Bill Text: TX SB2440 | 2019-2020 | 86th Legislature | Introduced


Bill Title: Relating to the Texas school finance system, including the creation of the bicentennial education fund, the establishment of the Texas Education Investment Management Organization, and the management and investment of the permanent school fund.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced) 2019-04-09 - No action taken in committee [SB2440 Detail]

Download: Texas-2019-SB2440-Introduced.html
 
 
  By: Taylor S.B. No. 2440
 
 
 
   
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the Texas school finance system, including the creation
  of the bicentennial education fund, the establishment of the Texas
  Education Investment Management Organization, and the management
  and investment of the permanent school fund.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 31.021(a), Education Code, as amended by
  Acts 2017, 85th Leg., R.S., Ch. 705 (H.B. 3526), is amended to read
  as follows:
         (a)  The state technology and instructional materials fund
  consists of:
               (1)  an amount set aside by the Texas Education
  Investment Management Organization State Board of Education from
  the available school fund, in accordance with Section 43.001(d);
  and
               (2)  all amounts lawfully paid into the fund from any
  other source.
         SECTION 2.  Section 31.021(a), Education Code, as amended by
  Acts 2017, 85th Leg., R.S., Ch. 581 (S.B. 810), is amended to read
  as follows:
         (a)  The state instructional materials and technology fund
  consists of:
               (1)  an amount set aside by the Texas Education
  Investment Management Organization State Board of Education from
  the available school fund, in accordance with Section 43.001(d);
  and
               (2)  all amounts lawfully paid into the fund from any
  other source.
         SECTION 3.  The heading to Section 43.001, Education Code,
  is amended to read as follows:
         Sec. 43.001.  COMPOSITION OF PERMANENT SCHOOL FUND, AND
  AVAILABLE SCHOOL FUND, AND BICENTENNIAL EDUCATION FUND.
         SECTION 4.  Section 43.001, Education Code, is amended by
  adding Subsection (b-1) and amending Subsection (d) to read as
  follows:
         (b-1)  The bicentennial education fund, which shall be
  dedicated to providing funding for merit-based teacher pay and
  incentivizing academic improvement among historically
  underperforming student groups, consists of:  
               (1)  the distributions to the fund from the permanent
  school fund as provided by Section 5(a-2), Article VII, Texas
  Constitution; and 
               (2)  all other appropriations to the bicentennial
  education fund made by the legislature for public school purposes.
         (d)  Each biennium the Texas Education Investment Management
  Organization State Board of Education shall allocate a portion set
  aside an amount equal to 50 percent of the distribution for that
  biennium from the permanent school fund to the available school
  fund as provided by Section 5(a), Article VII, Texas Constitution,
  to be placed, subject to the General Appropriations Act, in the
  state instructional materials and technology fund established
  under Section 31.021.
         SECTION 5.  Chapter 43, Education Code, is amended by adding
  Section 43.0011 to read as follows:
         Sec. 43.0011.  PURPOSE OF PERMANENT SCHOOL FUND. The
  purpose of the permanent school fund is to maximize available
  revenue distributions for the education of students enrolled in the
  public education system. 
         SECTION 6.  Chapter 43, Education Code, is amended by adding
  Section 43.0021 to read as follows:
         Sec. 43.0021.  TEXAS EDUCATION INVESTMENT MANAGEMENT
  ORGANIZATION. (a) The Texas Education Investment Management
  Organization is composed of nine members appointed by the governor,
  five of whom must have a substantial background and expertise in
  investments. The Governor shall appoint one member State Board of
  Education as one of the members of the organization. The Governor
  shall appoint one member of the School Land Board as one of the
  members of the organization.
         (b)  Appointments to the board shall be made without regard
  to race, color, disability, sex, religion, age, or national origin.
         (c)  Members of the board serve staggered six-year terms,
  with the terms of as near to one-third of the members as possible
  expiring on January 31 of each odd-numbered year.
         (d)  The governor shall designate a member of the board as
  presiding officer to serve in that capacity at the pleasure of the
  governor.
