By: Taylor S.B. No. 1232
 
  (Bonnen)
 
   
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the management and investment of the permanent school
  fund, including authorizing the creation of the Texas Permanent
  School Fund Corporation to manage and invest the fund and limiting
  the authority of the School Land Board to manage and invest the fund
  if the corporation is created.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  ARTICLE 1.  STATE BOARD OF EDUCATION'S MANAGEMENT OF PERMANENT
  SCHOOL FUND
         SECTION 1.01.  Sections 43.001, 43.002, 43.003, 43.0031,
  43.0032, 43.0033, 43.0034, 43.004, 43.005, 43.0051, 43.006,
  43.007, 43.009, 43.010, 43.011, 43.012, 43.013, 43.014, 43.015,
  43.016, 43.017, 43.018, 43.019, and 43.020, Education Code, are
  redesignated as Subchapter A, Chapter 43, Education Code, and a
  heading for Subchapter A is added to read as follows:
  SUBCHAPTER A.  GENERAL PROVISIONS
         SECTION 1.02.  Section 43.001(a), Education Code, is amended
  to read as follows:
         (a)  Except as provided by Subsection (b), the permanent
  school fund, which is a perpetual endowment for the public schools
  of this state, consists of:
               (1)  all land appropriated for the public schools by
  the constitution and laws of this state;
               (2)  all of the unappropriated public domain remaining
  in this state, including all land recovered by the state by suit or
  otherwise except pine forest land as described [defined] by Section
  88.111 and property described by Section 12.128;
               (3)  all proceeds from the authorized sale of permanent
  school fund land;
               (4)  all proceeds from the lawful sale of any other
  properties belonging to the permanent school fund;
               (5)  all investments authorized by Section 43.003 of
  assets [properties] belonging to the permanent school fund; and
               (6)  all income from the mineral development of
  permanent school fund land, including income from mineral
  development of riverbeds and other submerged land.
         SECTION 1.03.  Section 43.003, Education Code, is amended to
  read as follows:
         Sec. 43.003.  INVESTMENT OF PERMANENT SCHOOL FUND.  The [In
  compliance with this section, the] State Board of Education may
  invest the permanent school fund as authorized by Section 5(f),
  Article VII, Texas Constitution [in the types of securities, which
  must be carefully examined by the 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].
         SECTION 1.04.  Section 43.0033, Education Code, is amended
  to read as follows:
         Sec. 43.0033.  REPORTS OF EXPENDITURES. A consultant,
  advisor, broker, or other person providing services to the State
  Board of Education relating to the management and investment of the
  permanent school fund 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 agency [or of a nonprofit
  corporation created under Section 43.006].
         SECTION 1.05.  Section 43.006(a), Education Code, is amended
  to read as follows:
         (a)  The State Board of Education may delegate investment
  authority for the investment of the permanent school fund to the
  Texas Permanent School Fund Corporation as provided by Subchapter B
  [same extent as an institution with respect to an institutional
  fund under Chapter 163, Property Code].
         SECTION 1.06.  Chapter 43, Education Code, is amended by
  adding Subchapter B to read as follows:
  SUBCHAPTER B.  TEXAS PERMANENT SCHOOL FUND CORPORATION
         Sec. 43.051.  DEFINITIONS. In this subchapter:
               (1)  "Board of directors" means the board of directors
  of the corporation.
               (2)  "Chief executive officer" means the chief
  executive officer of the corporation employed under Section 43.054.
               (3)  "Corporation" means the Texas Permanent School
  Fund Corporation.
         Sec. 43.052.  CREATION OF CORPORATION. (a)  The State Board
  of Education may incorporate the Texas Permanent School Fund
  Corporation and delegate to the corporation the board's authority
  to manage and invest:
               (1)  the permanent school fund under Section 43.003;
  and
               (2)  the charter district bond guarantee reserve fund
  under Section 45.0571.
         (b)  The State Board of Education shall adopt the initial
  articles of incorporation for the corporation.
         (c)  The corporation is a special-purpose governmental
  corporation and instrumentality of the state with necessary and
  implied powers to accomplish its purpose. The corporation is
  subject to regulation and limitation only as provided by this
  subchapter.
