82R5074 CAE-D
 
  By: Howard of Travis H.B. No. 1140
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the creation of the Permanent School Fund Management
  Council to manage the permanent school fund; providing a criminal
  penalty.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 43, Education Code, is amended by adding
  Sections 43.0011, 43.0012, and 43.0013 and amending Sections
  43.003, 43.0031, 43.0032, and 43.0033 to read as follows:
         Sec. 43.0011.  DEFINITION. In this chapter, "council" means
  the Permanent School Fund Management Council.
         Sec. 43.0012.  PERMANENT SCHOOL FUND MANAGEMENT COUNCIL.
  (a) The Permanent School Fund Management Council consists of the
  following seven members:
               (1)  two members appointed by the governor;
               (2)  one member appointed by the governor from a list of
  candidates prepared by the speaker of the house of representatives;
               (3)  one member appointed by the governor from a list of
  candidates prepared by the State Board of Education;
               (4)  one member appointed by the lieutenant governor;
               (5)  one member appointed by the commissioner of the
  General Land Office; and
               (6)  one member appointed by the comptroller.
         (b)  Council members serve staggered terms of four years,
  with the terms of three members expiring on February 1 of one
  odd-numbered year and the terms of four members expiring on
  February 1 of the next odd-numbered year.
         (c)  A vacancy on the council is filled for the unexpired
  portion of the member's term in the same manner as the original
  appointment.
         (d)  The members of the council shall elect the presiding
  officer of the council, who serves a term of two years expiring
  February 1 of each odd-numbered year. A member may serve more than
  one term as presiding officer.
         (e)  The council, by a majority vote of all members, shall
  appoint a chief investment officer of the permanent school fund to
  serve at the will of the council.
         (f)  The council may adopt rules and operating procedures as
  necessary to administer the permanent school fund and perform other
  duties imposed on the council by law.
         (g)  The council shall meet at least quarterly and may hold
  other meetings called by the presiding officer.
         (h)  The council may create standing committees to advise the
  council. The council shall create:
               (1)  an audit and ethics committee;
               (2)  a policy committee; and
               (3)  a risk committee.
         (i)  The council is subject to the open meetings law, Chapter
  551, Government Code, except that the council is not required to
  discuss an investment or potential investment with one or more
  council employees or with a third party in an open meeting to the
  same extent that the board of trustees of the Texas growth fund is
  provided an exception from the open meetings law under Section
  551.075, Government Code.
         Sec. 43.0013.  ADMINISTRATIVE SUPPORT AND MANAGEMENT. (a)
  The council shall contract with a corporation formed by the
  comptroller to provide administrative support to the council.
         (b)  The council may contract with the corporation described
  by Subsection (a) to exercise any power or perform any duty of the
  council relating to the investment of the permanent school fund.
         Sec. 43.003.  INVESTMENT OF PERMANENT SCHOOL FUND. (a) In
  compliance with this section, the council [State Board of
  Education] may invest the permanent school fund in any investment
  permitted under Section 5(f), Article VII, Texas Constitution [the
  types of securities], which must be carefully examined by the
  council [State Board of Education] and be found to be safe and
  proper investments for the fund [as specified below:
               [(1)     securities, bonds, or other obligations issued,
  insured, or guaranteed in any manner by the United States
  Government or any of its agencies and in bonds issued by this state;
               [(2)     obligations and pledges of The University of
  Texas;
               [(3)     corporate bonds, debentures, or obligations of
  United States corporations of at least "A" rating;
               [(4)     obligations of United States corporations that
  mature in less than one year and are of the highest rating available
  at the time of investment;
               [(5)     bonds issued, assumed, or guaranteed by the
  Inter-American Development Bank, the International Bank of
  Reconstruction and Development (the World Bank), the African
  Development Bank, the Asian Development Bank, and the International
  Finance Corporation;
               [(6)     bonds of counties, school districts,
  municipalities, road precincts, drainage, irrigation, navigation,
  and levee districts in this state, subject to the following
  requirements:
                     [(A)     the securities, before purchase, must have
  been diligently investigated by the attorney general both as to
  form and as to legal compliance with applicable laws;
                     [(B)     the attorney general's certificate of
  validity procured by the party offering the bonds, obligations, or
  pledges must accompany the securities when they are submitted for
  registration to the comptroller, who must preserve the
  certificates;
                     [(C)     the public securities, if purchased, and
  when certified and registered as specified under Paragraph (B), are
  incontestable unless issued fraudulently or in violation of a
  constitutional limitation, and the certificates of the attorney
  general are prima facie evidence of the validity of the bonds and
  bond coupons; and
