HBA-LCA C.S.H.B. 3739 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3739 By: Greenberg Public Education 4/19/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Current law does not require consultants, advisors, brokers, or other persons providing services for the permanent school fund to file expenditure reports. C.S.H.B. 3739: Requires the State Board of Education (board) to adopt a policy requiring the filing of expenditure reports by such persons, for expenditures of more than $50 made on behalf of a board member, the commissioner of education, a Texas Education Agency employee, or a nonprofit corporation providing services under Section 43.006, Education Code (Investment Management). This requirement was recommended by the State Auditor's Office, and is modeled after ethics requirements currently in place for the Teacher Retirement System. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 43, Education Code, by adding Sections 43.0031-43.0034, as follows: Sec. 43.0031. PERMANENT SCHOOL FUND ETHICS POLICY. (a) Requires the State Board of Education (board), in addition to other requirements provided by law, to adopt and enforce an ethics policy (policy). Provides that the policy must provide standards of conduct relating to the management and investment of the permanent school fund (fund). Provides that the policy must include provisions that address specified issues as they apply to the management and investment of the fund and to persons responsible for managing and investing the fund. Sets forth the issues the policy must address in its provisions, including general ethics standards; conflicts of interest; prohibited transactions and interests; the acceptance of gifts and entertainment; compliance with applicable professional standards; ethics training; and compliance with and enforcement of the ethics policy. (b) Provides that the policy must include provisions applicable to members of the State Board of Education, the commissioner of education, employees of the Texas Education Agency (agency), and any person who provides services to the board relating to the management or investment of the fund. (c) Requires the board, not later than 45 days before the date on which the board intends to adopt a proposed policy or an amendment to or revision of an adopted policy, to submit a copy of the proposed policy, amendment, or revision to the Texas Ethics Commission and the state auditor for review and comments. Requires the board to consider such review or comments before adopting the proposed policy. (d) Provides that the provisions of the policy that apply to a person providing services to the board must be based on ethics standards adopted by an appropriate professionally recognized entity. (e) Requires the board to ensure that applicable provisions of the policy are included in any contract with a person who provides services relating to the management and investment of the fund. Sec. 43.0032. CONFLICTS OF INTEREST. (a) Requires a member of the board, an employee of the agency, or a person providing services to the board relating to the management or investment of the fund who has a business, commercial, or other relationship that could reasonably be expected to diminish the person's independence of judgment in the person's responsibilities relating to the management or investment of the fund to disclose the relationship in writing to the board. (b) Requires the board, or a designee of the board, in the policy adopted under Section 43.0031, to define the kinds of relationships that may create a possible conflict of interest. (c) Prohibits a person who has filed a statement disclosing a possible conflict of interest from giving advice or making decisions about a matter affected by the possible conflict of interest unless the board, after consultation with the general counsel of the agency, expressly waives this prohibition. Authorizes the board to delelegate the authority to waive this prohibition. Sec. 43.0033. REPORTS OF EXPENDITURES. Requires a consultant, advisor, broker, or other person providing services to the board relating to the management and investment of the fund to file with the board regularly, as determined by the board, a report that describes in detail any expenditure of more than $50 made on behalf of a member of the board, the commissioner, or an employee of the agency or of a nonprofit corporation created under Section 43.006, Education Code (Investment Management). Sec. 43.0034. FORMS; PUBLIC INFORMATION. (a) Requires the board to prescribe forms for statements and waivers of possible conflicts of interest and reports of expenditures required by this Act. (b) Provides that such a statement, waiver, or report is public information. (c) Requires the board to designate an employee of the agency to act as custodian of such statements, waivers, or reports for purposes of public disclosure. SECTION 2. Effective date: September 1, 1999. SECTION 3. Requires the board, not later than January 1, 2000, to adopt an ethics policy as required by Section 43.0031, Education Code, as added by this Act, and each form required by Section 43.0034, Education Code, as added by this Act. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE In SECTION 1, the substitute modifies the original as follows: Modifies proposed Section 43.0031, Education Code (Permanent School Fund Ethics Policy) to require the State Board of Education (board) to establish and enforce an ethics policy that includes provisions addressing certain, enumerated provisions regarding the management of the permanent school fund (fund) and certain persons responsible for such management. The original required the board to adopt and enforce an ethics policy applying to consultants and other persons providing services to the board, and to require a report detailing an expenditure greater than $50 made on behalf of the board, the commissioner of education, a Texas Education Agency employee, or certain nonprofit corporations. Adds new subsection (b), regarding to whom the enumerated provisions in Subsection (a) apply. Adds new Subsection (c), requiring the board's consideration of comments and review of the proposed ethics policy, or its revision or amenment, by the Texas Ethics Commission. Adds new Subsection (d), relating to the provisions of the policy that apply to consultants, requiring that they conform with ethics standards adopted by a professionally recognized investment management entity. Adds new Subsection (e), requiring the board to include those provisions in any contract with a consultant relating to management and investment of the fund. Adds Section 43.0032, Education Code (Conflicts of Interest). (a) Requires a written statement of potential conflicts of interest. (b) Requires the board or its designee, in the ethics policy, to define relationships that may create conflicts of interest. (c) Prohibits a person with a potential conflict of interest from making decisions regarding the fund, and provides that the board may waive this prohibition. Adds Section 43.0033, Education Code (Reports of Expenditures) to require a consultant or other person providing services to the board relating to the fund to report to the board expenditures in excess of $50. Adds Section 43.0034, Education Code (Forms; Public Information). (a) Requires the board to prescribe forms for statements and waivers of possible conflicts of interest. (b) Provides that a statement, waiver, or report under Subsection (a) is public information. (c) Requires an agency employee to act as custodian of statements, waivers, and reports as described by Subsection (a) for the purposes of public information. The substitute modifies the original by adding a new SECTION 3 to require the adoption of the ethics policy and the forms required by this Act by January 1, 2000. SECTION 4 (emergency clause) of the substitute is redesignated from SECTION 3 of the original.