         Sec. 43.053.  BOARD OF DIRECTORS; MEETINGS. (a)  The board
  of directors is composed of the following nine members:
               (1)  five members of the State Board of Education,
  appointed by the board in accordance with board policy;
               (2)  the commissioner of the General Land Office;
               (3)  one member appointed by the commissioner of the
  General Land Office who has substantial background and expertise in
  investments and asset management; and
               (4)  two members appointed by the governor, with the
  advice and consent of the senate, from a list of the following six
  nominees, each of whom must have substantial background and
  expertise in investments and asset management and may not be
  members of the State Board of Education or the School Land Board:
                     (A)  three individuals nominated by the State
  Board of Education; and
                     (B)  three individuals nominated by the School
  Land Board.
         (b)  The State Board of Education by rule shall establish the
  terms of members of the board of directors appointed under
  Subsection (a)(1).
         (c)  Members of the board of directors appointed under
  Subsections (a)(3) and (4) serve staggered six-year terms, with the
  term of one member expiring on January 1 of each odd-numbered year.
         (d)  The initial members described by Subsection (c) shall
  determine by lot which one of the initial members will serve a term
  expiring January 1 of the first odd-numbered year following the
  establishment of the corporation, which one of the initial members
  will serve a term expiring January 1 of the second odd-numbered year
  following the establishment of the corporation, and which one of
  the initial members will serve a term expiring January 1 of the
  third odd-numbered year following the establishment of the
  corporation.
         (e)  Appointments to the board of directors must be made
  without regard to the race, color, disability, sex, religion, age,
  or national origin of the appointees.
         (f)  The board of directors shall elect officers of the board
  in accordance with the corporation's bylaws.
         (g)  The board of directors shall meet at least three times
  per year.
         Sec. 43.054.  CHIEF EXECUTIVE OFFICER. (a)  The corporation
  shall employ a chief executive officer to manage and carry out the
  policies of the corporation.  The board of directors shall
  determine the process for hiring the chief executive officer.
         (b)  The chief executive officer serves at the will of the
  board of directors.
         Sec. 43.055.  EMPLOYEES. (a)  The chief executive officer
  is responsible for hiring all employees of the corporation.
         (b)  Employees of the corporation serve at the will of the
  chief executive officer.
         (c)  The chief executive officer or the chief executive
  officer's designee shall develop a system of compensation for
  employees of the corporation as necessary to retain qualified
  staff.
         (d)  The chief executive officer or the chief executive
  officer's designee shall develop a system of annual performance
  evaluations.  Merit pay for corporation employees must be based on
  the system established under this subsection.
         (e)  The chief executive officer or the chief executive
  officer's designee shall prepare and maintain a written policy
  statement to assure implementation of a program of equal employment
  opportunity under which all personnel decisions are made without
  regard to race, color, disability, sex, religion, age, or national
  origin.
         (f)  The chief executive officer may appoint an internal
  auditor for the corporation, who may be an employee of the
  corporation.  The appointment of the internal auditor must be
  approved by the board of directors.  The board of directors may
  require the internal auditor to submit specified reports directly
  to the board of directors.
         (g)  Except as otherwise provided by this subchapter,
  employees of the corporation are state employees for all purposes,
  including:
               (1)  accrual of leave time, insurance benefits, and
  retirement benefits;
               (2)  Chapter 104, Civil Practice and Remedies Code; and
               (3)  Chapter 501, Labor Code.
         Sec. 43.056.  SOVEREIGN IMMUNITY. (a)  The corporation, the
  board of directors, and the officers and employees of the
  corporation are entitled to sovereign immunity to the same extent
  as any other state agency or officer or employee of a state agency.
         (b)  No action taken by the corporation, including the
  acceptance of benefits under a contract, may be construed to waive
  the corporation's sovereign immunity, including immunity from suit
  or from liability.
         (c)  Subchapter C, Chapter 2260, Government Code, does not
  apply to the corporation.
         Sec. 43.057.  LIABILITY INSURANCE FOR BOARD MEMBERS AND
  EMPLOYEES. (a)  The corporation may purchase or otherwise acquire
  insurance to protect members of the board of directors and
  employees of the corporation, subject to Subsection (c).
         (b)  Insurance purchased or acquired by the corporation
  under this section may:
               (1)  protect against any type of liability to third
  persons that might be incurred while conducting corporation
  business; and
               (2)  provide for all costs of defending a cause of
  action for such liability, including court costs and attorney's
  fees.