                     [(D)     after the issuing political subdivision has
  received the proceeds from the sales of the securities, the issuing
  agency is estopped to deny their validity, and the securities are
  valid and binding obligations;
               [(7)     preferred stocks and common stocks that the State
  Board of Education considers proper investments for the permanent
  school fund, subject to the following requirements:
                     [(A)     in making all of those investments, the
  State Board of Education shall exercise the judgment and care under
  the circumstances then prevailing that persons of ordinary
  prudence, discretion, and intelligence exercise in the management
  of their own affairs, not in regard to speculation but in regard to
  the permanent disposition of their funds, considering the probable
  income as well as the probable safety of their capital;
                     [(B)     the company issuing the stock must be
  incorporated in the United States, and the stocks must have paid
  dividends for five consecutive years or longer immediately before
  the date of purchase and the stocks, except for bank stocks and
  insurance stocks, must be listed on an exchange registered with the
  Securities and Exchange Commission or its successors; and
                     [(C)     not more than one percent of the permanent
  school fund may be invested in stock issued by one corporation and
  not more than five percent of the voting stock of any one
  corporation will be owned; and
               [(8)     notwithstanding any other law or provision of
  this code, first lien real estate mortgage securities insured by
  the Federal Housing Administration under the National Housing Act
  of the United States, or in any other first lien real estate
  mortgage securities guaranteed in whole or in part by the United
  States].
         (b)  The council and the School Land Board shall enter into a
  memorandum of understanding under which the council agrees not to
  invest in real estate without the consent of the board.
         Sec. 43.0031.  PERMANENT SCHOOL FUND ETHICS POLICY. [(a)]  
  In addition to any other requirements provided by law, the council
  must comply with, and is subject to, the [State Board of Education
  shall adopt and enforce an] ethics policy adopted by the
  corporation that the council contracts with as required by Section
  43.0013.  If the corporation does not have an ethics policy the
  council must adopt and comply with an ethics policy.  The
  comptroller shall enforce the ethics policy, regardless of whether
  the policy is adopted by the corporation or the council [that
  provides standards of conduct relating to the management and
  investment 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 permanent school fund and to
  persons responsible for managing and investing the fund:
               [(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 permanent school
  fund.
         [(c)     Not later than the 45th day before the date on which the
  board intends to adopt a proposed ethics policy or an amendment to
  or revision of an adopted ethics policy, the board shall submit a
  copy of the proposed policy, amendment, or revision to the Texas
  Ethics Commission and the state auditor for review and comments.
  The board shall consider any comments from the commission or state
  auditor before adopting the proposed policy.
         [(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 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 permanent school fund].
         Sec. 43.0032.  CONFLICTS OF INTEREST. (a)  A member of the
  council [State Board of Education], [the commissioner,] an employee
  of the council [agency], or a person who provides services to the
  council [board] that relate to the management or investment 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
  council [board].
         (b)  [The board or the board's designee shall, in the ethics
  policy adopted under Section 43.0031, define the kinds of
  relationships that may create a possible conflict of interest.
         [(c)]  A person who files a statement under Subsection (a)
  disclosing a possible conflict of interest may not give advice or
  make decisions about a matter affected by the possible conflict of
  interest unless the council [board, after consultation with the
  general counsel of the agency,] expressly waives this prohibition.
  The council [board] may delegate the authority to waive the
  prohibition established by this subsection.
         Sec. 43.0033.  REPORTS OF EXPENDITURES. A consultant,
  advisor, broker, or other person providing services to the council
  [State Board of Education] relating to the management and
  investment of the permanent school fund shall file with the council
  [board] regularly, as determined by the council [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 council [board]; or
               (2)  [the commissioner; or
               [(3)]  an employee of the council, [agency or of] a
  nonprofit corporation created under Section 43.006, or a
  corporation contracting with the council under Section 43.0013.
         SECTION 2.  Sections 43.0034(a) and (c), Education Code, are
  amended to read as follows:
         (a)  The council [board] shall prescribe forms for:
               (1)  statements of possible conflicts of interest and
  waivers of possible conflicts of interest under Section 43.0032;
  and
               (2)  reports of expenditures under Section 43.0033.
         (c)  The council [board] shall designate an employee of the
  council [agency] to act as custodian of statements, waivers, and
  reports described by Subsection (a) for purposes of public
  disclosure.
