Part 2.
TEXAS EDUCATION AGENCY
Chapter 33.
STATEMENT OF INVESTMENT OBJECTIVES, POLICIES, AND GUIDELINES OF THE TEXAS PERMANENT SCHOOL FUND
19 TAC §33.5
The Texas Education Agency (TEA) adopts an amendment to §33.5,
concerning code of ethics policy for managing and investing the Texas Permanent
School Fund (PSF), with changes to the proposed text as published in the November
26, 1999, issue of the
Texas Register
(24
TexReg 10473).
The section establishes procedures and requirements for a code of ethics
policy relating to the Texas PSF.
The adopted amendment modifies the current ethics policy of the State Board
of Education (SBOE) to meet specific provisions in House Bill (HB) 3739, 76th
Texas Legislature, 1999. HB 3739 requires the SBOE to adopt and enforce an
ethics policy that provides standards of conduct relating to managing and
investing the Texas PSF. The amendment adds provisions that address general
ethical standards, conflicts of interest, prohibited transactions and interests,
gifts and entertainment, hiring external professionals, solicitation of support,
compliance with applicable professional standards, and ethics training.
In response to comments and for editorial purposes, the following changes
have been made to the sections since published as proposed.
Language in subsection (c)(2) has been expanded to govern the Investment
Advisory Committee, a dormant advisory committee, and persons or firms that
may provide substantial investment and management advice to board members.
Language in subsection (c)(2) has been added to define the phrase "persons
or firms that may provide substantial investment and management advice to
board members."
Language in subsection (c)(2) was reorganized and a new category of persons
providing PSF services was added in subsection (c)(2)(C).
A reference to the lobby law and the statute governing private interests
in decisions was added to subsection (e)(1).
Subsection (f) was reorganized with the following changes: (1) language
was amended to clarify the meaning of the rule; (3) language was added to
define the term "substantial interest" and track state law; (3) language was
added to subsection (f)(1) to state that the disclosure requirement does not
apply to ratification of prior securities transaction by the PSF; and (4)
language has been added in subsection (f)(2) that sets forth the requirement
to disclose substantial interests.
Subsection (g)(3) was amended to include language that requires reporting
of conflicts of interest to the vice chair of the SBOE, in addition to the
chair and the commissioner of education.
Subsection (h) was reorganized to create two categories of transactions,
those involving direct placements and those not involving direct placements.
To clarify the rule, language was added to the provision relating to responsibilities
of PSF providers in subsection (k) to include existing contracts for investment.
Language was reorganized and modified in subsection (l) to specify provisions
dealing with acceptance of gifts and entertainment.
Language relating to gifts and entertainment was added to subsection (l)(2)(B)
to include the granting of charters as a covered transaction, while language
was added to subsection (l)(2)(I) requiring the reporting of the disposition
of an unsolicited gift to the commissioner of education.
Language requiring reporting of certain transactions between entities providing
PSF services and prohibiting the use of PSF assets in interested transactions
was added to the rule in subsection (n).
Language that adds fees and compensation as a reporting element for transactions
between PSF Service Providers was added to subsection (n)(2).
Language was added to subsection (o) that provides for the agency's ethics
officer to respond to inquiries concerning the rule.
Language in subsection (p) was modified to specify that the ethics training
for the SBOE be conducted annually.
Throughout §33.5, subsections were reorganized and minor edits were
made to clarify the rule.
The following comments were received from the State Auditor's Office and
the Texas Ethics Commission regarding adoption of the amendment. As required
by statute, the State Auditor's Office and the Texas Ethics Commission reviewed
and commented on the proposed amendment to the ethics policy.
Comment. The State Auditor's Office commented that the rule be expanded
to govern the Investment Advisory Committee, a dormant advisory committee,
and persons or firms that may provide substantial investment and management
advice to board members.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The State Auditor's Office commented that the rule define the
phrase "persons or firms that may provide substantial investment and management
advice to board members."
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that the rule include a
reference to the lobby law, Government Code, Chapter 305, in the listing of
applicable statutes.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that the statutory reference
"Government Code, §572.058," be added to the provisions in rule relating
to conflict of interest. The Texas Ethics Commission believes the SBOE's policy
may be narrower than statute.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that language pertaining
to gifts and entertaining be added to the rule to clarify the current proposal.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that the rule should specify
with whom the entertainment and gift report should be filed.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that the term" relative"
should be defined in the commissioner of education and employee policy.