         (c)  This section does not authorize the purchase or
  acquisition of insurance to protect against liability not described
  in Subsection (b).
         Sec. 43.058.  ETHICS POLICY; CONFLICTS OF INTEREST.  
  (a)  The board of directors shall adopt an ethics policy that
  provides standards of conduct relating to the management and
  investment of the permanent school fund in accordance with Section
  43.0031(a).  The ethics policy must include provisions applicable
  to:
               (1)  members of the board of directors;
               (2)  employees of the corporation; and
               (3)  any person who provides services to the
  corporation relating to the management or investment of the
  permanent school fund.
         (b)  A member of the board of directors, an employee of the
  corporation, and a person who provides services to the corporation
  relating to the management or investment of the permanent school
  fund shall disclose in writing to the corporation any 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 permanent school fund.
         (c)  The board of directors shall define in the ethics policy
  adopted under Subsection (a) the types of relationships that may
  create a possible conflict of interest.
         (d)  A person who makes a written disclosure under Subsection
  (b) stating a possible conflict of interest may not give advice or
  make decisions about a matter affected by the possible conflict of
  interest unless the board of directors expressly waives this
  prohibition.  The board of directors may delegate the authority to
  waive the prohibition established by this subsection.
         Sec. 43.059.  APPLICABILITY OF CERTAIN LAWS. (a)  Except as
  otherwise provided by and to the extent consistent with this
  subchapter, Title 1, Business Organizations Code, and Chapter 22,
  Business Organizations Code, apply to the corporation.
         (b)  Subject to Section 43.060, the corporation is a
  governmental body for purposes of Chapter 551, Government Code.
         (c)  The corporation is exempt from:
               (1)  Chapters 654 and 660, Government Code, and
  Subchapter K, Chapter 659, Government Code, to the extent the board
  of directors determines that an exemption from those provisions is
  necessary for the corporation to perform the board's fiduciary
  duties under this subchapter;
               (2)  all state laws regulating or limiting purchasing
  by state agencies, including Subtitle D, Title 10, Government Code,
  and Chapters 2254, 2261, and 2262, Government Code;
               (3)  the franchise tax under Chapter 171, Tax Code; and
               (4)  any filing costs or other fees imposed by the state
  on a corporation.
         Sec. 43.060.  EXCEPTION TO OPEN MEETING REQUIREMENTS FOR
  CERTAIN CONSULTATIONS CONCERNING INVESTMENTS. (a)  In this
  section, "private investment fund," "reinvestment," and
  "restricted securities" have the meanings assigned by Section
  552.143, Government Code.
         (b)  The board of directors may conduct a closed meeting in
  accordance with Subchapter E, Chapter 551, Government Code, to
  deliberate or confer with one or more employees, consultants, or
  legal counsel of the corporation or with a third party if the only
  purpose of the meeting is to receive information from or question
  the employees, consultants, or legal counsel or third party
  relating to:
               (1)  investment transactions or potential investment
  transactions if, before conducting the closed meeting, a majority
  of the board of directors in an open meeting vote that deliberating
  or conferring in an open meeting would have a detrimental effect on
  the corporation's position in negotiations with third parties or
  put the corporation at a competitive disadvantage in the market;
               (2)  the purchase, holding, or disposal of restricted
  securities or a private investment fund's investment in restricted
  securities if, under Section 552.143, Government Code, the
  information discussed would be confidential and excepted from the
  requirements of Section 552.021, Government Code, if the
  information were included in the records of a governmental body; or
               (3)  a procurement proposed to be awarded by the board
  of directors if, before conducting the closed meeting, a majority
  of the board of directors in an open meeting vote that deliberating
  or conferring in an open meeting would have a detrimental effect on
  the corporation's position in negotiations with third parties.
         (c)  Any vote or final action taken on a procurement
  described by Subsection (b)(3) must be conducted in an open
  meeting.
         Sec. 43.061.  RECORD RETENTION. (a) Subchapter L, Chapter
  441, Government Code, does not apply to the corporation.
         (b)  The corporation may establish record retention policies
  for the corporation.  In establishing the policies under this
  section, the corporation may consider relevant rules and guidelines
  adopted by the Texas State Library and Archives Commission.