         SECTION 3.  Chapter 43, Education Code, is amended by adding
  Sections 43.0035, 43.0036, and 43.0037 and amending Sections
  43.004, 43.005, and 43.0051 to read as follows:
         Sec. 43.0035.  APPEARANCE BY FORMER COUNCIL MEMBER. (a) A
  former member of the council may not make any communication to or
  appearance before the council or a member, chief investment
  officer, or employee of the council before the second anniversary
  of the date the individual ceased to be a member of the council if
  the communication or appearance is made:
               (1)  with the intent to influence council action; and
               (2)  on behalf of any person in connection with any
  matter on which the person seeks action by the council.
         (b)  A person commits an offense if the person violates this
  section. An offense under this section is a Class A misdemeanor.
         Sec. 43.0036.  FINANCIAL AUDIT.  (a)  The state auditor shall
  conduct an annual financial audit of the permanent school fund.
         (b)  The state auditor may contract with an independent and
  internationally recognized accounting firm with substantial
  experience in auditing investment accounts to conduct the financial
  audit of the permanent school fund.
         (c)  The council shall reimburse the state auditor for the
  cost of the audit.
         (d)  The state auditor or the accounting firm selected to
  conduct the audit shall report the results of the audit directly to
  the council.
         (e)  Not later than the 30th day after the date the council
  receives a copy of the audit report, the council shall file a copy
  of the audit report with the governor, the lieutenant governor, the
  speaker of the house of representatives, the commissioner, and the
  comptroller.
         Sec. 43.0037.  REPORTS.  (a)  Before December 1 of each year,
  the council shall prepare a written report detailing the council's
  investment and fiduciary practices and policies.
         (b)  Not later than January 1 of each year, the council shall
  distribute the report to the governor, the lieutenant governor, the
  speaker of the house of representatives, the presiding officers of
  the standing committees of each house of the legislature with
  primary jurisdiction over primary and secondary education, the
  presiding officers of the standing committees of each house of the
  legislature with primary jurisdiction over state finance or
  appropriations, and the state auditor.
         Sec. 43.004.  WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
  EVALUATION. (a)  The council [State Board of Education] shall
  develop written investment objectives concerning the investment 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 council [board] shall employ a well-recognized
  performance measurement service to evaluate and analyze the
  investment results of the permanent school fund. The service shall
  compare investment results with the written investment objectives
  developed by the council [board], and shall also compare the
  investment of the permanent school fund with the investment of
  other public and private funds.
         Sec. 43.005.  EXTERNAL INVESTMENT MANAGERS. (a)  The
  council [State Board of Education] may contract with private
  professional investment managers to assist the council [board] in
  making investments of the permanent school fund. A contract under
  this subsection must be approved by the council [board] or
  otherwise entered into in accordance with council [board] rules
  relating to contracting authority.
         (b)  The council [State Board of Education] by rule may
  delegate a power or duty relating to the investment of the permanent
  school fund to a committee, officer, employee, or other agent of the
  council [board].
         Sec. 43.0051.  TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT
  OF THE PERMANENT SCHOOL FUND.  The council [State Board of
  Education] may transfer funds from the portion of the permanent
  school fund managed by the council [State Board of Education] to the
  real estate special fund account of the permanent school fund if the
  council [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 4.  Sections 43.006(a), (b), (c), (d), and (f),
  Education Code, are amended to read as follows:
         (a)  The council [State Board of Education] may delegate
  investment authority for the investment of the permanent school
  fund to the same extent as an institution with respect to an
  institutional fund under Chapter 163, Property Code.
         (b)  The council [board] may enter into a contract with a
  nonprofit corporation for the corporation to invest funds under the
  control and management of the council [board], including the
  permanent school fund, as designated by the council [board]. The
  corporation may not engage in any business other than investing
  funds designated by the council [board] under the contract.
         (c)  The council [board] must approve the:
               (1)  articles of incorporation and bylaws of the
  corporation and any amendment to the articles of incorporation or
  bylaws;
               (2)  investment policies of the corporation, including
  changes to those policies;
               (3)  audit and ethics committee of the corporation; and
               (4)  code of ethics of the corporation.
         (d)  The board of directors of the corporation must be
  members of the council [State Board of Education].
         (f)  The corporation shall file quarterly reports with the
  council [State Board of Education] concerning matters required by
  the council [board].
         SECTION 5.  Section 43.007, Education Code, is amended to
  read as follows:
         Sec. 43.007.  PURCHASE AND SALE OR EXCHANGE OF SECURITIES.
