86R15231 GCB-D
 
  By: King of Hemphill H.B. No. 3467
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the acquisition and management of certain real property
  assets by the School Land Board for the use and benefit of the
  permanent school fund and the transfer of certain permanent school
  fund assets from the control of the School Land Board to the State
  Board of Education.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 51.011, Natural Resources Code, is
  amended by amending Subsection (a) and adding Subsections (a-3) and
  (a-4) to read as follows:
         (a)  Any land or[,] 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 controlled, sold, and leased by [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-3)  All revenue received from mineral or royalty
  interests described by Subsection (a), including bonus payments,
  surface lease revenues, royalties, and any other type of revenue
  received from those interests, shall be transferred each month to
  the State Board of Education for investment in the permanent school
  fund.
         (a-4)  Revenue received from land described by Subsection
  (a) that is not required to be transferred under Subsection (a-3)
  shall remain with the board.
         SECTION 2.  Section 51.401, Natural Resources Code, is
  amended by amending Subsection (a) and adding Subsections (c), (d),
  and (d-1) to read as follows:
         (a)  The board may designate money [funds] received from the
  sale of real property or [any land,] mineral or royalty interests
  [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, for deposit in the real estate
  special fund account of the permanent school fund in the State
  Treasury to be used by the board to acquire fee or lesser interests
  in real property, including mineral or royalty interests, for the
  use and benefit of the permanent school fund, as provided by Section
  51.402 [this subchapter].
         (c)  Money received from the sale of real property, including
  mineral or royalty interests, and designated under this subchapter
  for the acquisition of real property, including mineral or royalty
  interests, must be used by the board not later than two years after
  the date of the sale from which the money is derived.
         (d)  Any money from a specific sale that remains in the real
  estate special fund account for longer than two years shall be
  immediately deposited in the State Treasury to the credit of the
  State Board of Education for investment in the permanent school
  fund.
         (d-1)  Each quarter, the board shall provide a cashflow
  report to the State Board of Education that specifies the use of all
  funds designated under Subsection (a) and the amount of time that
  money from each specific sale has remained in the real estate
  special fund account.
         SECTION 3.  Section 51.402, Natural Resources Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (a-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 or [and] royalty interests for
  the use and benefit of the permanent school fund; or
               (5)  to prudently manage any internally managed
  commercial real estate held or acquired by the board on or before
  August 31, 2019, subject to Subsection (a-1) [to protect, maintain,
  or enhance the value of public school land;
               [(6)  to acquire interests in real estate;
               [(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].
         (a-1)  Not later than September 1, 2023, the board shall
  divest itself of all interests in assets described by Subsection
  (a)(5), except any asset for which divestment by that date would
  cause substantial loss to the permanent school fund. The board
  shall divest itself of an asset described by Subsection (a)(5) that
  is not divested on or before September 1, 2023, as soon as prudently
  practicable, and the board shall take direction from the State
  Board of Education regarding the timing of the divestment of that
  asset with respect to the best interest of the permanent school
  fund.
         (b)  Before acquiring real property, including mineral or
  royalty interests, [using funds] under Subsection (a), the board
  must determine, using the prudent investor standard, that the
  acquisition is [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.]
         SECTION 4.  Sections 51.4021(a) and (b), Natural Resources
  Code, are amended to read as follows:
         (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, to the extent the investment of
  the money is authorized under this chapter, 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 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 only be
  invested to the extent the board has the authority under this
  chapter to make the investment, and may not be invested in a real
  estate investment trust, as defined by Section 200.001, Business
  Organizations Code, or otherwise invested in a manner not
  authorized under this chapter.
         SECTION 5.  Sections 51.408(a), (b), (d), and (e), Natural
  Resources Code, are amended to read as follows:
         (a)  In addition to any other requirements provided by law,
  the board shall adopt and enforce an ethics policy that provides
  standards of conduct relating to the management and investment of
  the funds designated for that purpose under Section 51.401.  The
  ethics policy must include provisions that address the following
  issues as they apply to the management and investment of the funds
  and to persons responsible for acquiring or managing real property
  or mineral or royalty interests of the permanent school fund or
  [and] investing the funds to the extent authorized by this chapter:
               (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 board;
               (2)  the commissioner;
               (3)  employees of the board; and
               (4)  any person who provides services to the board
  relating to the management [or investment] of the funds designated
  under Section 51.401 or the investment of funds to the extent
  authorized by this chapter.
         (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 funds designated under Section
  51.401 or the investment of those funds to the extent authorized by
  this chapter 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 funds designated under Section 51.401 or the
  investment of those funds to the extent authorized by this chapter.