         Sec. 43.062.  INFORMATION TECHNOLOGY AND ASSOCIATED
  RESOURCES. (a) Chapters 2054 and 2055, Government Code, do not
  apply to the corporation or to any state agency with respect to a
  contract entered into between the agency and the corporation for
  information technology or associated resources.
         (b)  The corporation shall control all aspects of, and may
  contract with third parties for, the corporation's information
  technology and associated resources, including:
               (1)  computer, data management, and telecommunications
  operations;
               (2)  procurement of hardware, software, and middleware
  and telecommunications equipment and systems;
               (3)  location, operation, and replacement of
  computers, computer systems, software provided as a service, and
  telecommunications systems;
               (4)  data processing;
               (5)  security;
               (6)  disaster recovery; and
               (7)  storage.
         (c)  The Department of Information Resources shall assist
  the corporation at the request of the corporation, and the
  corporation may use any service that is available through that
  department.
         Sec. 43.063.  GENERAL POWERS AND DUTIES OF CORPORATION. (a)
  The corporation may amend the articles of incorporation adopted by
  the State Board of Education when the corporation was established,
  subject to board approval.
         (b)  The corporation may adopt and amend:
               (1)  subject to State Board of Education approval,
  bylaws for the corporation;
               (2)  resolutions and policies of the corporation; and
               (3)  any other document necessary to carry out the
  corporation's purpose.
         (c)  The corporation may engage in any activity necessary to
  manage the investments of the permanent school fund, including
  entering into any contract in connection with the investment of the
  permanent school fund, to the extent the activity complies with
  applicable fiduciary duties.
         (d)  The corporation shall make all purchases of goods and
  services in accordance with applicable fiduciary duties and may use
  purchasing methods that ensure the best value to the corporation.
  In determining best value, the corporation may consider the best
  value standards applicable to state agencies under Section
  2155.074, Government Code.
         (e)  The corporation may:
               (1)  delegate investment authority for the investment
  of the permanent school fund to one or more private professional
  investment managers; or
               (2)  contract with one or more private professional
  investment managers to assist the corporation in making investments
  of the permanent school fund.
         (f)  The corporation may receive, transfer, and disburse
  money and securities of the fund as provided by statute or the Texas
  Constitution, except that the corporation may not distribute money
  from the permanent school fund to the available school fund except
  as authorized under Section 43.066.
         (g)  The corporation may enter into a contract with a state
  agency, a governmental body, or another entity to manage or invest
  funds on behalf of the agency, body, or entity.
         Sec. 43.064.  CONTRACTING FOR FACILITIES AND NECESSARY
  SUPPORT. The corporation may contract with a state agency or
  another entity to provide operational support, facilities,
  information and data technology, staff, or other support for the
  corporation. The corporation may but is not required to request
  allocation of space to the corporation under Subchapter C, Chapter
  2165, Government Code.
         Sec. 43.065.  WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
  EVALUATION. In accordance with Section 43.004, the board of
  directors shall:
               (1)  develop written investment objectives concerning
  the investment of the permanent school fund; and
               (2)  employ a well-recognized performance measurement
  service to evaluate and analyze the investment results of the
  permanent school fund.
         Sec. 43.066.  DISTRIBUTIONS BY CORPORATION FROM PERMANENT
  SCHOOL FUND TO AVAILABLE SCHOOL FUND. (a) The corporation may
  distribute from the permanent school fund to the available school
  fund under Section 5(g), Article VII, Texas Constitution, an amount
  not to exceed the limitation under that section that is determined
  in accordance with rules established by the corporation.
         (b)  In developing the rules for distributions under
  Subsection (a), the corporation shall develop and establish an
  annual minimum distribution rate that the corporation will use in
  making a distribution from the permanent school fund to the
  available school fund each state fiscal year. In developing the
  annual minimum distribution rate under this subsection, the
  corporation may consider:
               (1)  transfers made from the permanent school fund to
  the available school fund under Section 43.002 in accordance with
  Section 5(a), Article VII, Texas Constitution;
               (2)  factors that relate to the current and future
  public school students in the state; and
               (3)  any other factors the corporation determines
  relevant.
         Sec. 43.067.  BOND GUARANTEE PROGRAM. The corporation, the
  State Board of Education, and the agency shall coordinate to
  determine the corporation's role in the operation and management of
  the permanent school fund in connection with the bond guarantee
  program under Subchapter C, Chapter 45, to ensure the proper and
  efficient operation of the program, including the handling of any
  associated reimbursements, transfers, and disbursements.