  (a)  The council [State Board of Education] may authorize the
  purchase of all of the types of securities in which it is authorized
  by law to invest the permanent school fund in either registered or
  negotiable form. The council [board] may authorize the reissue of
  those securities held at any time for the account of the permanent
  school fund in either registered or negotiable form. The council
  [State Board of Education] may authorize the sale of any of the
  securities held for the 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 account of the
  permanent school fund.
         (b)  In making purchases, sales, exchanges, and reissues,
  the council [State Board of Education] shall exercise the judgment
  and care prescribed by Section 5(f), Article VII, Texas
  Constitution [under the circumstances then prevailing that persons
  of ordinary prudence, discretion, and intelligence exercise in the
  management of their own affairs not in regard to speculation but in
  regard to the permanent disposition of their funds, considering the
  probable income as well as the probable safety of their capital].
         (c)  When any securities are sold, reissued, or exchanged as
  provided by Subsection (a), the custodian of the securities shall
  deliver the securities sold, reissued, or exchanged in accordance
  with the directions of the council [State Board of Education].
         SECTION 6.  Sections 43.009(a), (b), and (c), Education
  Code, are amended to read as follows:
         (a)  The council [State Board of Education] may authorize the
  governing body of any political subdivision in this state to pay off
  and discharge, at any interest paying date whether the bonds are
  matured or not, all or any part of any outstanding bond indebtedness
  owned by the permanent school fund.
         (b)  The governing body of a political subdivision desiring
  to pay off and discharge any bonded indebtedness owned by the fund
  shall apply in writing to the council [State Board of Education],
  not later than the 30th day before any interest paying date on the
  bonds, describing the bonds or part of the bonds it desires to pay
  off and discharge. The application must be accompanied by an
  affidavit stating that only tax money collected from a tax levy made
  for the specific purpose of providing a sinking fund and paying
  interest on the particular bonds to be redeemed will be spent in
  redeeming, taking up, or paying off the bonds.
         (c)  The council [State Board of Education], on receiving the
  application and affidavit, shall take action on them in the manner
  it considers best and shall notify the applicant whether the
  application is refused or granted in whole or in part.
         SECTION 7.  Sections 43.010(a), (c), and (d), Education
  Code, are amended to read as follows:
         (a)  If interest or principal has not been paid for two years
  or more on any bonds issued by any school district and held by the
  permanent school fund, the council [State Board of Education] may
  direct the commissioner to:
               (1)  compel the district to levy a tax sufficient to
  meet the interest and principal payments then or later due; or
               (2)  if the district furnishes to the council [State
  Board of Education] satisfactory proof that the district's taxing
  ability is insufficient, direct the commissioner to require the
  district to:
                     (A)  exhaust all legal remedies in collecting
  delinquent taxes; and
                     (B)  levy a tax at the maximum lawful rate on the
  bona fide valuation of taxable property located in the district.
         (c)  As long as any school district is delinquent in its
  payments of principal or interest on any of its bonds owned by the
  permanent school fund, the council [State Board of Education] may
  specify the method of crediting payments to the state made by the
  district as to principal and interest.
         (d)  The comptroller may not issue any warrant from the
  foundation school fund to or for the benefit of any district that
  has been for as long as two years in default in the payment of
  principal or interest on any security owned by the permanent school
  fund until the council [State Board of Education] certifies that
  the district has satisfactorily complied with the appropriate
  provisions of this section, in which event the comptroller shall
  resume making payments to or for the benefit of the district,
  including the making of pretermitted payments.
         SECTION 8.  Sections 43.011(a), (b), (c), (d), and (e),
  Education Code, are amended to read as follows:
         (a)  In compliance with this section, the council or State
  Board of Education, as applicable, may revise, readjust, modify,
  refinance, or refund defaulted bonds issued by any school district
  in this state and owned by either the permanent school fund or the
  available school fund.
         (b)  Application must be made to the council or State Board
  of Education by the district that issued the bonds and must show
  that:
               (1)  delinquent interest totals at least 50 percent of
  the principal amount of the bonds; and
               (2)  taxable valuation has decreased to such an extent
  that a full application of the proceeds of the voted authorized tax
  authorized to be levied on the $100 taxable property valuation will
  not meet interest and principal annually maturing on the bonds.
