account
  of the permanent school fund with the investment of other public and
  private funds.
         Sec. 43.005.  EXTERNAL INVESTMENT MANAGERS.  (a) The State
  Board of Education may contract with private professional
  investment managers to assist the board in making investments of
  the investment special fund account of the permanent school fund. A
  contract under this subsection must be approved by the board or
  otherwise entered into in accordance with board rules relating to
  contracting authority.
         (b)  The State Board of Education by rule may delegate a
  power or duty relating to the investment of the investment special
  fund account of the permanent school fund to a committee, officer,
  employee, or other agent of the board.
         SECTION 15.  Sections 43.006(a), (b), and (e), Education
  Code, are amended to read as follows:
         (a)  The State Board of Education may delegate investment
  authority and contract for the investment of the investment special
  fund account of the permanent school fund to the same extent as the
  governing board of an institution of higher education with respect
  to an institutional fund under Chapter 163, Property Code.
         (b)  The board may enter into a contract with a nonprofit
  corporation for the corporation to invest funds under the control
  and management of the board, including the investment special fund
  account of the permanent school fund, as designated by the board.
  The corporation may not engage in any business other than investing
  funds designated by the board under the contract.
         (e)  If an investment contract entered into under Subsection
  (b) includes the investment special fund account of the permanent
  school fund within the scope of funds under the control and
  management of the State Board of Education to be invested by the
  corporation, the board shall provide for an annual financial audit
  of the investment special fund account of the permanent school
  fund. Subject to the legislative audit committee's approval of
  including the audit in the audit plan under Section 321.013(c),
  Government Code, the audit shall be performed by the state auditor.
         SECTION 16.  Section 43.007(a), Education Code, is amended
  to read as follows:
         (a)  The State Board of Education may authorize the purchase
  [of all of the types] of securities for the investment special fund
  account of [in which it is authorized by law to invest] the
  permanent school fund in either registered or negotiable form. The
  board may authorize the reissue of those securities held at any time
  for the investment special fund account of the permanent school
  fund in either registered or negotiable form. The State Board of
  Education may authorize the sale of any of the securities held for
  the investment special fund account of the permanent school fund
  and reinvest the proceeds of sale for the fund and may authorize the
  exchange of any of the securities held for the investment special
  fund account of the permanent school fund.
         SECTION 17.  Section 45.052, Education Code, is amended to
  read as follows:
         Sec. 45.052.  GUARANTEE.  On approval by the commissioner,
  bonds issued under Subchapter A, including refunding bonds, are
  guaranteed by the investment special fund account [corpus and
  income] of the permanent school fund.
         SECTION 18.  Sections 45.053(a) and (b), Education Code, are
  amended to read as follows:
         (a)  The commissioner may not approve bonds for guarantee if
  the approval would result in the total amount of outstanding
  guaranteed bonds exceeding an amount equal to 2-1/2 times the cost
  value or market value, whichever is less, of the investment special
  fund account of the permanent school fund, as estimated by the board
  and certified by the state auditor.
         (b)  Each year, the state auditor shall analyze the status of
  guaranteed bonds as compared to the cost value and market value of
  the investment special fund account of the permanent school fund.
  Based on that analysis, the state auditor shall certify whether the
  amount of bonds guaranteed is within the limit prescribed by this
  section.
         SECTION 19.  Sections 45.059 and 45.061, Education Code, are
  amended to read as follows:
         Sec. 45.059.  PAYMENT FROM PERMANENT SCHOOL FUND.  (a)
  Immediately following receipt of notice under Section 45.058, the
  commissioner shall instruct the comptroller to transfer from the
  appropriate account in the investment special fund account of the
  permanent school fund to the school district's paying agent the
  amount necessary to pay the maturing or matured principal or
  interest.
         (b)  Immediately following receipt of the funds for payment
  of the principal or interest, the paying agent shall pay the amount
  due and forward the canceled bond or coupon to the comptroller. The
  comptroller shall hold the canceled bond or coupon on behalf of the
  investment special fund account of the permanent school fund.
         (c)  Following full reimbursement to the investment special
  fund account of the permanent school fund with interest, the
  comptroller shall further cancel the bond or coupon and forward it
  to the school district for which payment was made.
         Sec. 45.061.  REIMBURSEMENT OF PERMANENT SCHOOL FUND.  (a)
  If the commissioner orders payment from the permanent school fund
  on behalf of a school district, the commissioner shall direct the
  comptroller to withhold the amount paid, plus interest, from the
  first state money payable to the [school] district. The amount
  withheld shall be deposited to the credit of the investment special
  fund account of the permanent school fund.
         (b)  In accordance with the rules of the board, the
  commissioner may authorize reimbursement to the investment special
  fund account of the permanent school fund with interest in a manner
  other than that provided by this section.
         SECTION 20.  Section 45.062(a), Education Code, is amended
  to read as follows:
         (a)  If two or more payments from the investment special fund
  account of the permanent school fund are made on the guaranteed
  bonds of a school district and the commissioner determines that the
  [school] district is acting in bad faith under the guarantee, the
  commissioner may request the attorney general to institute
  appropriate legal action to compel the [school] district and its
  officers, agents, and employees to comply with the duties required
  of them by law in regard to the bonds.
         SECTION 21.  (a) Sections 51.401(c) and (d), Natural
  Resources Code, are repealed.
         (b)  The following sections of the Education Code are
  repealed:
               (1)  Section 43.003;
               (2)  Section 43.007(b); and
               (3)  Section 43.020.
         SECTION 22.  (a) Except as provided by Subsection (b) of this
  section, this Act takes effect immediately if this Act receives a
  vote of two-thirds of all the members elected to each house, as
  provided by Section 39, Article III, Texas Constitution. If this
  Act does not receive the vote necessary for immediate effect, this
  Act takes effect September 1, 2007, except as provided by
  Subsection (b) of this section.
         (b)  Sections 4 and 7 through 20 of this Act take effect
  January 1, 2008, but only if the constitutional amendment to create
  real estate and investment special fund accounts within the
  permanent school fund and to allow the returns from permanent
  school fund real estate portfolio investments to be added to the
  available school fund for the support of public schools is approved
  by the voters. If the proposed constitutional amendment is not
  approved by the voters, Sections 4 and 7 through 20 of this Act have
  no effect.