April 2018 Committee on School Finance/Permanent School Fund Item 8
Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules,
§33.5, Code of Ethics
(Second Reading and Final Adoption)
April 13, 2018
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION
SUMMARY: This item presents for second reading and final adoption proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics. The proposed amendment would improve and clarify how the rule applies to investments of the Permanent School Fund (PSF) in investment funds. No changes are recommended since approved for first reading.
STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.102(c)(31) and (33), 43.0031-43.0034, and 43.004; Texas Government Code, §2263.004; and the Texas Constitution, Article VII, §5(a)(2), (d), and (f).
TEC, §7.102(c)(31), states that the State Board of Education (SBOE) may invest the PSF within the limits of the authority granted by the Texas Constitution, Article VII, §5, and the TEC, Chapter 43.
TEC, §7.102(c)(33), authorizes the SBOE to adopt an annual report on the status of the guaranteed bond program and states that the SBOE may adopt rules as necessary to administer the guaranteed bond program as provided under the TEC, Chapter 45, Subchapter C.
TEC, §43.0031, requires the SBOE to adopt and enforce an ethics policy regarding management and investment of the PSF.
TEC, §43.0032, requires disclosure of certain relationships with entities that provide services relating to the management and investment of the PSF, requires the board to define those relationships, and prohibits giving advice when relationships exist in certain circumstances.
TEC, §43.0033, requires certain persons providing services to the SBOE regarding management and investment of the PSF to file expenditure reports.
TEC, §43.0034, requires the SBOE to prescribe forms for statements of possible conflicts of interest and waivers of possible conflicts of interest under the TEC, §43.0032, and reports of expenditures under the TEC, §43.0033.
TEC, §43.004, requires the SBOE to adopt written investment objectives for the PSF and employ a service to analyze the performance of the PSF.
Texas Government Code, §2263.004, requires the SBOE to adopt by rule standards of conduct applicable to certain financial advisors or service providers.
Texas Constitution, Article VII, §5, describes the PSF, the limit on distributions to the Available School Fund, the setting of spending rates by the SBOE, and the ten-year distribution test; authorizes a bond guarantee utilizing the PSF; and describes the management of the PSF by the SBOE.
EFFECTIVE DATE: The proposed effective date of the proposed amendment is 20 days after filing as adopted with the Texas Register in order to implement the latest policy in a timely manner. Under TEC, §7.102(f), the SBOE must approve the rule action at second reading and final adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2018-2019 school year.
PREVIOUS BOARD ACTION: The SBOE adopted 19 TAC §33.5 effective September 1, 1996, and last amended it effective August 21, 2016. A discussion item on the proposed amendment was presented to the Committee on School Finance/Permanent School Fund at the November 2017 SBOE meeting. The SBOE approved the proposed amendment for first reading and filing authorization at the January-February 2018 meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: In accordance with statute, the rules in 19 TAC Chapter 33 establish investment objectives, policies, and guidelines for the Texas Permanent School Fund.
Section 33.5 describes the code of ethics and disclosures, including prescribed forms that apply to members, relevant staff, and service providers, regarding the management of the PSF as required by statute.
The proposed amendment to 19 TAC §33.5 would update the definition of PSF Service Provider to separately define Fund Manager. Reference to and provisions pertaining to Fund Manager would be updated throughout the rule.
Additionally, the proposed amendment would remove in subsection (n)(2)(J) the expenditure report entitled "Report of Expenditures of Persons Providing Services to the State Board of Education Relating to the Management and Investment of the Permanent School Fund" from rule. Annual reports would be filed in the format specified by the PSF staff.
No changes are recommended since approved for first reading.
In accordance with the TEC, §43.0031(c), a copy of the proposed amendment to 19 TAC §33.5 was submitted to the Texas Ethics Commission and the State Auditor's Office for review and comment following SBOE approval of the proposed amendment for first reading and filing authorization at the January-February 2018 meeting. The SBOE is to consider any comments from the commission or state auditor received prior to final adoption. At the time this item was prepared, however, no formal comments had been received from the Texas Ethics Commission or the State Auditor's Office. Any comments received will be provided to the SBOE at the April 2018 meeting.
FISCAL IMPACT: The Texas Education Agency (TEA) has determined that there are no additional costs to persons or entities required to comply with the proposed amendment. In addition, there is no direct adverse economic impact for small businesses, microbusinesses, or rural communities; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required. There is no effect on local economy for the first five years that the proposed amendment is in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022. The proposed amendment does not impose a cost on regulated persons and, therefore, is not subject to Texas Government Code, §2001.0045.
GOVERNMENT GROWTH IMPACT: TEA staff has determined that the proposed amendment does not have a government growth impact pursuant to Texas Government Code, §2001.0221.
PUBLIC AND STUDENT BENEFIT: The distribution of the PSF will flow to the school districts and reduce the tax burden to the public and the State of Texas. The proposed amendment would update and clarify provisions supporting the management and investment of the PSF.
PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendment would have no procedural and reporting implications.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would have no locally maintained paperwork requirements.
PUBLIC COMMENTS: Following the January-February 2018 SBOE meeting, notice of the proposed amendment was filed with the Texas Register, initiating the public comment period. No public comments had been received at the time this item was prepared. A summary of any public comments received regarding the proposal will be provided to the SBOE during the April 2018 meeting.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: None.
MOTION TO BE CONSIDERED: The State Board of Education:
By an affirmative vote of two-thirds of the members of the board, approve for second reading and final adoption the proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics, with an effective date of 20 days after filing as adopted with the Texas Register.