         (c)  The council or State Board of Education may effect a
  refunding of the debt due and to become due only if the council or
  board, as applicable, finds that:
               (1)  the district is unable to pay the sums already
  matured and the sums contracted to be paid as they mature by paying
  annually to the council or board [State Board of Education] the full
  proceeds of a 50-cent tax levy on the $100 of all taxable valuation
  of property in the district;
               (2)  the taxable valuation of property in the district
  has decreased at least 75 percent since the bonds were issued and
  that the decrease was not caused by the district or any of its
  officials;
               (3)  the district for a period of at least five years
  before applying to the council or board [State Board of Education]
  for refunding has levied a tax of 50 cents on the $100 of taxable
  valuation of property in the district, and that despite such
  levies, the aggregate amount due the council or board [State Board
  of Education] exceeds the aggregate amount due at the beginning of
  the period;
               (4)  the district has not authorized and sold
  additional bonds during the five-year period immediately preceding
  the application; and
               (5)  the district has in good faith endeavored to pay
  its debt in accordance with the contract evidenced by the bonds held
  for the account of the permanent school fund or the available school
  fund.
         (d)  If the conditions specified by Subsection (c) are found
  to exist, the district is, for purposes of this section, insolvent,
  and the council or State Board of Education may exchange the bonds,
  interest coupons, and other evidences of indebtedness for new
  refunding bonds of the district issued in compliance with the
  following:
               (1)  the principal amount of the refunding bonds may
  not be less than the total amount of the bonds, matured interest
  coupons, accrued interest, and interest on delinquent interest then
  actually due to the permanent school fund or the available school
  fund; and
               (2)  the rate of interest to be borne by the refunding
  bonds may be lower than that borne by the bonds to be refunded if in
  consideration of the interest reduction the district agrees to levy
  a tax each year for a period of 40 years at a rate sufficient to
  produce annually a sum equal to 90 percent of the amount that can be
  calculated by the levy of a tax at the rate of 50 cents on the $100
  of taxable valuation of property as determined by the latest
  approved tax roll of the district, and in determining the rate of
  interest to be borne by the refunding bonds, the council or board
  [State Board of Education] shall be governed by the following:
                     (A)  the council or board [State Board of
  Education] may require the rate to be a percent per annum as in its
  judgment will represent the maximum rate that can be paid by the
  district and still permit an orderly and certain retirement of the
  refunding bonds within 40 years from their date;
                     (B)  the interest rate of refunding bonds to be
  received in exchange for bonds owned by the permanent school fund
  may not be less than the minimum rate at which bonds may then be
  purchased as investments for the permanent school fund; and
                     (C)  the rate of interest of refunding bonds to be
  received in exchange for bonds owned by the available school fund
  may be set by the State Board of Education at any rate the board
  considers feasible, and the refunding bonds may, at the discretion
  of the State Board of Education, be made non-interest bearing to a
  date fixed by the board.
         (e)  The council or State Board of Education may not make a
  revision, readjustment, modification, refinancing, or refunding
  that will release or extinguish any debt or obligation then due and
  payable to the permanent school fund or to the available school
  fund.
         SECTION 9.  Sections 43.012(e) and (f), Education Code, are
  amended to read as follows:
         (e)  The council [State Board of Education] may accept
  refunding bonds in lieu of either matured or unmatured bonds held
  for the benefit of the permanent school fund if the rate of interest
  on the new refunding bonds is at least the same rate as that of the
  bonds being refunded.
         (f)  Refunding bonds issued with the approval or pursuant to
  a refunding agreement with the council or the State Board of
  Education in compliance with either this section or Section 43.011
  shall, on the order of the council or board [State Board of
  Education], be exchanged by the comptroller for the defaulted
  obligations they have been issued to refund.
         SECTION 10.  Section 43.014(a), Education Code, is amended
  to read as follows:
         (a)  On or before July 1 of each year, the comptroller shall
  estimate the amount of the available school fund receivable from
  every source during the following school year and report the
  estimate to the council and the State Board of Education.
         SECTION 11.  Sections 43.015(b), (e), and (f), Education
  Code, are amended to read as follows:
         (b)  The comptroller shall provide the council and the State
  Board of Education with the reports specified by Subsection (a) and
  with additional reports concerning those funds requested by the
  council or the State Board of Education.