         SECTION 7.  Sections 43.003 through 43.0051, Education Code,
  are amended to read as follows:
         Sec. 43.003.  INVESTMENT OF PERMANENT SCHOOL FUND. In
  compliance with this section, the Texas Education Investment
  Management Organization State Board of Education may invest the
  permanent school fund in the types of securities, which must be
  carefully examined by the organization 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
  organization 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
  organization 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.
         Sec. 43.0031.  PERMANENT SCHOOL FUND ETHICS POLICY. (a) In
  addition to any other requirements provided by law, the Texas
  Education Investment Management Organization State Board of
  Education shall adopt and enforce an ethics policy 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 Texas Education Investment
  Management Organization State Board of Education;
               (2)  the commissioner;
               (3)  employees of the agency; and
               (4)  any person who provides services to the
  organization 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
  organization board intends to adopt a proposed ethics policy or an
  amendment to or revision of an adopted ethics policy, the
  organization 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 organization 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 organization 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 organization board shall ensure that applicable
  provisions of the ethics policy are included in any contract under
  which a person provides services to the organization board relating
  to the management and investment of the permanent school fund.
         Sec. 43.0032.  CONFLICTS OF INTEREST. (a) A member of the
  Texas Education Investment Management Organization State Board of
  Education, the commissioner, an employee of the agency, or a person
  who provides services to the organization 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 organization board.
         (b)  The organization board or the organization's 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 organization board, after consultation with the
  general counsel of the agency, expressly waives this prohibition.
  The organization 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 Texas
  Education Investment Management Organization State Board of
  Education relating to the management and investment of the
  permanent school fund shall file with the organization board
  regularly, as determined by the organization 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 organization board; or
               (2)  the commissioner; or
               (3)     an employee of the agency or of a nonprofit
  corporation created under Section 43.006.
         Sec. 43.0034.  FORMS; PUBLIC INFORMATION. (a) The
  organization 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.
         (b)  A statement, waiver, or report described by Subsection
  (a) is public information.
         (c)  The organization board shall designate an employee of
  the agency to act as custodian of statements, waivers, and reports
  described by Subsection (a) for purposes of public disclosure.
         Sec. 43.004.  WRITTEN INVESTMENT OBJECTIVES; PERFORMANCE
  EVALUATION. (a) The Texas Education Investment Management
  Organization 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 organization 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 organization 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 Texas
  Education Investment Management Organization State Board of
  Education may contract with private professional investment
  managers to assist the board in making investments of the permanent
  school fund. A contract under this subsection must be approved by
  the organization board or otherwise entered into in accordance with
  board rules relating to contracting authority.
         (b)  The Texas Education Investment Management Organization
  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 organization 
  board.
         Sec. 43.0051.  TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT
  OF THE PERMANENT SCHOOL FUND. The Texas Education Investment
  Management Organization State Board of Education may transfer funds
  from the portion of the permanent school fund managed by the
  organization State Board of Education to the real estate special
  fund account of the permanent school fund if the organization 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 8.  Sections 43.007 through 43.012, Education Code,
  are amended to read as follows:
         Sec. 43.007.  PURCHASE AND SALE OR EXCHANGE OF SECURITIES.
  (a) The Texas Education Investment Management Organization 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
  organization 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 organization 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 organization 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.
         (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 organization State Board of Education.
         Sec. 43.009.  PREPAYMENT OF CERTAIN BONDS HELD BY THE
  PERMANENT SCHOOL FUND. (a) The Texas Education Investment
  Management Organization 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 organization 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 organization 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.
         (d)  A person who has a duty under this section may not give
  or receive any commission, premium, or compensation for the
  performance of that duty.
         (e)  Only tax money collected from tax levies made for the
  specific purpose of providing a sinking fund and paying interest on
  the particular bonds to be redeemed may be spent in redeeming,
  taking up, or paying off of bonds as provided by this section,
  unless the bonds are being redeemed for the purpose of being
  refunded.
         Sec. 43.010.  DEFAULT OF SCHOOL DISTRICT SECURITIES HELD BY
  THE PERMANENT SCHOOL FUND. (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 Texas Education
  Investment Management Organization State Board of Education may:
               (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 organization
  State Board of Education
               satisfactory proof that the district's taxing ability
  is insufficient, 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.
