HBA-NMO, ALS H.B. 1161 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1161 By: Junell Appropriations 10/29/1999 Enrolled BACKGROUND AND PURPOSE On March 28, 1996, the attorney general filed suit against the tobacco industry on behalf of the State of Texas, which resulted in a 1998 settlement agreement in which the tobacco industry agreed to pay the state $15 billion over the next 25 years. Subsequent to the settlement, several legal challenges were filed to ensure the deposit of the settlement proceeds into the state treasury, to preserve the authority of the legislature to appropriate the funds, and to ensure the allocation of some of the proceeds into counties and hospital districts with indigent care responsibilities. On February 3, 1998, an agreement was reached between the attorney general and Representative Robert Junell and Senator Bill Ratliff to deposit the proceeds into the treasury for appropriation by the legislature. On July 24, 1998, an agreement was reached between the attorney general and certain counties and hospital districts to preserve the entire amount of the original $15 billion for the benefit of the State of Texas. Under this agreement, the parties agreed that future payments pursuant to the "Most Favored Nation" provision of the settlement agreement, totaling $2.275 billion, would be used for the benefit of counties and hospital districts. The purpose of H.B.1161, H.B. 1676, and H.B. 1945 is to provide for the implementation of these two agreements. H.B. 1161 provides for the implementation of the "Agreement Regarding Disposition of Settlement Proceeds" between the attorney general and certain counties and hospital districts. This bill establishes the tobacco settlement permanent trust account (account) with the comptroller, who is required to administer and manage the assets of the account under the advice of and in consultation with the appointed tobacco settlement permanent trust account investment advisory committee (investment committee). This bill establishes the comptroller's powers and fiduciary duties regarding the management and investment of the account. Under this bill, the comptroller is required to make annual distributions to each eligible political subdivision; is required to prepare and distribute annual reports regarding the account assets and investments; and is granted rulemaking authority to implement those duties. H.B. 1161 specifies the manner in which the members of the investment committee are to be appointed, and provides for the appointment of an initial tobacco settlement permanent trust account investment advisory committee. H.B. 1161 requires the Texas Department of Health (department) to collect information regarding the amount of each political subdivision's unreimbursed health care expenditures, and to certify to the comptroller the percentage payable from the account to each political subdivision. This bill grants the department authority to adopt rules governing the collection of such information and rules providing for regular audits of political subdivision. This bill grants the Texas Board of Health (board) authority to adopt rules under which a political subdivision or agency of the state may dispute collected information and rules which provide for monetary penalties against political subdivisions that overstate expenditures. H.B. 1161 creates a tobacco settlement permanent trust account administration advisory committee (administration committee) to advise the board on the implementation of the department's duties, and provides for the appointment the administration committee's members. This bill requires the administration committee to annually review specified audit results and rules adopted by the board. In addition, this bill creates the initial administration committee and provides for the appointment of its members. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts in SECTION 1.01 (Section 403.1041, Government Code) and to the Texas Board of Health in SECTION 2.01 (Sections 12.133 and 12.134, Health and Safety Code) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. DUTIES OF THE COMPTROLLER SECTION 1.01. Amends Subchapter G, Chapter 403, Government Code, by adding Sections 403.1041, 403.1042, and 403.1043, as follows: Sec. 403.1041. TOBACCO SETTLEMENT PERMANENT TRUST ACCOUNT. (a) Defines "account," "advisory committee," "agreement," "department," and "political subdivision." (b) Requires the comptroller to administer and manage the assets of the tobacco settlement permanent trust account (account) with the advice of and in consultation with the tobacco settlement permanent trust account investment advisory committee (investment committee). (c) Authorizes the comptroller, in managing the assets of the account, to acquire, exchange, sell, supervise, manage, or retain any investment using the specified fiduciary standard of care. Provides that investment and management decisions concerning individual investments must be evaluated in the context of the whole investment portfolio and as part of an overall investment strategy consistent with the investment objectives of the account. (d) Provides that the account is a trust account with the comptroller and is composed of money paid into the account pursuant to the agreement, assets purchased with that money, earnings of the account, and contributions made to the account. Requires that the corpus of the account remain in the account and prohibits its distribution for any purpose. Provides that the money and assets contained in the account are not part of the state's general funds. Authorizes the comptroller to appoint specified entities as a custodian of the account's assets. Provides that Section 404.071 (Disposition of Interest on Investments), Government Code does not apply to the account. (e) Authorizes the comptroller with the advice and consultation of the investment committee, to use the account's earnings for any investment expense. (f) Requires the comptroller upon certification by the department under Subchapter J, Chapter 12, Health and Safety Code, to make an annual distribution of the net earnings from the account to each eligible political subdivision according to the Agreement Regarding Disposition of Settlement Proceeds filed on July 24, 1998, in the United States District Court, Eastern District of Texas, in the case styled The State of Texas v. The American Tobacco Co., et al., No. 5-96CV-91 (agreement) regarding settlement proceeds. (g) Requires the comptroller to prepare by December 1 of each year, a written report regarding the account during the fiscal year ending on the preceding August 31; to distribute the report to the investment committee, the governor, the lieutenant governor, the state auditor, the attorney general and the Legislative Budget Board no later than January 1 of each year; and to furnish a copy of the report to any member of the legislature or other interested person upon request. Provides that the report must contain specified information. (h) Requires the comptroller to adopt rules to implement the comptroller's duties under this section, including rules distinguishing the net earnings of the account that may be distributed pursuant to specified subsections. Provides that an adopted rule of the comptroller must be submitted to the investment committee and approved by the investment committee before it can become effective. Requires the investment committee to provide the comptroller the specific reasons for its disapproval of a proposed rule. Sec. 403.1042. TOBACCO SETTLEMENT PERMANENT TRUST ACCOUNT INVESTMENT ADVISORY COMMITTEE. (a) Requires the investment committee to advise the comptroller regarding the management of the assets of the account. Requires the committee to provide the comptroller specified guidance relating investment philosophy in managing the assets and the maximization of corpus growth and earnings. Provides that the committee serves in an advisory capacity only and is not a fiduciary concerning the account, except as provided by Section 403.1041(h). (b) Provides that the investment committee is composed of 11 members and specifies the manner in which the committee appoints those members. (c) Provides that a commissioners court that sets the tax rate for a hospital district must approve a person who is nominated by the hospital district to serve on the investment committee. (d) Requires the investment committee to elect committee officers from the committee members. (e) Provides that investment committee members serve staggered six-year terms expiring on August 31 of each odd-numbered year. (f) Requires an individual or entity authorized to make an appointment or nominate someone for appointment to the investment committee created under this section to attempt to appoint or nominate persons who represent the gender composition, minority populations, and geographic regions of the state. (g) Provides that investment committee members serve without compensation from the trust fund or the state and prohibits reimbursement for travel expense incurred while conducting committee business. (h) Requires the comptroller to provide the committee the administrative support and resources that are needed to perform the committee's duties under Section 403.1041. (i) Provides that Chapter 2110 (State Agency Advisory Committees), Government Code, does not apply to the committee. Sec. 403.1043. RESTRICTIONS ON LOBBYING EXPENDITURES. (a) Prohibits a political subdivision receiving a distribution under Section 403.1041(f) from using the distribution to pay certain lobbying expenses incurred by the recipient of the distribution or certain persons or entities associated with lobbying. (b) Provides that the persons or entities described by Subsection (a) are not eligible to receive the money or participate either directly or indirectly in the distributions made under Section 403.1041(f). SECTION 1.02. (a) Provides that the initial investment committee is composed of 11 members and specifies the manner in which those members are appointed, notwithstanding Section 403.1042(b). (b)-(i) Requires the investment committee to appoint successor members of the committee on the expiration of the terms of the members appointed under Subsection (a) of this section in accordance with Section 403.1042(b), Government Code, as added by this Act. SECTION 1.03. Requires each appointing authority to make the appointment to the tobacco settlement permanent committee under Section 1.02(a) of this Act and requires the comptroller to notify the appointees of the time and place of the first committee meeting, no later than the 30th day after this Act's effective date. ARTICLE 2. DUTIES OF THE TEXAS DEPARTMENT OF HEALTH SECTION 2.01. Amends Chapter 12, Health and Safety Code, by adding Subchapter J, as follows: SUBCHAPTER J. TOBACCO SETTLEMENT PROCEEDS Sec. 12.131. DEFINITIONS. Defines "account," "advisory committee," "agreement," and "political subdivision." Sec. 12.132. CERTIFICATION TO COMPTROLLER. Requires the Texas Department of Health (department) to collect information relating to the unreimbursed health care expenditures of each political subdivision and to certify to the comptroller the percentage of each annual distribution to be paid from the account to each political subdivision based on that information and by using the formula in Paragraph 5.B. of the agreement. Sec. 12.133. COLLECTION OF INFORMATION. (a) Requires each political subdivision to submit to the department information relating to the unreimbursed expenditures and information that is required by the department to make the certification under Section 12.132, in the manner and time required by the department. (b) Requires the Texas Board of Health (board) to adopt rules governing the collection of information under Subsection (a), subject to the approval of the tobacco settlement permanent trust account administration advisory committee (administration committee). Authorizes the rules to provide for regular audits of the randomly selected political subdivisions and to govern the manner in which a political subdivision and auditor is chosen. Sec. 12.134. DISPUTES RELATING TO INFORMATION COLLECTED. (a) Requires the board to adopt rules under which a political subdivision or state agency may dispute submitted information under Section 12.133, subject to the administration committee's approval. (b) Authorizes the rules to provide for an audit of the political subdivision that submitted disputed information; the payment of the cost