         (e)  On order of the council or the State Board of Education,
  as applicable, the comptroller shall exchange or accept refunding
  bonds in lieu of:
               (1)  either matured or unmatured bonds held for the
  benefit of the permanent school fund, which are being refunded
  under this chapter;
               (2)  defaulted obligations held for the benefit of the
  available school fund if the refunding bonds are issued in
  compliance with Section 43.012;
               (3)  defaulted obligations of any school district of
  this state held for the benefit of the permanent school fund or the
  available school fund if the refunding bonds are issued in
  compliance with Section 43.011; or
               (4)  refunding bonds of any school district of this
  state for school bonds not matured held by the comptroller for the
  permanent school fund if the new refunding bonds are issued by the
  school district in compliance with this code.
         (f)  The comptroller shall be the custodian of all
  [securities enumerated in Section 43.003(6) and of other]
  securities as designated by the council or the State Board of
  Education in which the school funds of the state are invested. The
  comptroller shall keep those securities in the comptroller's
  custody until paid off, discharged, delivered as required by the
  council or the board, as applicable [State Board of Education], or
  otherwise disposed of by the proper authorities of the state, and on
  the proper installment of any interest or dividend, shall see that
  the proper credit is given, and the coupons on bonds, when paid,
  shall be separated from the bonds and cancelled by the comptroller.
         SECTION 12.  Sections 43.017, 43.018, and 43.019, Education
  Code, are amended to read as follows:
         Sec. 43.017.  USE OF COMMERCIAL BANKS AS AGENTS FOR
  COLLECTION OF INCOME FROM PERMANENT SCHOOL FUND INVESTMENTS. (a)  
  The council [State Board of Education] may contract with one or more
  commercial banks to receive payments of dividends and interest on
  securities in which the state permanent school funds are invested
  and transmit that money with identification of its source to the
  comptroller for the account of the available school fund by the
  fastest available means.
         (b)  In choosing each commercial bank with which to contract
  as authorized by Subsection (a), the council [State Board of
  Education] shall assure itself of:
               (1)  the financial stability of the bank;
               (2)  the location of the bank with respect to its
  proximity to the banks on which checks are drawn in payment of
  dividends and interest on securities of the permanent school fund;
               (3)  the experience and reliability of the bank in
  acting as agent for others in the similar collection and
  expeditious remittance of money; and
               (4)  the reasonableness of the bank's charges for the
  services, both in amount of the charges and in relation to the
  increased investment earnings of the available school fund that
  will result from speedier receipt by the comptroller of the money.
         Sec. 43.018.  PARTICIPATION IN FULLY SECURED SECURITIES LOAN
  PROGRAMS. (a)  The council [State Board of Education] may contract
  with a commercial bank to serve both as a custodian of securities in
  which the state permanent school funds are invested and to lend
  those securities, under the conditions prescribed by Subsection
  (b), to securities brokers and dealers on short-term loan.
         (b)  The council [State Board of Education] may contract with
  a commercial bank pursuant to this section only if:
               (1)  the bank is located in a city having a major stock
  exchange;
               (2)  the bank is experienced in the operation of a fully
  secured securities loan program;
               (3)  the bank has adequate capital in the prudent
  judgment of the council [State Board of Education] to assure the
  safety of the securities entrusted to it as a custodian;
               (4)  the bank will require of any securities broker or
  dealer to which it lends securities owned by the state permanent
  school fund that the broker or dealer deliver to it cash collateral
  for the loan of securities, and that the cash collateral will at all
  times be not less than 100 percent of the market value of the
  securities lent;
               (5)  the bank executes an indemnification agreement,
  satisfactory in form and content to the council [State Board of
  Education], fully indemnifying the permanent and available school
  funds against loss resulting from the bank's service as custodian
  of securities of the permanent school fund and its operation of a
  securities loan program using securities of the permanent school
  fund;
               (6)  the bank will speedily collect and remit on the day
  of collection by the fastest available means to the comptroller any
  dividends and interest collectible by it on securities held by it as
  custodian, together with identification as to the source of the
  dividends or interest; and
               (7)  the bank is the bank agreeing to pay to the
  available school fund the largest sum or highest percentage of the
  income derived by the bank from use of the securities of the
  permanent school fund in the operation of a securities loan
  program.
         Sec. 43.019.  ACCOUNTING TREATMENT OF CERTAIN EXCHANGES.
  The council [State Board of Education] may account for the exchange
  of permanent school fund securities in a closely related sale and
  purchase transaction in a manner in which the gain or loss on the
  sale is deferred as an adjustment to the book value of the security
  purchased, if:
               (1)  the security sold and the security purchased have
  a fixed maturity value;
               (2)  the council [board] is authorized by law to invest
  the permanent school fund in the security purchased;
               (3)  the sale is made in clear contemplation of
  reinvesting substantially all of the proceeds;
               (4)  substantially all of the proceeds are reinvested;
               (5)  the transaction is completed within a reasonable
  time after the sale, not to exceed 30 business days; and
               (6)  the transaction results in an improvement in
  effective income yield, taking into consideration the deferral of
  any gain or loss on the sale.