         (b)  Revenue collected by either method specified by
  Subsection (a) shall be distributed proportionately to all owners
  of the defaulted securities in compliance with the following:
               (1)  the proportionate share for each owner is based on
  the interest and principal requirements of the original security
  before authorized refunding; and
               (2)  prior acceptance of refunding securities does not
  reduce an owner's proportionate share.
         (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 organization 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 organization 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.
         Sec. 43.011.  AUTHORIZED REFUNDING OF DEFAULTED SCHOOL
  BONDS. (a) In compliance with this section, the Texas Education
  Investment Management Organization State Board of Education 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 organization 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 organization State Board of Education may effect a
  refunding of the debt due and to become due only if the organization
  board 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 organization 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 organization 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 organization 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 organization 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 organization State
  Board of Education shall be governed by the following:
                     (A)  the organization 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 organization State Board of Education at any rate
  the organization board considers feasible, and the refunding bonds
  may, at the discretion of the organization State Board of
  Education, be made non-interest bearing to a date fixed by the
  board.
         (e)  The organization 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.
         (f)  Except as otherwise provided or permitted by this
  section, the refunding of the bonds of school districts authorized
  by this section must be in compliance with the general provisions
  with regard to the refunding of school district bonds.
         Sec. 43.012.  REFUNDING OTHER DEFAULTED OBLIGATIONS. (a)
  Defaulted obligations, other than bonds of school districts as
  provided by Section 43.011, due the available school fund may be
  refinanced or refunded with the approval of the Texas Education
  Investment Management Organization State Board of Education in
  compliance with this section.
         (b)  In this section, "defaulted obligations" includes
  delinquent interest whether represented by coupons or not, interest
  on delinquent interest, and any other form of obligation due the
  available school fund.
         (c)  The obligor must apply to the organization State Board
  of Education and show:
               (1)  that the obligations due the available school fund
  have been in default in whole or in part for a continuous period of
  at least 15 years; and
               (2)  that the obligor is not in default in the payment
  of the principal of any bonds owned by the permanent school fund.
         (d)  If the organization State Board of Education finds that
  the requirements provided by Subsection (c) have been met, it may
  approve a refinancing or the issuance of refunding bonds on the
  conditions:
               (1)  that the refunding bonds must mature serially in
  not exceeding 40 years from the date of issuance;
               (2)  that the principal amount of the refunding bonds
  may be not less than the total amount of the obligations then in
  default and due the available school fund; and
               (3)  that the refunding bonds must bear interest at a
  rate or rates determined by the organization State Board of
  Education to be for the best interest of the available school fund.
         (e)  The organization 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 organization State Board of
  Education in compliance with either this section or Section 43.011
  shall, on the order of the organization State Board of Education, be
  exchanged by the comptroller for the defaulted obligations they
  have been issued to refund.
         SECTION 9.  Sections 43.014 and 43.015, Education Code, are
  amended to read as follows:
         Sec. 43.014.  DUTIES OF COMPTROLLER. (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 Texas
  Education Investment Management Organization State Board of
  Education.
         (b)  On or before the meeting of each regular session of the
  legislature, the comptroller shall report to the legislature an
  estimate of the amount of the available school fund that is to be
  received for the following two years, and the sources from which
  that amount accrues, and that is subject to appropriation for the
  establishment and support of public schools.
         (c)  On or before the first working day of each month, the
  comptroller shall certify to the commissioner the total amount of
  money collected from every source during the preceding month and on
  hand to the credit of the available school fund.
         (d)  On receipt of certificates issued to the comptroller by
  the commissioner, the comptroller shall draw warrants in favor of
  the treasurer of the available school fund of each school district
  for the amounts stated in the certificates. All such warrants shall
  be registered.
         Sec. 43.015.  DUTIES OF COMPTROLLER. (a) Not later than the
  30th day before the first day of each regular session of the
  legislature and not later than the 10th day before the first day of
  any special session at which there can be legislation respecting
  the public schools, the comptroller shall report to the governor
  the condition of the permanent school fund and the available school
  fund, the amount of each fund, and the manner of its disbursement.