of the audit by the party who does not prevail in the dispute; a filing deadline for a dispute for a particular year; and a reasonable monetary penalty to be applied to a subsequent annual distribution made to a political subdivision that is found to have overstated unreimbursed health care expenditures under Section 12.133. (c) Prohibits the monetary penalty from exceeding 10 percent of the amount of the overstatement of the unreimbursed health care costs. (d) Provides that a dispute under this section is a contested case for purposes of Chapter 2001, Government Code. Sec. 12.135. EFFECT OF DISPUTE. Provides that a dispute that is filed under the adopted department rules does not affect the percentage of the annual distribution of the earnings from the account to be paid to the political subdivision for the year for which the disputed information was submitted. Sec. 12.136. ADJUSTMENT FOLLOWING AUDIT. (a) Requires the department to report a finding made after an audit that a political subdivision has overstated unreimbursed health care expenditures for any year to the comptroller and is required to reduce that political subdivision's percentage of the subsequent annual distribution of the earnings from the account accordingly. (b) Requires the department to reduce the political subdivision's percentage of the subsequent annual distribution of the earnings for the account accordingly, if a monetary penalty is applied under Section 12.134. (c) Requires the department to report the amount of a political subdivision's assessed cost of an audit to the comptroller, and authorizes the comptroller to withhold that amount from the political subdivision's subsequent annual distribution. Authorizes the comptroller to use the withheld amount to reimburse the general revenue fund for the cost of the audit. Sec.12.137. TOBACCO SETTLEMENT PERMANENT TRUST ACCOUNT ADMINISTRATION ADVISORY COMMITTEE. (a) Requires the administration committee to advise the board on the implementation of the department's duties under this subchapter. (b) Provides that the administration committee is composed of 11 members that are appointed by the administration committee and specifies the manner in which the members are appointed. (c) Provides that a commissioners court which sets the tax rate for a hospital district must approve a person nominated by the hospital district to serve on the administration committee. (d) Requires the administration committee to elect the committee officers from the committee members. (e) Authorizes the administration committee to act only on the affirmative votes of eight committee members. (f) Provides that the administration committee members serve staggered six-year terms which expire on August 31 of each odd-numbered year. (g) Requires administration committee appointments to be made without regard to race, color, disability, sex, religion, age, or national origin. (h) Prohibits an administration committee member from receiving compensation from the trust fund or the state for serving on the administration committee and from being reimbursed from the trust fund or the state for travel expense incurred during administration committee business. (i) Requires the department to provide administrative support and resources to the administration committee needed to perform its duties under this subchapter. (j) Provides that Chapter 2110, Government Code, does not apply to the administration committee. Sec. 12.138. APPROVAL OF RULES. Provides that a rule that is to be adopted by the board and which relates to certification of a percentage of an annual distribution under Section 12.132 or collection of information under Sections 12.132 through 12.134 must be submitted to the administration committee, and is prohibited from becoming effective before it is approved by the administration committee. Requires the administration committee to provide specific reasons for its disapproval of a proposed rule to the board. Sec. 12.139. ANNUAL REVIEW. Requires the administration committee to annually review the audit results conducted under this subchapter and the results of any dispute filed under Section 12.134, and to review the rules adopted by the board under this subchapter and to propose amendments to those rules that the committee considers necessary. SECTION 2.02. (a) Provides that the administration committee is composed of 11 members and specifies the manner in which those members are chosen, notwithstanding Section 12.137(b), Health and Safety Code, as added by this Act. (b)-(i) Requires the administration committee to appoint successor members of the committee on the expiration of the terms of the members appointed under Subsection (a) in accordance with Section 12.137(b), Health and Safety Code, as added by this Act. SECTION 2.03. Requires each appointing authority to make the appointment to the administration committee under Section 2.02(a) of this Act and requires the commissioner of public health to notify the appointees of the time and place of the first administration committee meeting, no later than the 30th day after this Act's effective date. SECTION 2.04. (a) Defines "account," "agreement," and "lump sum trust account." (b) Authorizes the department to collect information under Section 12.133, Health and Safety Code, as amended by this Act, and to make the certification under Section 12.132, Health and Safety Code, as amended by this Act, with respect to the pro rata lump sum distributions to be made in 2000 and 2001, pursuant to Paragraph 5.B. of the agreement. (c) Provides that Subchapter J, Chapter 12, Health and Safety Code, as added by this Act, applies to the information collected under this section in the same manner that it applies to information collected with respect to distributions to be made from the account. (d) Requires the subsequent year's applicable percentage of the total distribution to a political subdivision to be appropriately reduced to the extent that the board finds an overstatement of unreimbursed health care expenditures in accordance with Section 12.136, Health and Safety Code, as added by this Act. (e) Provides that this section expires on December 31, 2002. ARTICLE 3. EMERGENCY SECTION 3.01. Emergency clause. Effective date: upon passage.