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  H.B. No. 3699
 
 
 
 
AN ACT
  relating to the management of public school land and the investment
  of the permanent school fund.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Sections 51.011(a) and (a-1), Natural Resources
  Code, are amended to read as follows:
         (a)  Any land, mineral or royalty interest, real estate
  investment, or other interest, including revenue received from
  those sources, that is set apart to the permanent school fund under
  the constitution and laws of this state together with the mineral
  estate in riverbeds, channels, and the tidelands, including
  islands, shall be subject to the sole and exclusive management and
  control of the school land board and the commissioner under the
  provisions of this chapter and other applicable law.
         (a-1)  The board may acquire, sell, lease, trade, improve,
  maintain, protect, or otherwise manage, control, or use land,
  mineral and royalty interests, real estate investments, or other
  interests, including revenue received from those sources, that are
  [is] set apart to the permanent school fund in any manner, at such
  prices, and under such terms and conditions as the board finds to be
  in the best interest of the fund.
         SECTION 2.  Section 51.121(b), Natural Resources Code, is
  amended to read as follows:
         (b)  Improvements [Commercial improvements] on land leased
  under Subsection (a) [of this section] shall be removed prior to the
  expiration of the lease unless the commissioner determines it to be
  in the best interest of the state that removal of the improvements
  not be required and includes a provision in the terms and conditions
  of the lease that the [a renewal or an extension of the lease has
  been finalized prior to the expiration of the term of the lease. If
  commercial improvements are not removed prior to the expiration of
  the lease and if there has been no renewal or extension prior to the
  expiration of the lease, then the commercial] improvements on the
  land shall become property of the state upon termination or
  expiration of the lease.
         SECTION 3.  The heading to Section 51.401, Natural Resources
  Code, is amended to read as follows:
         Sec. 51.401.  REAL ESTATE SPECIAL FUND ACCOUNT.
         SECTION 4.  Sections 51.401(a) and (b), Natural Resources
  Code, are amended to read as follows:
         (a)  The board may designate funds received from any land,
  mineral or royalty interest, real estate investment, or other
  interest, including revenue received from those sources, that is
  set apart to the permanent school fund under the constitution and
  laws of this state together with the mineral estate in riverbeds,
  channels, and the tidelands, including islands, [the sale of
  permanent school fund land under this chapter and the proceeds of
  future mineral leases and royalties generated from existing and
  future leases of permanent school fund mineral interests received
  under Chapters 52 and 53] for deposit in the real estate [a] special
  fund account of the permanent school fund in the State Treasury to
  be used by the board as provided by this subchapter.
         (b)  The real estate special fund account must be an
  interest-bearing account, and the interest received on the account
  shall be deposited in the State Treasury to the credit of the real
  estate special fund account of the permanent school fund.
         SECTION 5.  Section 51.402, Natural Resources Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (b-1) to read as follows:
         (a)  The board may use the money designated under Section
  51.401 for any of the following purposes:
               (1)  to add to a tract of public school land to form a
  tract of sufficient size to be manageable;
               (2)  to add contiguous land to public school land;
               (3)  to acquire, as public school land, interests in
  real property for biological, commercial, geological, cultural, or
  recreational purposes;
               (4)  to acquire mineral and royalty interests for the
  use and benefit of the permanent school fund;
               (5)  to protect, maintain, or enhance the value of
  public school land;
               (6)  to acquire interests in real estate; [or]
               (7)  to pay reasonable fees for professional services
  related to a permanent school fund investment; or
               (8)  to acquire, sell, lease, trade, improve, maintain,
  protect, or use land, mineral and royalty interests, or real estate
  investments, an investment or interest in public infrastructure, or
  other interests, at such prices and under such terms and conditions
  the board determines to be in the best interest of the permanent
  school fund.
         (b)  Before using funds under Subsection (a), the board must
  determine, using the prudent investor standard, that the use of the
  funds for the intended purpose is authorized by Subsection (a) and
  in the best interest of the permanent school fund. A determination
  by the board on the use of funds under this section is conclusive
  unless the determination was made as a result of fraud or obvious
  error.
         (b-1)  The board may confer with one or more employees of the
  board or with a third party regarding an investment or potential
  investment in real estate, including the acquisition or potential
  acquisition of interests in real estate, to the extent permitted to
  the board of trustees of the Texas growth fund under Section
  551.075, Government Code.
         SECTION 6.  Section 51.4021, Natural Resources Code, is
  amended to read as follows:
         Sec. 51.4021.  APPOINTMENT OF SPECIAL FUND MANAGERS,
  INVESTMENT CONSULTANTS, OR ADVISORS.  (a)  The board may appoint
  investment managers, consultants, or advisors to invest or assist
  the board in investing the money designated under Section 51.401 by
  contracting for professional investment management or investment
  advisory services with one or more organizations that are in the
  business of managing or advising on the management of real estate
  investments.
