HBA- MSH, JEK C.S.S.B. 512 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.S.B. 512
By: Duncan
Public Education
5/17/2001
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Under current law, the State Board of Education (SBOE) is responsible for
the investments of the permanent school fund (PSF).  The members of SBOE
are not required to possess any investment expertise, which makes it more
difficult to manage the fund with prudence and to avoid conflicts of
interest. A committee of persons with expertise in institutional fund
investments would be better qualified to manage the investments of the PSF.
C.S.S.B. 512 establishes a permanent school fund investment advisory
committee to advise SBOE regarding the management of the PSF. 

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. 

ANALYSIS

C.S.S.B. 512 amends the Education Code to create the permanent school fund
advisory committee (committee) composed of nine members, three each
appointed by the governor, the lieutenant governor, and the speaker of the
house.  The bill requires the committee to advise the State Board of
Education (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 (Sec. 43.0012). The
bill amends existing provisions relating to the ethics policy of SBOE,
conflicts of interest, and reporting of expenditures to include the
committee and interested persons (Secs. 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 (Sec. 43.0035). The
bill requires SBOE to maintain a listing of each interested person on an
Internet website (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 (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 (Sec. 43.0061). The bill provides for hearings
conducted by the State Office of Administrative Hearings concerning such
violations (Sec 43.0062). The bill requires the legislative audit committee
to select a qualified independent firm to evaluate investment management
practices and performance relating to the fund as often as the audit
committee determines necessary (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 (Sec. 7.113, Education Code and
Sec. 321.013, Government Code). 

The bill amends the Education Code to repeal provisions governing the
investment of the fund in certain types of securities (SECTION 2.01).  The
bill authorizes SBOE to determine the frequency of reports filed by a
nonprofit corporation under contract to invest funds under the control and
management of SBOE (Sec. 43.006). 

 EFFECTIVE DATE

September 1, 2001.

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 512 differs from the original by amending the Education Code to
modify the membership of the permanent school fund (PSF) investment
advisory committee (committee) and provides that members serve at the will
of the members appointing authority (Sec. 43.0012). The substitute removes
provisions relating to the terms of members and removal from the committee
for good cause.  The substitute amends provisions relating to the ethics
policy of SBOE, conflict of interest, and reports of expenditures to
include interested persons (Sec. 43.0031-43.0033).  The substitute removes
provisions that prohibited the employment or compensation of a lobbyist and
provisions requiring SBOE to meet and act as a body corporate on investment
decisions. 

The substitute adds provisions relating to failure by interested persons to
disclose conflicts of interest, listing information regarding interested
persons on an Internet website, contract requirements, investigations of
interested persons, barring persons from contracting to provide service
relating to PSF, hearings by the State Office of Administrative Hearings,
management and performance audits, and repeals provisions governing the
investments of the PSF in certain types of securities (Sec. 7.113, 43.0035,
43.0036, 43.0051, 43.052, 43.0061-43.0063, Education Code, Section 2.01 and
Sec. 321.013, Government Code).  The substitute authorizes SBOE to
determine the frequency of reports filed by a nonprofit corporation
investing funds under contract with SBOE (Sec. 43.006).