         SECTION 13.  Sections 45.053(a), (c), and (d), Education
  Code, are amended to read as follows:
         (a)  Except as provided by Subsection (d), the commissioner
  may not approve bonds for guarantee under this subchapter if the
  approval would result in the total amount of outstanding guaranteed
  bonds under this subchapter exceeding an amount equal to 2-1/2
  times the cost value of the permanent school fund, as estimated by
  the Permanent School Fund Management Council [board] and certified
  by the state auditor.
         (c)  The commissioner shall prepare and the Permanent School
  Fund Management Council [board] shall adopt an annual report on the
  status of the guaranteed bond program under this subchapter.
         (d)  The Permanent School Fund Management Council [board] by
  rule may increase the limit prescribed by Subsection (a) to an
  amount not to exceed five times the cost value of the permanent
  school fund, provided that the increased limit is consistent with
  federal law and regulations and does not prevent the bonds to be
  guaranteed from receiving the highest available credit rating, as
  determined by the council [board].  The council [board] shall at
  least annually consider whether to change any limit in accordance
  with this subsection.   This subsection may not be construed in a
  manner that impairs, limits, or removes the guarantee of bonds that
  have been approved by the commissioner.
         SECTION 14.  Sections 45.0531(a), (b), and (c), Education
  Code, are amended to read as follows:
         (a)  In addition to the limitation on the approval of bonds
  for guarantee under Section 45.053, the Permanent School Fund
  Management Council [board] by rule may establish a percentage of
  the cost value of the permanent school fund to be reserved from use
  in guaranteeing bonds under this subchapter.
         (b)  If the Permanent School Fund Management Council [board]
  has reserved a portion of the permanent school fund under
  Subsection (a), each year, the state auditor shall analyze the
  status of the reserved portion compared to the cost value of the
  permanent school fund.  Based on that analysis, the state auditor
  shall certify whether the portion of the permanent school fund
  reserved from use in guaranteeing bonds under this subchapter
  satisfies the reserve percentage established.
         (c)  If the Permanent School Fund Management Council [board]
  has reserved a portion of the permanent school fund under
  Subsection (a), the council [board] shall at least annually
  consider whether to change the reserve percentage established to
  ensure that the reserve percentage allows compliance with federal
  law and regulations and serves to enable bonds guaranteed under
  this subchapter to receive the highest available credit rating, as
  determined by the council [board].
         SECTION 15.  Section 45.055(c), Education Code, is amended
  to read as follows:
         (c)  An application under Subsection (a) must be accompanied
  by a fee set by rule of the commissioner [board] in an amount
  designed to cover the costs of administering the programs to
  provide the guarantee or credit enhancement of eligible bonds.
         SECTION 16.  Section 45.061(b), Education Code, is amended
  to read as follows:
         (b)  In accordance with the rules of the Permanent School
  Fund Management Council [board], the commissioner may authorize
  reimbursement to the permanent school fund with interest in a
  manner other than that provided by this section.
         SECTION 17.  Section 45.063, Education Code, is amended to
  read as follows:
         Sec. 45.063.  RULES. The Permanent School Fund Management
  Council [board] may adopt rules necessary for the administration of
  the bond guarantee program.
         SECTION 18.  Section 45.2541(a), Education Code, is amended
  to read as follows:
         (a)  Money appropriated for the Foundation School Program
  that may be used for the purpose under this subchapter and under any
  other law, rule, or regulation shall be used to provide credit
  enhancement for eligible bonds as provided by this subchapter, the
  General Appropriations Act, and commissioner [board] rule if using
  the permanent school fund to guarantee particular bonds would
  result in:
               (1)  a total amount of outstanding bonds guaranteed by
  the permanent school fund exceeding the amount authorized under:
                     (A)  Section 45.053; or
                     (B)  federal law or regulations; or
               (2)  the use of a portion of the cost value of the
  permanent school fund reserved under Section 45.0531, as determined
  by the Permanent School Fund Investment Council [board].
