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).