         SECTION 6.  Section 51.409(a), Natural Resources Code, is
  amended to read as follows:
         (a)  A member of the board, the commissioner, an employee of
  the board, or a person who provides services to the board that
  relate to the management [or investment] of the funds designated
  under Section 51.401 or the investment of those funds to the extent
  authorized under this chapter 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 of public
  school lands or investment of the funds shall disclose the
  relationship in writing to the board.
         SECTION 7.  Section 51.410, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.410.  REPORTS OF EXPENDITURES. A consultant,
  advisor, broker, or other person providing services to the board
  relating to the management [and investment] of the funds designated
  under Section 51.401 or the investment of those funds to the extent
  authorized by this chapter 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 board.
         SECTION 8.  Section 51.412, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.412.  REPORTS TO LEGISLATURE. [(a)] Not later than
  September 1 of each [even-numbered] year, the board shall submit to
  the legislature a report that includes [, 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 received under this
  chapter and designated under [by] Section 51.401 for deposit in the
  real estate special fund account of the permanent school fund that
  the board intends to use for a purpose authorized under that section
  [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 under Section
  51.413 [after making the investments];
               (3) [(4)]  the distribution [of the board's
  investments] by county of real property interests, including
  mineral or royalty interests, and including the actual or expected
  revenues from the interests, that were acquired by the board for the
  use and benefit of the permanent school fund since the most recently
  submitted report under this section;
               (4)  the market value of all investments and assets
  managed by the board and the total market value of the permanent
  school fund;
               [(5)     the effect of the board's investments on the level
  of employment, personal income, and capital investment in the
  state;] and
               (5) [(6)]  any other information the board considers
  necessary to include in the report.
         [(b)     Not later than January 1 of each odd-numbered year, the
  board shall submit to the legislature a report that assesses the
  return and economic impact of the investments reported to the
  legislature before the preceding regular legislative session.]
         SECTION 9.  Section 51.413(a), Natural Resources Code, is
  amended to read as follows:
         (a)  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 or used under Section
  51.402 to acquire real property, including mineral or royalty
  interests, [managed, used, or encumbered under Section 51.402 or
  Section 51.4021] to be deposited in the State Treasury to the credit
  of:
               (1)  the available school fund; or
               (2)  the State Board of Education for investment in the
  permanent school fund.
         SECTION 10.  The following provisions of the Natural
  Resources Code are repealed:
               (1)  Sections 51.011(a-1) and (a-2); and
               (2)  Section 51.402(c).
         SECTION 11.  The School Land Board shall:
               (1)  not later than September 30, 2019:
                     (A)  provide the State Board of Education with a
  list of every investment held by the School Land Board that was
  acquired on or after September 1, 2001, other than sovereign lands,
  other state lands, mineral or royalty interests, and commercial
  real estate that is owned and internally managed by the School Land
  Board, including information on unfunded commitments and funding
  obligations related to every investment;
                     (B)  provide to the State Board of Education a
  balance of the cash holdings as of the most recent month end; and
                     (C)  provide notice of the enactment of this Act
  to the general partner or other managing entity of every investment
  described by Paragraph (A) of this subdivision;
               (2)  not later than November 30, 2019, provide to the
  State Board of Education all financial, contract, investment and
  related records and documents in the possession of the School Land
  Board, the General Land Office, or a service provider to the School
  Land Board or General Land Office relating to an asset described by
  Subdivision (1)(A) of this section;
               (3)  not later than July 31, 2020, transfer, at the
  direction of the State Board of Education:
                     (A)  all assets described by Subdivision (1)(A) of
  this section, provided that if the State Board of Education
  determines in its discretion that it cannot receive an asset, the
  School Land Board shall coordinate with the State Board of
  Education concerning the appropriate timing of a transfer of the
  asset that is in the best interest of the permanent school fund; and
                     (B)  all cash holdings related to or derived from
  permanent school fund assets, except for an amount necessary to
  make distributions to the available school fund in fiscal years
  2020 and 2021, as directed by previously adopted School Land Board
  resolutions; and
               (4)  not later than September 1, 2020, submit to the
  legislature and the State Board of Education a report accounting
  for every investment and all cash holdings transferred to the State
  Board of Education or retained by the School Land Board in
  accordance with this Act.
         SECTION 12.  An asset transferred in accordance with this
  Act shall be managed by the State Board of Education in accordance
  with applicable laws, and any investment agreement, contract, or
  similar document related to the asset is assigned to the Texas
  Education Agency as of the date of the transfer of the asset.
         SECTION 13.  This Act takes effect September 1, 2019.