Agency Response. The agency agrees with the comment and has amended the
section.
Comment. The Texas Ethics Commission commented that the rule should specify
a person to respond to questions about the ethics policy.
Agency Response. The agency agrees with the comment and has amended the
section.
The amendment is adopted under the Texas Education Code, §43.0031,
as added by House Bill 3739, 76th Texas Legislature, 1999, which authorizes
the State Board of Education to adopt and enforce an ethics policy that provides
standards of conduct relating to the management and investment of the Permanent
School Fund.
§33.5.Code of Ethics.
(a)
Fiduciary responsibility. The members of the State Board
of Education (SBOE) serve as fiduciaries of the Texas Permanent School Fund
(PSF) and are responsible for prudently investing its assets. The SBOE members
or anyone acting on their behalf shall comply with the provisions of this
section, the Texas Constitution, Texas statutes, and all other applicable
provisions governing the responsibilities of a fiduciary.
(b)
Compliance with constitution and code of ethics. The SBOE
members are public officials governed by the provisions of the Texas Government
Ethics Act, as stated in the Texas Government Code, Chapter 572.
(c)
Definitions. For purposes of this section, the following
terms shall have the following meanings.
(1)
SBOE Member--A member of the SBOE; a spouse of an SBOE
member; a child or children of an SBOE member.
(2)
Persons Providing PSF Investment and Management Services
to the SBOE (PSF Service Providers) are the following individuals:
(A)
any person responsible by contract for managing the PSF,
investing the PSF, executing brokerage transactions, or acting as a custodian
of the PSF;
(B)
a member of the Investment Advisory Committee;
(C)
any person who provides consultant services for compensation
regarding the management and investment of the PSF; or
(D)
any person who provides investment and management advice
to an SBOE Member, with or without compensation, if an SBOE Member:
(i)
gives the person access to records or information that
are not currently available to the public or without otherwise complying with
the Public Information Act; or
(ii)
asks the person to interview, meet with, or otherwise
confer with current or potential consultants, advisors, money managers, investment
custodians, or others who currently provide, or are likely to provide, services
to the SBOE relating to the management or investment of the PSF.
(d)
Assets affected by this section. The provisions of this
section apply to all PSF assets, both publicly and nonpublicly traded investments.
(e)
General ethical standards.
(1)
SBOE Members and PSF Service Providers must comply with
all applicable laws, specifically, the following statutes: Texas Government
Code, §825.211 (Certain Interests in Loans, Investments, or Contracts
Prohibited), §572.051 (Standards of Conduct for Public Servants), §552.352
(Distribution of Confidential Information), §572.058 (Private Interest
in Measure or Decision; Disclosure; Removal from Office for Violation), §572.054
(Representation by Former Officer or Employee of Regulatory Agency Restricted), §572.002
(General Definitions), §572.004 (Definition: Regulation), and Chapter
305 (Registration of Lobbyists); and Texas Penal Code, Chapter 36 (Bribery,
Corrupt Influence, and Gifts to Public Servants) and Chapter 39 (Abuse of
Office, Official Misconduct). The omission of any applicable statute listed
in this paragraph does not excuse violation of its provisions.
(2)
SBOE Members and PSF Service Providers must be honest
in the exercise of their duties and must not take actions that will discredit
the PSF.
(3)
SBOE Members and PSF Service Providers shall be loyal
to the interests of the PSF to the extent that such loyalty is not in conflict
with other duties, which legally have priority. SBOE Members and PSF Service
Providers shall avoid personal, employment, or business relationships that
create conflicts of interest. Should SBOE Members or PSF Service Providers
become aware of any conflict of interest, they have an affirmative duty to
disclose and to cure the conflict in a manner provided for under this section.
(4)
SBOE Members and PSF Service Providers shall not use
nonpublic information gained through their relationship with the PSF to seek
or obtain personal gain beyond agreed compensation and/or any properly authorized
expense reimbursement. This should not be interpreted to forbid the use of
PSF as a reference or the communication to others of the fact that a relationship
with PSF exists, provided that no misrepresentation is involved.
(f)
Disclosure.
(1)
If an SBOE Member has a personal, private, direct, or indirect
financial interest in a matter before the SBOE or if an SBOE Member solicited
a specific investment action by the PSF staff or a PSF Service Provider, the
SBOE Member shall publicly disclose the fact to the SBOE in a public meeting
and shall not participate in a discussion or vote on a matter in which the
SBOE Member has such interest. The disclosure shall be entered into the minutes
of the meeting. For purposes of this section, a matter is a prospective directive
to the PSF staff or a PSF Service Provider to undertake a specific investment
or divestiture of securities for the PSF. This term does not include ratification
of prior securities transactions performed by the PSF staff or a PSF Service
Provider and does not include an action to allocate assets within the PSF.