         SECTION 19.  Section 45.255(b), Education Code, is amended
  to read as follows:
         (b)  An application under Subsection (a) must:
               (1)  include the information required by Section
  45.055(b); and
               (2)  be accompanied by a fee set by commissioner
  [board] rule in an amount designed to cover the costs of
  administering the programs to provide the guarantee or credit
  enhancement of eligible bonds.
         SECTION 20.  Section 51.017, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.017.  FURNISHING DATA TO STATE BOARD OF EDUCATION
  AND PERMANENT SCHOOL FUND MANAGEMENT COUNCIL. On request, the
  commissioner shall furnish to the State Board of Education and the
  Permanent School Fund Management Council all available data.
         SECTION 21.  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 Permanent School
  Fund Management Council [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 22.  Section 51.413, Natural Resources Code, is
  amended 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:
               (1)  the available school fund; or
               (2)  the Permanent School Fund Management Council
  [State Board of Education] for investment in the permanent school
  fund.
         SECTION 23.  Sections 7.102(c)(31), 43.006(e), 45.051(1),
  and 45.251(1), Education Code, are repealed.
         SECTION 24.  (a) Not later than February 1, 2012, the
  appropriate appointing authorities specified in Section 43.0012,
  Education Code, as added by this Act, shall appoint the initial
  members of the Permanent School Fund Management Council as required
  by that section.
         (b)  In appointing the initial members of the Permanent
  School Fund Management Council:
               (1)  the governor shall appoint four persons as
  follows:
                     (A)  two persons for a term expiring February 1,
  2013; and
                     (B)  two persons for a term expiring February 1,
  2015;
               (2)  the lieutenant governor shall appoint one person
  for a term expiring February 1, 2015;
               (3)  the commissioner of the General Land Office shall
  appoint one person for a term expiring February 1, 2013; and
               (4)  the comptroller shall appoint one person for a
  term expiring February 1, 2015.
         (c)  The Permanent School Fund Management Council may not
  take any action until all of the appointed members have taken
  office.
         SECTION 25.  As soon as practicable after the date on which
  all of the members of the Permanent School Fund Management Council
  have taken office, but not later than May 1, 2012, the Permanent
  School Fund Management Council, the State Board of Education, the
  Texas Education Agency, and the comptroller shall develop and adopt
  a memorandum of understanding that:
               (1)  identifies in detail the applicable powers and
  duties of the State Board of Education that are being transferred to
  the Permanent School Fund Management Council as a result of this
  Act; and
               (2)  establishes a plan for the identification and
  transfer of records, property, and unspent appropriations of the
  State Board of Education that are used for purposes of managing the
  permanent school fund to the Permanent School Fund Management
  Council.
         SECTION 26.  (a) Not later than September 1, 2012:
               (1)  all full-time employees of the Texas Education
  Agency who provide support to the State Board of Education relating
  to the investment of the permanent school fund become employees of
  the comptroller;
               (2)  all functions and activities performed by the
  State Board of Education with respect to the management of the
  permanent school fund that, as a result of this Act, are subject to
  management by the Permanent School Fund Management Council are
  transferred to the Permanent School Fund Management Council;
               (3)  a rule, form, policy, procedure, or decision
  adopted by the State Board of Education relating to the management
  of the permanent school fund that, as a result of this Act, is
  subject to management by the Permanent School Fund Management
  Council continues in effect as a rule, form, policy, procedure, or
  decision of the Permanent School Fund Management Council until
  amended or replaced by the Permanent School Fund Management
  Council;
               (4)  a reference in law or an administrative rule to the
  State Board of Education relating to the permanent school fund
  that, as a result of this Act, is subject to management by the
  Permanent School Fund Management Council is a reference to the
  Permanent School Fund Management Council; and
               (5)  a complaint, investigation, or other proceeding
  before the State Board of Education relating to the permanent
  school fund that, as a result of this Act, is subject to management
  by the Permanent School Fund Management Council is transferred
  without change in status to the Permanent School Fund Management
  Council.
         (b)  The Permanent School Fund Management Council assumes,
  as appropriate and without a change in status, the position of the
  State Board of Education under a contract or in an action or
  proceeding to which the State Board of Education is a party and
  that:
               (1)  relates to the permanent school fund; and
               (2)  as a result of this Act, is subject to management
  by the Permanent School Fund Management Council.
         SECTION 27.  This Act takes effect December 1, 2011, but only
  if the constitutional amendment proposed by the 82nd Legislature,
  Regular Session, 2011, creating the Permanent School Fund
  Management Council is approved by the voters.  If that amendment is
  not approved by the voters, this Act has no effect.