By: McCall (Senate Sponsor - Williams) H.B. No. 3699

(In the Senate - Received from the House May 9, 2007; May 10, 2007, read first time and referred to Committee on Finance; May 21, 2007, reported adversely, with favorable Committee Substitute by the following vote: Yeas 10, Nays 1; May 21, 2007, sent to printer.)

COMMITTEE SUBSTITUTE FOR H.B. No. 3699 By: Williams

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. Section 51.121(b), Natural Resources Code, is amended to read as follows:

(b) Improvements [Commercial improvements] on land leased under Subsection (a) [of this section] shall be removed prior to the expiration of the lease unless the commissioner determines it to be in the best interest of the state that removal of the improvements not be required and includes a provision in the terms and conditions of the lease [a renewal or an extension of the lease has been finalized prior to the expiration of the term of the lease. If commercial improvements are not removed prior to the expiration of the lease and if there has been no renewal or extension prior to the expiration of the lease, then the commercial] that the improvements on the land shall become property of the state upon termination or expiration of the lease.

SECTION 3. The heading to Section 51.401, Natural Resources Code, is amended to read as follows:

Sec. 51.401 REAL ESTATE SPECIAL FUND ACCOUNT.

SECTION 4. 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 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 and royalty interests, or real estate investments, an investment or interest in public infrastructure, or other interests, at such prices and under such terms and conditions 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 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 State Board of Education for investment in 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 THE REAL ESTATE SPECIAL FUND ACCOUNT TO THE AVAILABLE SCHOOL FUND AND THE PERMANENT SCHOOL FUND. The board may, by a resolution adopted at a regular meeting, release from the real estate special fund account funds previously designated under Section 51.401 of this chapter or managed, used or encumbered under Section 51.402 or Section 51.4021 of this chapter to be deposited in the State Treasury to the credit of:

(a) the available school fund; or

(b) the State Board of Education for investment in the permanent school fund.

SECTION 9. Chapter 43, Education Code, is amended to add a new section 43.0051 that reads as follows:

§ 43.0051. TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT OF THE PERMANENT SCHOOL FUND. The State Board of Education may transfer funds from the portion of the permanent school fund managed by the State Board of Education to the real estate special fund account of the permanent school fund if the State Board of Education determines, using the standard of care set forth in subsection (f), Section 5, Article VII, Texas Constitution, that such transfer is in the best interest of the permanent school fund.

SECTION 10. Sections 51.401(c) and (d), Natural Resources Code, are repealed.

SECTION 11. 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.

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