         (b)  The comptroller shall provide the Texas Education
  Investment Management Organization State Board of Education with
  the reports specified by Subsection (a) and with additional reports
  concerning those funds requested by the organization State Board of
  Education.
         (c)  The comptroller shall ensure that no portion of either
  the permanent school fund or the available school fund is used to
  pay any warrant drawn against any other fund.
         (d)  The comptroller shall receive and hold in a special
  deposit and account for all properties belonging to the available
  school fund. All warrants drawn on that fund by the comptroller
  pursuant to a certificate of the commissioner must be registered by
  the comptroller and then transmitted to the commissioner, and when
  properly endorsed shall be paid by the comptroller in the order of
  their presentation.
         (e)  On order of the organization State Board of Education,
  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 organization 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 organization 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 10.  Sections 43.017 through 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 Texas Education Investment Management Organization 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 organization 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 Texas Education Investment Management
  Organization 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 organization 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 organization 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 organization 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 Texas Education Investment Management Organization 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 organization 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 11.  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 Texas Education Investment Management Organization for
  investment in the permanent school fund.
         SECTION 12.  Section 32.012, Natural Resources Code, is
  amended to read as follows:
         Sec. 32.012.  MEMBERS OF THE BOARD. (a) The board is
  composed of:
               (1)  the commissioner;
               (2)  two citizens [a citizen] of the state appointed by
  the governor with the advice and consent of the senate; and
               (3)  two citizens [a citizen] of the state appointed by
  the attorney general with the advice and consent of the senate.
         (a-1)  One citizen appointed by the governor and one citizen
  appointed by the attorney general must be selected from lists of
  nominees submitted by the State Board of Education. The State Board
  of Education shall submit to the governor or the attorney general,
  as applicable, a list of six nominees for a vacant position
  described by this subsection. The governor or attorney general, as
  applicable, may request that the State Board of Education submit a
  second list of six nominees if the governor or attorney general does
  not choose to appoint a nominee from the first list.
         (b)  The authority of the attorney general to appoint [one of
  the] members of the board, including the authority to make
  appointments during the recess of the senate, is the same as the
  authority of the governor to fill vacancies in state offices under
  the Texas Constitution.
         (c)  Each appointment made by the governor and the attorney
  general shall be made in accordance with and subject to the
  provisions of the Texas Constitution authorizing the filling of
  vacancies in state offices by appointment of the governor.
         SECTION 13.  Subchapter B, Chapter 32, Natural Resources
  Code, is amended by adding Section 32.0161 to read as follows:
         Sec. 32.0161.  ANNUAL JOINT MEETING. The board and the Texas
  Education Investment Management Organization shall hold an annual
  joint public meeting to discuss the allocation of the assets of the
  permanent school fund and the investment of the money in the fund.
         SECTION 14.  Subchapter B, Chapter 32, Natural Resources
  Code, is amended by adding Section 32.0191 to read as follows:
         Sec. 32.0191.  SEPARATION OF RESPONSIBILITIES. The board
  shall develop and implement policies that clearly separate the
  policymaking responsibilities of the board and the management
  responsibilities of the commissioner and the staff of the land
  office.
         SECTION 15.  Subchapter B, Chapter 32, Natural Resources
  Code, is amended by adding Section 32.027 to read as follows:
         Sec. 32.027.  MEMBER TRAINING. (a) A person who is
  appointed to and qualifies for office as a member of the board may
  not vote, deliberate, or be counted as a member in attendance at a
  meeting of the board until the person completes a training program
  that complies with this section.
         (b)  The training program must provide the person with
  information regarding:
               (1)  the law governing board operations;
               (2)  the programs, functions, rules, and budget of the
  board;
               (3)  the board's investment programs and strategies;
               (4)  the permanent school fund, including a
  comprehensive overview of the law governing the fund;
               (5)  the scope of and limitations on the rulemaking
  authority of the board;
               (6)  the results of the most recent formal audit of the
  board;
               (7)  the requirements of:
                     (A)  laws relating to open meetings, public
  information, administrative procedure, and disclosure of conflicts
  of interest; and
                     (B)  other laws applicable to members of a state
  policymaking body in performing their duties; and
               (8)  any applicable ethics policies adopted by the
  board or the Texas Ethics Commission.
