HBA-DMD H.B. 1673 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1673 By: Pitts State, Federal, & International Relations 3/4/1999 Introduced BACKGROUND AND PURPOSE Texas libraries currently rank 46th in the nation in public library expenditures and 43th in the nation in public library materials expenditures, and there are currently no state or federal sources available to assist local governments with public library construction projects. H.B. 1673 establishes the Texas Public Library Endowment Fund (endowment fund), which will be held by a bank or deposit trust company and will be administered by the Texas State Library and Archives Commission (commission), which will appoint investment managers to invest and manage the endowment fund and establishes beneficiaries for the endowment fund. This bill also establishes the Texas Public Library Fund (library fund) which is a special fund in the state treasury outside of the general fund created from the interest from the endowment fund and the proceeds from items that the commission buys and resells. This bill requires the commission to make grants to local libraries from the library fund. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas State Library and Archives Commission in SECTION 1 (Sections 441.074 and 441.075, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 441, Government Code, by adding Subchapter E, as follows: SUBCHAPTER E. PUBLIC LIBRARY ENDOWMENT AND OPERATING FUNDS Sec. 441.071. TEXAS PUBLIC LIBRARY ENDOWMENT FUND. (a) Establishes the Texas public library endowment fund (endowment fund) as a trust fund outside of the state treasury held by a bank or depository trust company and administered by the Texas State Library and Archives Commission (commission) for the benefit of the public as provided by this section. (b) Sets forth that the endowment fund consists of donations accepted by the commission under Section 441.074. (c) Prohibits the corpus of the endowment fund from being spent for any purpose. (d) Requires the commission to remit all or part of the interest and income earned on money in the endowment fund to the comptroller, no later than September 1 of each year, for deposit in the state treasury to the credit of the library fund. Requires the commission to credit the corpus of the endowment fund any portion of the interest and income not credited to the library fund in the treasury. Sec. 441.072. INVESTMENT AND MANAGEMENT OF ENDOWMENT FUND. (a) Requires the commission to appoint investment managers to manage and invest the endowment fund by contracting for professional investment management services (management services) with one or more organizations that are in the business of managing investments. (b) Requires the commission to act prudently and in the interest of the beneficiaries of the endowment fund when choosing and contracting for management services and when continuing the use of an investment manager. (c) Requires the commission and investment manager, when making and supervising investments of the endowment fund, to discharge their respective duties solely in the interest of the beneficiaries of the endowment fund: (1) for the exclusive purposes of providing benefits for the beneficiaries of the endowment fund and defraying reasonable expenses of administering this chapter; (2) with the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a similar capacity and familiar with matters of the type would use in the conduct of an enterprise with a similar character and aims; (3) by diversifying the investments of the endowment fund to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (4) in accordance with the documents and instruments governing the endowment fund to the extent that the documents and instruments are consistent with this section. (d) Provides that in order for a person to be eligible to be appointed as an investment manager under this section, the person must be registered under 15 U.S.C. Section 80b-1 et seq. (Investment Advisers Act of 1940), as amended; a bank as defined by that Act that has a trust department; or an insurance company qualified to perform investment services under the laws of more than one state. (e) Requires the commission, in a contract made under this section, to specify any policies, requirements, or restrictions, including criteria for determining the quality of investments and for the use of standard rating services, that the commission adopts for investments of the endowment fund. (f) Sets forth that a member of the commission is not liable for the acts or omissions of an investment manager appointed under Subsection (a) and is not permitted or obligated to invest or otherwise manage any asset of the endowment fund that is subject to management by the investment manager. (g) Requires an investment manager appointed under Subsection (a) to acknowledge in writing the manager's fiduciary responsibilities to the endowment fund. (h) Requires the commission to frequently monitor and authorizes the commission at any time to monitor the investments made by each investment manager for the endowment fund. Authorizes the commission to contract for professional evaluation services to fulfill this requirement. (i) Requires the commission to enter into an investment custody account agreement which designates a bank or a depository trust company to serve as custodian for all assets that are allocated to or generated under a contract for management services. (j) Requires the commission, under a custody account agreement, to require the designated custodian to perform the duties and assume responsibilities for the endowment fund that are performed and assumed, in the absence of a contract, by the custodian of the endowment fund. Requires the custodian to furnish to the commission, annually or more frequently if required by commission rule, a sworn statement of the amount of the endowment fund assets in the custodian's custody. (k) Establishes the beneficiaries of the endowment fund as the persons who use public libraries, public library facilities, and public library collections and the public libraries that benefit from the performance of the commission's powers and duties under this chapter. Sec. 441.073. TEXAS PUBLIC LIBRARY FUND. (a) Establishes the Texas public library fund (library fund) as a special fund in the state treasury outside the general revenue fund. (b) Provides that the library fund consists of money credited to the library fund under Section 441.071(d) and proceeds from sales under Section 441.074(d). (c) Authorizes money in the library fund to be appropriated only to the commission to perform the commission's powers and duties concerning public library development under this chapter and to pay the commission's expenses incurred under this subchapter. (d) Exempts the library fund from the application of Sections 403.095 (Use of Dedicated Revenue) and 404.071 (Disposition of Interest on Investments). Requires interest and income from deposit and investment of money in the library fund to be allocated monthly to the library fund. Sec. 441.074. DONATIONS, APPROPRIATIONS, AND SALES. (a) Authorizes the commission to solicit and accept on behalf of the state donations of money, securities, and other property as it determines best further the orderly development of public library resources of the state. Requires money that is paid to the commission under this subsection to be deposited in the endowment fund. (b) Requires the commission, by rule, to establish an acquisition policy for accepting donations of money, securities, and other property. (c) Authorizes the legislature to make appropriations to the commission to carry out the purposes of this chapter. (d) Authorizes the commission to purchase and resell items it determines appropriate for the promotion of public libraries in this state. Prohibits the value of commission inventory, as determined by generally accepted accounting principles, from exceeding $50,000 at the end of any fiscal year. Requires the net profits from those sales to be deposited in the library fund. Sec. 441.075. PUBLIC LIBRARY FUND GRANT PROGRAM. (a) Requires the commission to make grants to public libraries from the library fund for facility construction projects, acquisition of books and other collection development materials, and payment of actual and reasonable general and administrative expenses. Requires the commission to allocate amounts from the library fund to direct and matching grant programs. (b) Requires the commission to adopt rules establishing methods for participation by local governments in a matching grant program for facility construction projects and providing allocations for a direct grant program for the acquisition of books and other collection development materials according to a formula that allocates a base grant to each participating public library plus an amount that is proportional to the size of the population served. (c) Provides that a public library must maintain a level of local public library funding equal to or greater than the average funding for the three years preceding participation, in order to participate in a grant program under this section. Requires commission to adopt rules to implement this requirement. SECTION 2. Amends Section 404.093(b), Government Code, to establish that this subchapter does not apply to funds, grants, donations, and proceeds from funds, grants, and donations, given in trust to the commission for the establishment and maintenance of regional historical resource depositories and libraries in accordance with Section 441.154 (Regional Research Centers), rather than 441.074. SECTION 3.Effective date: September 1, 1999. SECTION 4. Emergency clause.