81R29439 BEF-F

By: Paxton, Pitts, McCall, Oliveira, Raymond H.B. No. 4076

Substitute the following for H.B. No. 4076:

By: Otto C.S.H.B. No. 4076

A BILL TO BE ENTITLED

AN ACT

relating to the establishment of the Texas Power Source.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle F, Title 4, Government Code, is amended by adding Chapter 490D to read as follows:

CHAPTER 490D. TEXAS POWER SOURCE

Sec. 490D.001. DEFINITIONS. In this chapter:

(1) "Investment team" means the nonprofit corporation contracted by the oversight committee to manage the investments of the Texas Power Source.

(2) "Oversight committee" means the committee appointed by the governor with management and control of the Texas Power Source.

(3) "Selection committee" means the committee appointed by the governor to nominate members of the board of directors of the investment team.

(4) "Texas Power Source" means the account created under this chapter.

Sec. 490D.002. PURPOSE. (a) The Texas Power Source is established to invest in Texas businesses and assets and to attract capital to invest in Texas businesses and assets.

(b) The establishment, management, and investment of the Texas Power Source is a program under Section 52-a, Article III, Texas Constitution.

Sec. 490D.003. TEXAS POWER SOURCE. (a) The Texas Power Source is an account outside the state treasury.

(b) The comptroller shall deposit funds in the Texas Power Source as provided by the General Appropriations Act.

Sec. 490D.004. OVERSIGHT COMMITTEE. (a) The governor shall appoint a nine-member oversight committee.

(b) The oversight committee has control and management of the Texas Power Source.

(c) The oversight committee shall consider and approve or reject nominees to the board of directors of the investment team. The oversight committee shall approve nominees to the board of directors of the investment team who have demonstrated and substantial investment expertise.

(d) The governor may remove and replace members of the oversight committee.

Sec. 490D.005. SELECTION COMMITTEE. (a) The governor, in consultation with the lieutenant governor and the speaker of the house of representatives, shall appoint a five-member selection committee.

(b) The selection committee shall identify and select nominees to the board of directors of the investment team. The selection committee shall engage an executive search firm to ensure each selection is conducted with due diligence. The selection committee shall submit the names of nominees to the oversight committee for approval.

(c) The governor may remove and replace members of the selection committee.

Sec. 490D.006. INVESTMENT TEAM. (a) The investment team must be organized as a nonprofit corporation under the Business Organizations Code. The investment team is not a state agency and the board of directors of the investment team are not state employees.

(b) The oversight committee shall enter into a contract with the investment team for the investment team to invest the Texas Power Source. The investment team may not engage in any business other than investing funds designated by the oversight committee under the contract.

(c) The oversight committee must approve the:

(1) certificate of formation and bylaws of the investment team and any amendment to the certificate of formation or bylaws;

(2) investment policies of the investment team, including changes to those policies;

(3) audit and ethics committee of the investment team; and

(4) code of ethics of the investment team.

(d) The contract between the oversight committee and the investment team must provide for industry-standard compensation for the team's services. The contract may provide for an asset-based fee and a performance-based fee. The contract must contain representations by the investment team that it has all required licenses and registrations to act as investment manager of the Texas Power Source. The investment team compensation is an expense of the Texas Power Source. The contract must allow the investment team to purchase, as an expense of the Texas Power Source, liability insurance for the coverage of the board of directors, employees, and agents of the investment team.

(e) Under the contract between the oversight committee and the investment team, the oversight committee may delegate to the investment team the discretion and authority to:

(1) employ and retain staff within budgetary constraints;

(2) acquire and dispose of the fund's assets for investment purposes;

(3) determine all matters relating to the manner, method, terms, conditions, and timing of investments and engage consultants and analysts in connection with those matters;

(4) select brokers, dealers, and other intermediaries by or through whom investments are executed;

(5) take any action necessary for the administration and protection of the Texas Power Source;

(6) exercise all voting and other powers and privileges attributable to an investment under contract by the Texas Power Source;

(7) make and execute all documents and take all other actions as necessary or appropriate to carry out the investment team's duties under this chapter; and

(8) pay expenses of the Texas Power Source.

Sec. 490D.007. INVESTMENT STRATEGY; AUTHORIZED INVESTMENTS. (a) The oversight committee shall ensure that the Texas Power Source is invested in accordance with the investment strategy under this section.

(b) The contract between the oversight committee and the investment team must require the investment team to comply with the investment strategy under this section.

(c) The Texas Power Source shall be invested according to an investment strategy that maximizes the total investment return, as described by this section, to this state. The total return may be measured by the sum of:

(1) the direct taxpayer return, represented by the creation of jobs in this state and the stimulation of the economy of this state resulting from the aggregate invested capital; and

(2) the capital return, represented by the return to this state of invested and appreciated capital.

