H.B. No. 4388

AN ACT

relating to the management of the permanent school fund by the School Land Board and the State Board of Education and a study regarding distributions from the permanent school fund to the available school fund.

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

SECTION 1. Chapter 43, Education Code, is amended by adding Section 43.0052 to read as follows:

Sec. 43.0052. QUARTERLY REPORTS. Each quarter, the State Board of Education shall provide to the School Land Board a financial report on the portion of the permanent school fund assets and funds for which the State Board of Education is responsible. The report must include:

(1) target and actual asset allocations, by asset type, based on fair market value or net asset value;

(2) investment performance by asset type;

(3) benchmarks and benchmark performances; and

(4) costs of implementing and administering the permanent school fund liquid account under Section 51.414, Natural Resources Code, including costs associated with contracts for:

(A) professional investment management;

(B) investment advisory services; and

(C) custodial services for the account.

SECTION 2. Subchapter C, Chapter 32, Natural Resources Code, is amended by adding Section 32.068 to read as follows:

Sec. 32.068. QUARTERLY REPORTS. Each quarter, the board shall provide to the State Board of Education a financial report on the portion of the permanent school fund assets and funds for which the board is responsible. The report must include:

(1) target and actual asset allocations, by asset type, based on fair market value or net asset value;

(2) investment performance by asset type; and

(3) benchmarks and benchmark performances.

SECTION 3. Section 51.402(c), Natural Resources Code, is amended to read as follows:

(c) Notwithstanding Subsection (a), on January 1 of each even-numbered year, the market value of the investments [in real estate] under Subsections (a)(6) and (8) [this section on January 1 of each even-numbered year] may not exceed an amount that is equal to 15 percent of the market value of the permanent school fund on that date.

SECTION 4. Subchapter I, Chapter 51, Natural Resources Code, is amended by adding Section 51.414 to read as follows:

Sec. 51.414. PERMANENT SCHOOL FUND LIQUID ACCOUNT. (a) The permanent school fund liquid account is established as an account in the permanent school fund in the State Treasury to be used by the board and the State Board of Education as provided by this section.

(b) Each quarter, the board shall hold a meeting and adopt a resolution to release from the real estate special fund account funds designated under Section 51.401 that are not being used for a purpose listed in Section 51.402(a) and are not required for the board's anticipated cash needs for the 90-day period following the date of the meeting, to be deposited to the credit of the permanent school fund liquid account in the State Treasury.

(c) The State Board of Education may invest funds in the permanent school fund liquid account. The investments may be made only in liquid assets, in the same manner that the permanent school fund is managed by the State Board of Education.

(d) Investment income and realized capital gains derived from funds in the permanent school fund liquid account shall be deposited in the State Treasury to the credit of the State Board of Education for investment in the permanent school fund. This subsection does not require a deposit if the market value of the assets held in the permanent school fund liquid account is below cost.

(e) The State Board of Education may use funds in the permanent school fund liquid account to pay for administrative costs associated with implementing this section, including costs associated with contracts for professional investment management, investment advisory services, or custodial services.

(f) The board shall provide to the State Board of Education in each quarterly report required by Section 32.068 the board's anticipated cash needs for the six-month period following the date of the report, to allow the State Board of Education to ensure that the board's cash needs may be met as provided by Subsection (g).

(g) Not later than the fifth business day after the date of a request of the board, the State Board of Education shall release from the permanent school fund liquid account funds to be deposited to the credit of the real estate special fund account in the State Treasury in an amount requested by the board.

SECTION 5. (a) The legislature finds that the periodic examination of distributions made from the permanent school fund to the available school fund is necessary for the effective management of permanent school fund investments.

(b) The Texas Education Agency, in consultation with the General Land Office, shall conduct a study regarding distributions from the permanent school fund to the available school fund. The study must:

(1) examine historical patterns in the real value of distributions made from all assets and revenues of the permanent school fund and historical patterns in the real value of permanent school fund assets relative to the number of students enrolled in the public education system;

(2) analyze the impact of underlying data and methodological assumptions on actual and projected distributions from the permanent school fund;

(3) seek input from state government officials involved in public education policy or in the appropriation of state funds to support the public education system;

(4) examine current and alternative approaches to balance the needs and interests of present and future beneficiaries of the permanent school fund and the available school fund;

(5) develop options to maximize available revenue distributions for the education of students enrolled in the public education system while preserving the permanent school fund for future generations; and

(6) consider any other subjects relevant to the purpose of the study.

(c) The Texas Education Agency may contract for investment management expertise for the purpose of implementing this section.

(d) Not later than June 1, 2020, the Texas Education Agency shall prepare and submit a report regarding the results of the study to the governor, the State Board of Education, the Legislative Budget Board, the lieutenant governor, the speaker of the house of representatives, and each legislative standing committee with primary jurisdiction over public education.

(e) This section expires January 1, 2021.

SECTION 6. This Act takes effect September 1, 2019.

______________________________ ______________________________

President of the Senate Speaker of the House

I certify that H.B. No. 4388 was passed by the House on May 7, 2019, by the following vote: Yeas 142, Nays 4, 1 present, not voting; and that the House concurred in Senate amendments to H.B. No. 4388 on May 24, 2019, by the following vote: Yeas 141, Nays 0, 1 present, not voting.

______________________________ Chief Clerk of the House

I certify that H.B. No. 4388 was passed by the Senate, with amendments, on May 22, 2019, by the following vote: Yeas 31, Nays 0.

______________________________ Secretary of the Senate APPROVED: __________________

Date

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Governor