By: Watson, et al. S.B. No. 1659
 
 
A BILL TO BE ENTITLED
 
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; and
               (3)  benchmarks and benchmark performances.
         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 51.011, Natural Resources Code, is
  amended by amending Subsections (a) and (a-1) and adding Subsection
  (a-3) to read as follows:
         (a)  Any land, [mineral or royalty interest,] real estate
  investment, or other interest, including revenue received from
  those sources, and any mineral or royalty interest 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, and any
  mineral or royalty interests that are 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.
         (a-3)  During the state fiscal biennium that begins
  September 1, 2019, half of 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, and the remainder may be designated for
  deposit in the real estate special fund account under Section
  51.401(a).  This subsection expires September 1, 2021.
         SECTION 4.  Section 51.401, Natural Resources Code, is
  amended by amending Subsection (a) and adding Subsections (c) and
  (d) to read as follows:
         (a)  The board may designate money [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, for deposit in the
  real estate special fund account of the permanent school fund in the
  State Treasury to be used by the board as provided by this
  subchapter.
         (c)  Each quarter, the board shall provide a cashflow report
  to the State Board of Education that specifies the source and uses
  of all money designated under Subsection (a) and the amount of time
  that money from each specific source has remained in the real estate
  special fund account.
         (d)  Notwithstanding Subsection (a), during the state fiscal
  biennium that begins September 1, 2019, the board shall transfer
  half of all revenue received from mineral or royalty interests to
  the State Board of Education, as provided by Section 51.011(a-3).
  This subsection expires September 1, 2021.
         SECTION 5.  Section 51.402(b), Natural Resources Code, is
  amended to read as follows:
         (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.]
         SECTION 6.  Section 51.412, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.412.  REPORTS TO LEGISLATURE. [(a)]  Not later than
  October [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 for the most recent state fiscal year:
               (1)  the total amount of money received under this
  chapter, the sources of that money, and the amount 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 each 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 by location of
  investments, including the actual or expected revenues from the
  investments, that were acquired by the board for the use and benefit
  of the permanent school fund in the most recent state fiscal year 
  [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
               (4) [(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 7.  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.
  (a)  The board shall [may], by a resolution made in accordance with
  this section and adopted at a regular meeting, release from the real
  estate special fund account funds previously designated under
  Section 51.401 or 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.
         (b)  The board shall adopt rules to establish the procedure
  that will be used by the board to determine the dates that transfers
  [date a transfer] will be made [and the amount of money that will be
  transferred] to the available school fund or to the State Board of
  Education for investment in the permanent school fund from the real
  estate special fund account as provided by this section [Subsection
  (a)].
         (c)  On the dates established by rules adopted under
  Subsection (b), the board shall release from the real estate
  special fund account a total amount for the state fiscal biennium
  that equals the amount determined under Subsection (d)(3).  The
  board may release a higher amount if authorized under the Texas
  Constitution.
         (d)  Not later than July 31 of each even-numbered year, the
  chief investment officer of the land office, or other land office
  employee designated by the commissioner, shall determine the
  following:
               (1)  an amount based on the average market value, for a
  16-calendar-quarter measurement period ending on March 31 of that
  year, of the permanent school fund discretionary real assets
  investments and cash derived from property belonging to the fund
  and managed by the board that is determined by averaging the market
  value of those investments and cash on the last day of each of the
  calendar quarters in that 16-calendar-quarter measurement period,
  multiplying that average market value by 0.06, and rounding the
  result up or down to the nearest $5 million increment;
               (2)  an amount based on the average quarterly change of
  the investments and cash described by Subdivision (1), for the
  16-calendar-quarter measurement period ending on March 31 of that
  year, that is determined by averaging the change in market value
  from the last day of a calendar quarter to the last day of the
  subsequent calendar quarter, multiplying that average quarterly
  change by four, and rounding the result up or down to the nearest $5
  million increment; and
               (3)  the sum of the amounts determined under
  Subdivisions (1) and (2).
         SECTION 8.  Section 51.4131, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.4131.  REPORT ON ANTICIPATED TRANSFER OF FUNDS;
  DEADLINE.  (a)  Not later than September 1 of each even-numbered
  year, the board shall submit to the legislature, comptroller, State
  Board of Education, and Legislative Budget Board a report that,
  specifically and in detail, states the date a transfer will be made
  and the amount of money the board will transfer during the
  subsequent state fiscal biennium from the real estate special fund
  account of the permanent school fund established under Section
  51.401 to the available school fund or the State Board of Education
  for investment in the permanent school fund.
         (b)  The board shall make any transfer described in a report
  under Subsection (a) not later than September 1 of the next
  even-numbered year.
         SECTION 9.  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 10.  (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 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 11.  This Act takes effect September 1, 2019.