(d) In implementing the investment strategy, the investment team may consider the current economic conditions and give significant weight to the direct taxpayer return, as described by Subsection (c)(1), as appropriate. In implementing the investment strategy, the investment team shall consider both the current return and future potential returns.

(e) Eighty percent of the Texas Power Source assets shall be invested according to a co-investment strategy in a manner that leverages the resources and investing experience of private-sector investors in order to ensure an efficient allocation of Texas Power Source assets. Under the co-investment strategy, the investment team shall make investment decisions identical to those made by substantial and experienced private-sector investors, such as seasoned venture capital investors. The amount of Texas Power Source assets invested in a co-investment may not be greater than the amount of assets invested by the private-sector investor. The investment team shall make co-investments on terms and conditions that are necessary and reasonably calculated to attract significant investment by private-sector investors, from both inside and outside this state, and in such a way as to maximize the aggregate capital deployed into the economy of this state in accordance with the objectives of the investment strategy. To the extent allowed by law, the co-investment terms may include the deployment of debt, equity, or subsidies as necessary to facilitate an appropriate investment.

(f) Twenty percent of the Texas Power Source assets shall be invested in small businesses. The total amount of investments made in small businesses under the control of any individual may not exceed $2 million. Investments under this subsection may be made with or without coinvestor participation.

(g) The assets of the Texas Power Source may be invested only in businesses, public or private, with operations and assets substantially located in this state and only in investments with the potential for job and economic growth in this state in accordance with the investment strategy.

(h) All income and returns realized on investments shall be retained in the Texas Power Source and made available for additional investments until the Texas Power Source is dissolved.

Sec. 490D.008. OVERSIGHT. (a) The oversight committee shall review the activities of the investment team to ensure compliance with the investment strategy and operating guidelines provided by this chapter.

(b) On a determination by at least two-thirds of the members of the oversight committee that the activities of the investment team are in material noncompliance with the provisions of this chapter or the terms of the investment team's contract, the state oversight committee may remove any or all of the members of the board of directors of the investment team. The selection committee shall nominate members to fill vacancies created by the removal of members of the board of directors.

(c) The investment team shall make quarterly reports to the oversight committee and annual reports to the state oversight committee and the legislature regarding the finances and operation of the Texas Power Source.

Sec. 490D.009. DISSOLUTION. (a) The investment team shall begin dissolution of the Texas Power Source not later than September 1, 2019, or the 10th anniversary of the date of extension of the Texas Power Source, as applicable. The investment team shall use reasonable efforts to plan the orderly liquidation of investments so that all investments will be liquidated before September 1, 2020, or the 11th anniversary of the date of extension of the Texas Power Source, as applicable.

(b) Except under unusual circumstances in which it may be necessary to protect investments previously made, further investments may not be made in or by the Texas Power Source after September 1, 2019, or the 10th anniversary of the date of extension, as applicable.

(c) Upon dissolution, the Texas Power Source's assets shall be returned to the comptroller.

(d) At the regular legislative session next preceding September 1, 2019, or the 10th anniversary of the date of the previous extension of the Texas Power Source, as applicable, the legislature, by a two-thirds vote of the members present in each house, may extend the duration of the Texas Power Source for 10 years.

Sec. 490D.010. RESTRICTIONS ON LOBBYING EXPENDITURES. (a) A political subdivision or private entity that receives Texas Power Source funds may not use those funds to pay:

(1) lobbying expenses;

(2) a person or entity that is required to register with the Texas Ethics Commission under Chapter 305;

(3) a partner, employee, employer, relative, contractor, consultant, or related entity of a person described by Subdivision (2); or

(4) a person that has been hired to represent associations or other entities for the purpose of affecting the outcome of legislation, agency rules, ordinances, or other government policies.

(b) A person serving on the selection committee, oversight committee, or board of directors of the investment team or as an employee of the investment team may not receive or give a gift in exchange for taking an action in connection with the person's duties under this chapter.

Sec. 490D.011. PROHIBITED ACTS. The Texas Power Source and persons on the oversight committee, selection committee, or board of directors of the investment team may not use Texas Power Source money under the person's control, including appropriated money, capital appreciation, or money invested in a co-investment, to finance or otherwise support the candidacy of a person for an office of a local or county government, of the legislative, executive, or judicial branch of state government, or of the government of the United States.

SECTION 2. Not later than the 30th day after the effective date of this Act, the governor shall appoint the members of the selection committee and the oversight committee under Chapter 490D, Government Code, as added by this Act.

SECTION 3. This Act takes effect immediately if it 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, 2009.