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June 14, 2000     (512) 463-0300

Senate Finance Interim Subcommittee on State Investments Reviews Education Funds

AUSTIN - The Senate Finance Interim Subcommittee on State Investments held a hearing today, Wednesday, June 14th, 2000, at the Texas State Capitol.

The subcommittee consists of five members appointed by Finance Chair Bill Ratliff. Senator Robert L. Duncan of Lubbock serves as chair; other Senate members include Carlos F. Truan of Corpus Christi, Gonzalo Barrientos of Austin, Troy Fraser of Horseshoe Bay, and Steve Ogden of Bryan.

The subcommittee is set to study charge 1 of the Senate Finance Committee. This is one of the seven charges issued by Lt.Governor Rick Perry to be studied during this legislative interim. Charge 1 orders the committee to examine the policies and practices used to invest major state funds including cash balances, and evaluate state investment goals and the funds' performance in reaching those goals. This examination shall include, but is not limited to, the review of legal authority, ethical standards, and investment policies and safeguards, management structure, portfolio composition and identification of short-term and long-term goals. The committee shall make recommendations identifying opportunities for improvements or innovations.

Today's hearing focused on the fund investment management structure of the Texas Education Agency (TEA) and the State Board of Education (SBOE). Representatives of both agencies were present to provide testimony.

The TEA is a state agency supervised by the Legislature. The SBOE, established by the Texas Constitution, is formed of elected public officials. The SBOE can supervise, acquire, sell and manage investments belonging to the Permanent School Fund (PSF) and the Available School Fund (ASF), both established by the Texas Constitution. The board is a fiduciary of the funds and is responsible for prudently investing its assets.

The PSF is comprised of the principal of all bonds and stocks, and the principal of assets from the sale of land set apart for the PSF. The interest and dividends derived from the PSF form the ASF, which is set to support the public free schools. The present contribution is equal to $300 per student per year in Texas. The purpose of the PSF, as defined by the Texas Constitution, shall be to support and maintain an efficient system of public free schools.

The subcommittee reviewed today the way these investments and funds are managed, and the profits they accrue. Conflicting views between the TEA and the SBOE about how to manage the funds has come to the attention of the members. The senators also reviewed the code of ethics of the board, and repeatedly questioned Robert H. Offutt, a SBOE member from San Antonio, about possible misconduct. The misconduct allegedly occurred when a former adviser of the board had dealings with a Historically Underutilized Businesses (HUB) the board was considering working with. The members of the board do not necessarily have investment expertise; therefore they rely on advisors. Members and advisors though should have independence of judgment in the performance of their duties, according to the SBOE code of ethics.

The subcommittee recessed subject to the call of the chair.

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