         Sec. 43.068.  ANNUAL AUDIT. (a) Not less than once each
  year, the board of directors shall submit to the Legislative Budget
  Board an audit report regarding the operations of the corporation.
         (b)  The corporation may contract with a certified public
  accountant or the state auditor to conduct an independent audit of
  the operations of the corporation.
         (c)  This section does not affect the state auditor's
  authority to conduct an audit of the corporation in accordance with
  Chapter 321, Government Code.
         Sec. 43.069.  ANNUAL INVESTMENT REPORT. The corporation
  shall annually submit to the State Board of Education and the
  General Land Office a report on the allocation of assets and
  investment performance of the portion of the permanent school fund
  for which the corporation is responsible.
         Sec. 43.070.  REPORT ON ANTICIPATED TRANSFER TO AVAILABLE
  SCHOOL FUND. Not later than November 1 of each even-numbered year,
  the corporation shall submit to the legislature, comptroller, State
  Board of Education, and Legislative Budget Board a report that in
  detail specifically states the date a transfer will be made and the
  amount the corporation will transfer during the subsequent state
  fiscal biennium from the permanent school fund to the available
  school fund under Section 43.066.
         Sec. 43.071.  GIFTS, GRANTS, AND DONATIONS. The corporation
  may accept, and establish a nonprofit corporation or other entity
  for the purpose of accepting, a gift, grant, donation, or bequest of
  money, securities, property, or any other assets from any public or
  private source for the permanent school fund.
         SECTION 1.07.  Sections 43.006(b), (c), (d), (e), (f), (g),
  (h), (i), (j), and (k), Education Code, are repealed.
  ARTICLE 2. SCHOOL LAND BOARD'S MANAGEMENT OF PERMANENT SCHOOL FUND
         SECTION 2.01.  Section 51.001, Natural Resources Code, is
  amended by adding Subdivisions (13) and (14) to read as follows:
               (13)  "Real property holding" means any direct or
  indirect interest in real property located in the state or any
  interest in a joint venture whose primary purpose is the
  acquisition, development, holding, and disposing of real property
  located in the state. The term does not include an interest in an
  investment vehicle.
               (14)  "Investment vehicle" means:
                     (A)  a multi-investment separately managed
  account or similar investment fund;
                     (B)  a multi-asset closed-end or open-end
  investment fund sponsored and managed by a third party;
                     (C)  a real estate investment trust;
                     (D)  an investment managed by a third party
  alongside a multi-asset closed-end or open-end investment fund that
  is also managed by the third party or by any of the third party's
  related persons or affiliates; or
                     (E)  a corporation, partnership, limited
  liability company, or other entity whose primary purpose is to:
                           (i)  sponsor and manage investments on
  behalf of third parties, including institutional investors; or
                           (ii)  operate assets or provide brokerage or
  other services to third parties under circumstances in which the
  entity does not directly or indirectly own the underlying assets.
         SECTION 2.02.  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, or real property
  holding, and [estate investment, or other interest, including]
  revenue received from any land or real property holding [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 subject to the sole and exclusive management and
  control of the School Land Board [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, or real property holdings, and
  [estate investments, or other interests, including] revenue
  received from land or real property holdings [those sources], 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)  All revenue received from mineral or royalty
  interests described by Subsection (a), including bonus payments,
  mineral lease rental revenues, royalties, and any other type of
  revenue received from those interests, less any amount specified by
  appropriation to be retained by the board under this subsection,
  shall be transferred each month to the Texas Permanent School Fund
  Corporation for investment in the permanent school fund.
         SECTION 2.03.  Section 51.017, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.017.  FURNISHING DATA TO TEXAS PERMANENT SCHOOL FUND
  CORPORATION [BOARD OF EDUCATION]. On request, the commissioner
  shall furnish to the Texas Permanent School Fund Corporation [State
  Board of Education] all available data.
         SECTION 2.04.  Section 51.401(a), Natural Resources Code, is
  amended to read as follows:
         (a)  The board may designate funds or revenue received from
  any land or real property holdings, and any proceeds received from
  the sale of any 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.