Staff Member Responsible:
Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund
Attachments:
I. Statutory Citations (PDF, 30 KB)
II. Text of Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics (PDF, 80 KB)
§33.5, Code of Ethics
(Second Reading and Final Adoption)
April 13, 2018
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION
SUMMARY: This item presents for second reading and final adoption proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics. The proposed amendment would improve and clarify how the rule applies to investments of the Permanent School Fund (PSF) in investment funds. No changes are recommended since approved for first reading.
STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.102(c)(31) and (33), 43.0031-43.0034, and 43.004; Texas Government Code, §2263.004; and the Texas Constitution, Article VII, §5(a)(2), (d), and (f).
TEC, §7.102(c)(31), states that the State Board of Education (SBOE) may invest the PSF within the limits of the authority granted by the Texas Constitution, Article VII, §5, and the TEC, Chapter 43.
TEC, §7.102(c)(33), authorizes the SBOE to adopt an annual report on the status of the guaranteed bond program and states that the SBOE may adopt rules as necessary to administer the guaranteed bond program as provided under the TEC, Chapter 45, Subchapter C.
TEC, §43.0031, requires the SBOE to adopt and enforce an ethics policy regarding management and investment of the PSF.
TEC, §43.0032, requires disclosure of certain relationships with entities that provide services relating to the management and investment of the PSF, requires the board to define those relationships, and prohibits giving advice when relationships exist in certain circumstances.
TEC, §43.0033, requires certain persons providing services to the SBOE regarding management and investment of the PSF to file expenditure reports.
TEC, §43.0034, requires the SBOE to prescribe forms for statements of possible conflicts of interest and waivers of possible conflicts of interest under the TEC, §43.0032, and reports of expenditures under the TEC, §43.0033.
TEC, §43.004, requires the SBOE to adopt written investment objectives for the PSF and employ a service to analyze the performance of the PSF.
Texas Government Code, §2263.004, requires the SBOE to adopt by rule standards of conduct applicable to certain financial advisors or service providers.
Texas Constitution, Article VII, §5, describes the PSF, the limit on distributions to the Available School Fund, the setting of spending rates by the SBOE, and the ten-year distribution test; authorizes a bond guarantee utilizing the PSF; and describes the management of the PSF by the SBOE.
EFFECTIVE DATE: The proposed effective date of the proposed amendment is 20 days after filing as adopted with the Texas Register in order to implement the latest policy in a timely manner. Under TEC, §7.102(f), the SBOE must approve the rule action at second reading and final adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2018-2019 school year.
PREVIOUS BOARD ACTION: The SBOE adopted 19 TAC §33.5 effective September 1, 1996, and last amended it effective August 21, 2016. A discussion item on the proposed amendment was presented to the Committee on School Finance/Permanent School Fund at the November 2017 SBOE meeting. The SBOE approved the proposed amendment for first reading and filing authorization at the January-February 2018 meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: In accordance with statute, the rules in 19 TAC Chapter 33 establish investment objectives, policies, and guidelines for the Texas Permanent School Fund.
Section 33.5 describes the code of ethics and disclosures, including prescribed forms that apply to members, relevant staff, and service providers, regarding the management of the PSF as required by statute.
The proposed amendment to 19 TAC §33.5 would update the definition of PSF Service Provider to separately define Fund Manager. Reference to and provisions pertaining to Fund Manager would be updated throughout the rule.
Additionally, the proposed amendment would remove in subsection (n)(2)(J) the expenditure report entitled "Report of Expenditures of Persons Providing Services to the State Board of Education Relating to the Management and Investment of the Permanent School Fund" from rule. Annual reports would be filed in the format specified by the PSF staff.
No changes are recommended since approved for first reading.
In accordance with the TEC, §43.0031(c), a copy of the proposed amendment to 19 TAC §33.5 was submitted to the Texas Ethics Commission and the State Auditor's Office for review and comment following SBOE approval of the proposed amendment for first reading and filing authorization at the January-February 2018 meeting. The SBOE is to consider any comments from the commission or state auditor received prior to final adoption. At the time this item was prepared, however, no formal comments had been received from the Texas Ethics Commission or the State Auditor's Office. Any comments received will be provided to the SBOE at the April 2018 meeting.
FISCAL IMPACT: The Texas Education Agency (TEA) has determined that there are no additional costs to persons or entities required to comply with the proposed amendment. In addition, there is no direct adverse economic impact for small businesses, microbusinesses, or rural communities; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required. There is no effect on local economy for the first five years that the proposed amendment is in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022. The proposed amendment does not impose a cost on regulated persons and, therefore, is not subject to Texas Government Code, §2001.0045.
GOVERNMENT GROWTH IMPACT: TEA staff has determined that the proposed amendment does not have a government growth impact pursuant to Texas Government Code, §2001.0221.
PUBLIC AND STUDENT BENEFIT: The distribution of the PSF will flow to the school districts and reduce the tax burden to the public and the State of Texas. The proposed amendment would update and clarify provisions supporting the management and investment of the PSF.
PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendment would have no procedural and reporting implications.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would have no locally maintained paperwork requirements.
PUBLIC COMMENTS: Following the January-February 2018 SBOE meeting, notice of the proposed amendment was filed with the Texas Register, initiating the public comment period. No public comments had been received at the time this item was prepared. A summary of any public comments received regarding the proposal will be provided to the SBOE during the April 2018 meeting.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: None.
MOTION TO BE CONSIDERED: The State Board of Education:
By an affirmative vote of two-thirds of the members of the board, approve for second reading and final adoption the proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics, with an effective date of 20 days after filing as adopted with the Texas Register.
Staff Member Responsible:
Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund
Attachments:
I. Statutory Citations (PDF, 30 KB)
II. Text of Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics (PDF, 80 KB)