         (c)  A person appointed to the board is entitled to
  reimbursement, as provided by the General Appropriations Act, for
  the travel expenses incurred in attending the training program
  regardless of whether the attendance at the program occurs before
  or after the person qualifies for office.
         (d)  The commissioner shall create a training manual that
  includes the information required by Subsection (b).
         (e)  The commissioner shall distribute a copy of the training
  manual annually to each appointed member of the board. On receipt
  of the training manual, each appointed member of the board shall
  sign and submit to the commissioner a statement acknowledging
  receipt of the training manual.
         SECTION 16.  Subchapter B, Chapter 32, Natural Resources
  Code, is amended by adding Section 32.028 to read as follows:
         Sec. 32.028.  COMPLAINTS. (a) The board shall maintain a
  system to promptly and efficiently act on complaints filed with the
  board. The board shall maintain information about parties to the
  complaint, the subject matter of the complaint, a summary of the
  results of the review or investigation of the complaint, and its
  disposition.
         (b)  The board shall make information available describing
  its procedures for complaint investigation and resolution.
         (c)  The board shall periodically notify the complaint
  parties of the status of the complaint until final disposition.
         SECTION 17.  Section 51.017, Natural Resources Code, is
  amended to read as follows:
         On request, the commissioner shall furnish to the Texas
  Education Investment Management Organization or the Commissioner
  of Education State Board of Education all available data.
         SECTION 18.  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 one year 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 one year shall be
  immediately deposited in the State Treasury to the credit of the
  Texas Education Investment Management Organization for investment
  in the permanent school fund.
         (d-1)  Each quarter, the board shall provide a cashflow
  report to the Texas Education Investment Management Organization
  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 19.  Section 51.402, Natural Resources Code, is
  amended by amending Subsections (b) and (c) to read as follows:
         (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.]
         (c)  Notwithstanding Subsection (a) of this section, on
  January 1 of each even-numbered year, the sum of any funds
  designated under Section 51.401 not being used for a purpose listed
  in Subsection (a) of this section and the market value of the
  investments in real estate made under this section [on January 1 of
  each even-numbered year] may not exceed an amount that is equal to
  15 percent of the sum of:
               (1)  the funds held by the board and the State Board of
  Education as part of the permanent school fund; and
               (2)  the market value of the assets held by the board
  and the State Board of Education as part of the permanent school
  fund [on that date].
         SECTION 20.  Sections 51.4021(a) and (b), Natural Resources
  Code, are amended to read as follows:
         (a)  In consultation with the Texas Education Investment
  Management Organization the 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 21.  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 22.  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 23.  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 24.  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 25.  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 26.  The following provisions are repealed:
               (1)  Section 43.006, Education Code; and
               (2)  Section 51.011 (a-2), Natural Resources Code.
         SECTION 27.  As soon as practicable after the appointment of
  the members of the Texas Education Investment Management
  Organization, the School Board of Education and the School Land
  Board shall provide for the transfer of powers, duties, functions,
  programs, and activities under this Act. The transfer must be
  completed by August 1, 2020.
         SECTION 28.  Not later than September 1, 2020, the governor
  and the attorney general shall appoint members to the School Land
  Board in accordance with Section 32.012(a-1), Natural Resources
  Code, as added by this Act.
         SECTION 29.  Section 32.027, Natural Resources Code, as
  added by this Act, applies to a member of the School Land Board
  appointed before, on, or after the effective date of this Act. A
  member of the School Land Board may not vote, deliberate, or be
  counted as a member in attendance at a meeting of the board held on
  or after December 1, 2019, until the member completes the training.
         SECTION 30.  This Act takes effect on the date the
  constitutional amendment proposed by the 86th Legislature, Regular
  Session, 2019, relating to the creation of the bicentennial
  education fund, the dedication of funds for teacher pay and
  historically underperforming student groups, and the transfer of
  the management and investment of the permanent school fund to an
  entity designated by the legislature.
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