         SECTION 2.05.  Section 51.402(a), Natural Resources Code, is
  amended to read as follows:
         (a)  The [Except as provided by Subsection (c), the] board
  may use funds 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, residential, commercial, geological,
  cultural, or recreational purposes;
               (4)  to acquire mineral and royalty interests for the
  use and benefit of the permanent school fund;
               (5)  to protect, maintain, or enhance the value of
  public school land and mineral or royalty interests on that land;
               (6)  to acquire real property holdings [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
  property holdings [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.
         SECTION 2.06.  Section 51.4021, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.4021.  APPOINTMENT OF [SPECIAL FUND MANAGERS,]
  INVESTMENT CONSULTANTS[,] OR ADVISORS. (a) The board may appoint
  investment [managers,] consultants[,] or advisors to [invest or]
  assist the board in using [investing] funds designated under
  Section 51.401 in a manner authorized under Section 51.402 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.  Funds designated under Section 51.401 may not be
  invested in a real estate investment trust, as defined by Section
  200.001, Business Organizations Code.
         (c)  Compensation paid to an investment [manager,]
  consultant[,] or advisor by the board must be consistent with the
  compensation standards of the investment industry and compensation
  paid by similarly situated institutional investors.
         (d)  Chapter 2263, Government Code, applies to investment
  [managers,] consultants and[, or] advisors appointed under this
  section.  The board by rule shall adopt standards of conduct for
  investment [managers,] consultants and[, or] advisors appointed
  under this section as required by Section 2263.004, Government
  Code, and shall implement the disclosure requirements of Section
  2263.005 of that code.
         SECTION 2.07.  The heading to Section 51.412, Natural
  Resources Code, is amended to read as follows:
         Sec. 51.412.  REPORT ON USE OF CERTAIN MONEY [REPORTS TO
  LEGISLATURE].
         SECTION 2.08.  Sections 51.412(a) and (c), Natural Resources
  Code, are amended to read as follows:
         (a)  Not later than September 1 of each even-numbered year,
  the board shall submit to the legislature, the Texas Permanent
  School Fund Corporation, and the Legislative Budget Board a report
  that, specifically and in detail, assesses the direct and indirect
  economic impact, as anticipated by the board, of the use
  [investment] of funds:
               (1)  retained by the board as provided by Section
  51.011(a-3); or
               (2)  designated under Section 51.401 for deposit in the
  real estate special fund account of the permanent school fund.
         (c)  The report must include the following information:
               (1)  the total amount of the funds designated by
  Section 51.401 for deposit in the real estate special fund account
  of the permanent school fund that the board intends to use in a
  manner authorized under Section 51.402 [invest];
               (2)  the amount of funds retained by [rate of return]
  the board as provided by Section 51.011(a-3) and the purposes for
  which the board intends to use those funds [expects to attain on the
  investment];
               (3)  the amount of the funds the board expects to
  distribute to the available school fund or the Texas Permanent
  School Fund Corporation [State Board of Education] for investment
  in the permanent school fund under Section 51.413 [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;
               [(6)]  the amounts of all fees or other compensation
  paid by the board to investment [managers,] consultants and[, or]
  advisors appointed or organizations contracted with under Section
  51.4021; and
               (5) [(7)]  any other information the board considers
  necessary to include in the report.
         SECTION 2.09.  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 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 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 Texas Permanent School Fund Corporation [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 date a transfer will
  be made and the amount of the funds that will be transferred to the
  available school fund or to the Texas Permanent School Fund
  Corporation [State Board of Education] for investment in the
  permanent school fund from the real estate special fund account as
  provided by Subsection (a).
         SECTION 2.10.  The following provisions are repealed:
               (1)  Section 43.0052, Education Code;
               (2)  Sections 32.0161 and 32.068, Natural Resources
  Code;
               (3)  Section 51.402(c), Natural Resources Code, as
  amended by Chapters 493 (H.B. 4388) and 524 (S.B. 608), Acts of the
  86th Legislature, Regular Session, 2019; and
               (4)  Sections 51.4131 and 51.414, Natural Resources
  Code.
         SECTION 2.11.  (a)  Subject to Subsection (b) of this
  section, as soon as practicable after the effective date of this
  article and on the date agreed to by the State Board of Education,
  the Texas Education Agency, the School Land Board, and the Texas
  Permanent School Fund Corporation, as applicable:
               (1)  all powers, duties, functions, programs, and
  activities of the State Board of Education and the Texas Education
  Agency relating to the management and investment of the permanent
  school fund transfer to the Texas Permanent School Fund Corporation
  by operation of law; and
               (2)  all powers, duties, functions, programs, and
  activities of the School Land Board relating to assets or
  investments of the permanent school fund described by Section
  2.15(a)(1) of this article transfer to the Texas Permanent School
  Fund Corporation by operation of law.