         (b)  To be eligible for appointment under this section, an
  investment manager, consultant, or advisor shall agree to abide by
  the [must be:
               [(1)     registered under the Investment Advisers Act of
  1940 (15 U.S.C. Section 80b-1 et seq.);
               [(2)  a bank as defined by that Act; or
               [(3)     an insurance company qualified to perform real
  estate investment services under the laws of more than one state.
         [(c)     In a contract under this section, the board shall
  specify any] policies, requirements, or restrictions, including
  ethical standards and disclosure policies and criteria for
  determining the quality of investments and for the use of standard
  rating services, that the board adopts for real estate investments
  of the permanent school fund. Money designated under Section
  51.401 may not be invested in a real estate investment trust, as
  defined by Section 200.001, Business Organizations Code.
         (c) [(d)]  Compensation paid to an investment manager,
  consultant, or advisor by the board must be consistent with the
  compensation standards of the investment industry and compensation
  paid by similarly situated institutional investors.
         (d) [(e)]  Chapter 2263, Government Code, applies to
  investment managers, consultants, or advisors appointed under this
  section. The board by rule shall adopt standards of conduct for
  investment managers, consultants, or advisors appointed under this
  section as required by Section 2263.004, Government Code, and shall
  implement the disclosure requirements of Section 2263.005 of that
  code.
         SECTION 7.  Section 51.412(a), Natural Resources Code, is
  amended to read as follows:
         (a)  Not later than September 1 of each even-numbered year,
  the board shall submit to the legislature a report that,
  specifically and in detail, assesses the direct and indirect
  economic impact, as anticipated by the board, of the investment of
  funds designated under Section 51.401 for deposit in the real
  estate special fund account of the permanent school fund. The board
  may not disclose information under this section that is
  confidential under applicable state or federal law. The report
  must include the following information:
               (1)  the total amount of money designated by Section
  51.401 for deposit in the real estate special fund account of the
  permanent school fund that the board intends to invest;
               (2)  the rate of return the board expects to attain on
  the investment;
               (3)  the amount of money the board expects to
  distribute to the available school fund or the State Board of
  Education for investment in the permanent school fund after making
  the investments;
               (4)  the distribution of the board's investments by
  county;
               (5)  the effect of the board's investments on the level
  of employment, personal income, and capital investment in the
  state; and
               (6)  any other information the board considers
  necessary to include in the report.
         SECTION 8.  Subchapter I, Chapter 51, Natural Resources
  Code, is amended by adding Section 51.413 to read as follows:
         Sec. 51.413.  TRANSFERS FROM THE REAL ESTATE SPECIAL FUND
  ACCOUNT TO THE AVAILABLE SCHOOL FUND AND THE PERMANENT SCHOOL FUND.  
  The board may, by a resolution adopted at a regular meeting, release
  from the real estate special fund account funds previously
  designated under Section 51.401 of this chapter or managed, used,
  or encumbered under Section 51.402 or Section 51.4021 of this
  chapter to be deposited in the State Treasury to the credit of:
               (1)  the available school fund; or
               (2)  the State Board of Education for investment in the
  permanent school fund.
         SECTION 9.  Chapter 43, Education Code, is amended to add
  Section 43.0051 to read as follows:
         Sec. 43.0051.  TRANSFERS TO REAL ESTATE SPECIAL FUND ACCOUNT
  OF THE PERMANENT SCHOOL FUND. The State Board of Education may
  transfer funds from the portion of the permanent school fund
  managed by the State Board of Education to the real estate special
  fund account of the permanent school fund if the State Board of
  Education determines, using the standard of care set forth in
  Subsection (f), Section 5, Article VII, Texas Constitution, that
  such transfer is in the best interest of the permanent school fund.
         SECTION 10.  Sections 51.401(c) and (d), Natural Resources
  Code, are repealed.
         SECTION 11.  This Act takes effect immediately if this Act
  receives a vote of two-thirds of all the members elected to each
  house, as provided by Section 39, Article III, Texas Constitution.
  If this Act does not receive the vote necessary for immediate
  effect, this Act takes effect September 1, 2007.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 3699 was passed by the House on May 8,
  2007, by the following vote:  Yeas 146, Nays 0, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 3699 on May 25, 2007, by the following vote:  Yeas 135, Nays 0,
  2 present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 3699 was passed by the Senate, with
  amendments, on May 23, 2007, by the following vote:  Yeas 29, Nays
  1.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor