HBA-MSH H.B. 2414 77(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 2414
By: Keel
Public Education
3/12/2001
Introduced



BACKGROUND AND PURPOSE 

Under current law, the investment and management of the permanent school
fund (fund) is a responsibility of the State Board of Education (SBOE).
The members of SBOE are not required to possess any investment expertise,
which makes it more difficult to manage the fund with prudence and avoid
conflicts of interest regarding advice from investment consultants.  A
proposed constitutional amendment provides for the transfer of authority to
invest and manage the fund from SBOE to a permanent school fund investment
board.   House Bill 2414 clarifies and strengthens the conflict of interest
and disclosure requirements and, contingent on the adoption by the voters
of the constitutional amendment, creates the Permanent School Fund
Investment Board to manage the fund. If the constitutional amendment fails
adoption, the bill creates a permanent school fund advisory committee to
advise SBOE regarding the management of the fund. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill
expressly delegates rulemaking authority to the Permanent School Fund
Investment Board in SECTION 1.07 (43.004, Education Code) of this bill. 

ANALYSIS

House Bill 2414 amends the Education Code relating to the investment and
management of the permanent school fund (fund). 

If the constitutional amendment relating to the investment and management
of the fund is passed by the voters of the state, then the bill creates the
Permanent School Fund Investment Board (board) to direct the Texas
Education Agency (TEA) in managing and investing the fund (SECTION 1.01,
Sec. 43.0012).  The bill transfers the duties, authority, and contracts of
the State Board of Education (SBOE) relating to the fund to the board
(SECTIONS 1.12-1.22, Sec. 43.007-43.019 and SECTIONS 1.26 and 1.27).  The
bill applies existing provisions relating to conflicts of interest, ethics
in the operation of the fund, and reporting of expenditures to the board
and persons who apply for or receive anything of value as a direct or
indirect result of permanent fund investment (interested person) (SECTIONS
1.02-1.04, Sec. 43.0031-43.0033). The bill sets forth provisions relating
to contracts with a consultant, advisor, broker, money manager, investment
manager, dealer, or other person (consultant) who agrees to provide
services to the board relating to the management or investment of the fund
(SECTION 1.09, Sec.43.0051).  The bill provides that if an interested
person serves as a consultant and fails to disclose a potential conflict of
interest, the arrangement is voidable by the board and the board or the
comptroller of public accounts may declare the person ineligible to
contract for business relating to the management or investment of the
permanent school fund (SECTION 1.05, Sec. 43.0035).  The bill requires the
board to maintain a listing of each interested person on an Internet
website (SECTION 1.05, Sec. 43.0036).  The bill requires the comptroller to
provide to certain organizations any information relating to disciplinary
actions taken by the board against a consultant (SECTION 1.09, Sec.
43.0052).  The bill provides that an interested person may be barred from
contracting with the board for violating an ethics policy or conflict of
interest restriction.  The bill provides for hearings conducted by the
State Office of Administrative Hearings concerning such violations (SECTION
1.05, Sec. 43.0035 and SECTION 1.11, Secs. 43.0062 and 43.0063).  The bill
requires the  legislative audit committee (LAC) to select a qualified
independent firm to evaluate investment management practices and
performance relating to the fund, as often as LAC determines necessary
(SECTION 1.11, Sec. 43.0064).  The bill amends the Education and Government
Codes to require the board and the state auditor to enter into a contract
for the state auditor to investigate any written allegation to the board
raising the issue of malfeasance or misfeasance relating to the management
or investment of the fund (SECTION 1.11, Sec. 43.0061 Education Code and
SECTION 1.25, 321.013 Government Code). 

If the constitutional amendment relating to the investment and management
of the fund is not passed by the voters of the state, then H.B. 2414 amends
the Education Code to create the permanent school fund advisory committee
(committee) composed of nine  members appointed by the governor, the
lieutenant governor, and the speaker of the house to advise SBOE regarding
the management and investment of the fund.  The bill provides that a person
appointed to the committee must possess substantial experience and
expertise in investments (SECTION 2.02, Sec. 43.0012).  The bill extends
existing provisions relating to the ethics policy of the SBOE, conflicts of
interest, and reporting of expenditures to the committee and interested
persons (SECTIONS 2.03 - 2.05, Sec. 43.0031 - 43.0033).  The bill provides
that if an interested person serves as a consultant and fails to disclose a
potential conflict of interest, the arrangement is voidable and SBOE or the
comptroller may declare the person ineligible to contract for business
relating to the management or investment of the fund (SECTION 2.06, Sec.
43.0035).  The bill requires SBOE to maintain a listing of each interested
person on an Internet website (SECTION 2.06, Sec. 43.0036).  The bill sets
forth provisions relating to contracts with a consultant, advisor, broker,
money manager, investment manager, dealer, or other person (consultant) who
agrees to provide services to SBOE relating to the management or investment
of the fund (SECTION 2.06, Sec. 43.0051).  The bill provides that an
interested person may be barred from contracting with SBOE for violating an
ethics policy or conflict of interest restriction (SECTION 2.08, Sec.
43.0061).  The bill provides for hearings conducted by the State Office of
Administrative Hearings concerning such violations (SECTION 2.08, Sec
43.0062).  The bill requires LAC to select a qualified independent firm to
evaluate investment management practices and performance relating to the
fund as often as LAC determines necessary (SECTION 2.08, Sec. 43.0063). The
bill amends the Education and Government Codes to require SBOE and the
state auditor to enter into a contract for the state auditor to investigate
any written allegation to SBOE raising the issue of malfeasance or
misfeasance relating to the management or investment of the fund (SECTION
2.01, Sec. 7.113, Education Code and SECTION 2.15, Sec. 321.013, Government
Code). 

EFFECTIVE DATE

September 1, 2001.  The provisions contingent on the passage or failure to
pass of the constitutional amendment relating to the investment and
management of the fund take effect January 1, 2002.