         (b)  The Texas Permanent School Fund Corporation may delay
  the transfer of any power, duty, function, program, or activity
  under Subsection (a) of this section if the corporation determines
  that the transfer would have an adverse impact on or is not in the
  best interest of the permanent school fund.
         (c)  All rules, policies, and procedures relating to the
  management and investment of the permanent school fund adopted by
  the State Board of Education or the School Land Board before the
  transfer under this section remain in effect until the Texas
  Permanent School Fund Corporation adopts substitute rules,
  policies, or procedures.  In the event of a conflict between rules,
  policies, or procedures adopted by the State Board of Education and
  rules, policies, or procedures adopted by the School Land Board,
  the corporation shall determine which rules, policies, or
  procedures control.
         SECTION 2.12.  On the date the transfers under Section
  2.11(a) of this article occur:
               (1)  an employee of the permanent school fund division
  of the Texas Education Agency or the investment management division
  of the General Land Office becomes an employee of the Texas
  Permanent School Fund Corporation; and
               (2)  any employee compensation plan, program,
  agreement, or arrangement, including any incentive compensation
  plan and outstanding balance or award, relating to each employee
  described by Subdivision (1) of this section transfers from the
  Texas Education Agency or the General Land Office, as applicable,
  to the Texas Permanent School Fund Corporation.
         SECTION 2.13.  (a)  As soon as practicable after the
  effective date of this article but not later than the date the
  transfers under Section 2.11(a) of this article occur, the State
  Board of Education shall enter into a memorandum of understanding
  with any state agency the board determines necessary to provide for
  the transfer to or continued use by the Texas Permanent School Fund
  Corporation for a period determined by the board of any property,
  facilities, information and data technology, services, and support
  staff of the state agency used in connection with operations
  relating to the management or investment of the permanent school
  fund.
         (b)  On the date the transfers under Section 2.11(a) of this
  article occur, the unexpended and unobligated balance of any money
  appropriated to a state agency relating to the powers, duties,
  programs, functions, and activities that are transferred to the
  Texas Permanent School Fund Corporation is transferred to that
  corporation.
         SECTION 2.14.  (a)  Not later than March 30, 2023, the State
  Board of Education and the Texas Education Agency shall provide to
  the Texas Permanent School Fund Corporation all financial,
  contract, and investment records and documents maintained by the
  board, the agency, or a service provider of the board or agency
  relating to the management or investment of the permanent school
  fund.
         (b)  Except as provided by Subsection (c) or (d) of this
  section, as soon as practicable after the effective date of this
  article and not later than the date the transfers under Section
  2.11(a) of this article occur, all assets and investments of the
  permanent school fund held by the State Board of Education or the
  Texas Education Agency and any related contracts are transferred to
  the Texas Permanent School Fund Corporation by operation of law in
  accordance with applicable law and any governing documentation
  applicable to those assets, investments, or contracts, including
  any applicable limited partnership agreement, limited liability
  company agreement, subscription agreement, letter agreement, or
  side letter.
         (c)  The State Board of Education and the Texas Education
  Agency shall retain any assets or investments that would otherwise
  be transferred to the Texas Permanent School Fund Corporation under
  Subsection (b) of this section if the corporation determines that:
               (1)  the asset or investment cannot be transferred to
  the corporation, either because the corporation cannot properly
  hold custody of the asset or investment or for some other reason; or
               (2)  the transfer of the asset or investment:
                     (A)  would have an adverse effect on the permanent
  school fund or on any asset or investment set apart to the permanent
  school fund; or
                     (B)  is not in the best interest of the permanent
  school fund.
         (d)  If an asset or investment required to be transferred to
  the Texas Permanent School Fund Corporation under Subsection (b) of
  this section cannot be transferred to the corporation in a timely
  manner, the State Board of Education, the Texas Education Agency,
  and the corporation shall coordinate concerning the appropriate
  timing of the transfer or other disposition of the asset or
  investment.
         (e)  The State Board of Education and the Texas Permanent
  School Fund Corporation shall coordinate the ongoing management or
  other disposition of any assets or investments retained by the
  board or the Texas Education Agency under Subsection (c) or (d) of
  this section, including:
               (1)  providing direction to the Texas Education Agency
  regarding the asset or investment;
               (2)  the funding of any outstanding commitments related
  to the asset or investment;
               (3)  the handling of any distributions, income, or
  revenues from the asset or investment; and
               (4)  the making of any decisions required with respect
  to the asset or investment.
         SECTION 2.15.  (a)  Not later than January 31, 2023, the
  School Land Board shall provide to:
               (1)  the Texas Permanent School Fund Corporation a list
  of each asset and investment acquired on or after September 1, 2001,
  and held by the board on January 31, 2023, other than sovereign or
  other state lands, mineral or royalty interests, or real property
  holdings, as that term is defined by Section 51.001, Natural
  Resources Code, as amended by this article, and information on
  unfunded commitments and funding obligations related to the asset
  or investment; and
               (2)  the general partner or other managing entity of
  each asset or investment identified under Subdivision (1) of this
  subsection notice of the transfer of the asset or investment to the
  Texas Permanent School Fund Corporation under this section.
         (b)  Not later than March 30, 2023, the School Land Board
  shall provide to the Texas Permanent School Fund Corporation all
  financial, contract, and investment records and documents
  maintained by the board, the General Land Office, or a service
  provider of the board or office relating to the operations
  associated with or the management of an asset or investment
  identified under Subsection (a)(1) of this section.
         (c)  Except as provided by Subsection (d) or (e) of this
  section, not later than December 31, 2023, all assets and
  investments identified under Subsection (a)(1) of this section and
  any related contracts are transferred from the School Land Board to
  the Texas Permanent School Fund Corporation by operation of law in
  accordance with applicable law and any governing documentation
  applicable to those assets, investments, or contracts, such as any
  applicable limited partnership agreement, limited liability
  company agreement, subscription agreement, letter agreement, or
  side letter.
         (d)  The School Land Board shall retain any assets or
  investments that would otherwise be transferred to the Texas
  Permanent School Fund Corporation under Subsection (c) of this
  section if the corporation determines that:
               (1)  the asset or investment cannot be transferred to
  the corporation, either because the corporation cannot properly
  hold custody of the asset or investment or for some other reason; or
               (2)  the transfer of the asset or investment:
                     (A)  would have an adverse effect on the permanent
  school fund or on any asset or investment set apart to the permanent
  school fund; or
                     (B)  is not in the best interest of the permanent
  school fund.
         (e)  If an asset or investment required to be transferred to
  the Texas Permanent School Fund Corporation under Subsection (c) of
  this section cannot be transferred to the corporation by December
  31, 2023, the School Land Board and the corporation shall
  coordinate concerning the appropriate timing of the transfer or
  other disposition of the asset or investment.
         (f)  The School Land Board and the Texas Permanent School
  Fund Corporation shall coordinate the ongoing management or other
  disposition of any assets or investments retained by the board
  under Subsection (d) or (e) of this section, including:
               (1)  the funding of any outstanding commitments related
  to the asset or investment;
               (2)  the handling of any distributions, income, or
  revenues from the asset or investment; and
               (3)  the making of any decisions required with respect
  to the asset or investment.
         (g)  Not later than December 31, 2023, all cash holdings
  related to or derived from permanent school fund assets held by the
  School Land Board shall be transferred to the Texas Permanent
  School Fund Corporation for deposit to the credit of the permanent
  school fund.
         (h)  On the date on which the Texas Permanent School Fund
  Corporation determines that all outstanding commitments required
  to be paid from the permanent school fund liquid account have been
  fully resolved, the account is abolished and the balance of that
  account is transferred to the permanent school fund.
         SECTION 2.16.  This article takes effect December 31, 2022,
  but only if the State Board of Education incorporates the Texas
  Permanent School Fund Corporation under Subchapter B, Chapter 43,
  Education Code, as added by this Act, on or before that date.  If the
  State Board of Education does not incorporate the Texas Permanent
  School Fund Corporation on or before December 31, 2022, this
  article has no effect.
  ARTICLE 3.  EFFECTIVE DATE
         SECTION 3.01.  Except as otherwise provided by this Act,
  this Act takes effect September 1, 2021.