(2)
In addition, an SBOE Member shall fully disclose any
substantial interest in any publicly or nonpublicly traded PSF investment
(business entity) on the SBOE Member's annual financial report filed with
the Texas Ethics Commission pursuant to Texas Government Code, §572.021.
An SBOE Member has a substantial interest if the SBOE Member:
(A)
has a controlling interest in the business entity;
(B)
owns more than 10% of the voting interest in the business
entity;
(C)
owns more than $25,000 of the fair market value of the
business entity;
(D)
has a direct or indirect participating interest by shares,
stock, or otherwise, regardless of whether voting rights are included, in
more than 10% of the profits, proceeds, or capital gains of the business entity;
(E)
is a member of the board of directors or other governing
board of the business entity;
(F)
serves as an elected officer of the business entity; or
(G)
is an employee of the business entity.
(g)
Conflicts of interest.
(1)
A conflict of interest exists whenever SBOE Members or
PSF Service Providers have personal or private commercial or business relationships
that could reasonably be expected to diminish their independence of judgment
in the performance of their duties. For example, a person's independence of
judgment is diminished when the person is in a position to take action or
not take action with respect to PSF and such act or failure to act is, may
be, or reasonably appears to be influenced by considerations of personal gain
or benefit rather than motivated by the interests of PSF. Conflicts include,
but are not limited to, beneficial interests in securities, corporate directorships,
trustee positions, or other special relationships that could reasonably be
considered a conflict of interest with the duties to the PSF.
(2)
An SBOE Member shall not participate in a discussion
or vote on a matter in which the SBOE Member has direct or indirect financial
interest.
(3)
Any SBOE Member or PSF Service Provider who has a
conflict of interest shall disclose the conflict to the commissioner of education
and the chair and vice chair of the SBOE on the disclosure form. The disclosure
form is provided in this subsection entitled "Potential Conflict of Interest
Disclosure Form."
Figure: 19 TAC §33.5(g)(3)
(4)
A person who files a statement under paragraph (3)
of this subsection disclosing a possible conflict of interest may not give
advice or make decisions about a matter affected by the possible conflict
of interest unless the SBOE, after consultation with the general counsel of
the Texas Education Agency (TEA), expressly waives this prohibition. The SBOE
may delegate the authority to waive this prohibition.
(h)
Prohibited transactions and interests. For purposes of
this section, the term "direct placement" (with respect to investments that
are not publicly traded) is defined as a direct sale of securities, generally
to institutional investors, without the use of brokers or underwriters.
(1)
No SBOE Member or PSF Service Provider shall:
(A)
have a financial interest in a direct placement investment
of the PSF;
(B)
serve as an officer, director, or employee of an entity
in which a direct placement investment is made by the PSF; or
(C)
serve as a consultant to, or receive any fee, commission
or payment from, an entity in which a direct placement investment is made
by the PSF.
(2)
No SBOE Member or PSF Service Provider shall:
(A)
act as a representative or agent of a third party in dealing
with a PSF manager or consultant; or
(B)
be employed for two years after the end of his or her term
on the SBOE with an organization in which the PSF invested, unless the organization's
stock or other evidence of ownership is traded on the public stock or bond
exchanges.
(i)
Solicitation of support. No SBOE Member shall solicit support
on behalf of any political candidate from a PSF manager, consultant, or staff
member. The manager, consultant, or staff member shall report any such incident
in writing to the commissioner of education for distribution to the SBOE.
(j)
Hiring external professionals. The SBOE may contract with
private professional investment managers to help make PSF investments. The
SBOE has the authority and responsibility to hire other external professionals,
including custodians or consultants. The SBOE shall select each professional
based solely on merit and subject to the provisions of §33.55 of this
title (relating to Standards for Selecting Consultants, Investment Managers,
Custodians, and Other Professionals To Provide Outside Expertise for the Fund).
(k)
Responsibilities of PSF Service Providers. The PSF Service
Providers shall be notified in writing of the code of ethics contained in
this section. Any existing contracts for investment and any future investment
shall strictly conform to this code of ethics. The PSF Service Provider shall
report in writing any suggestion or offer by an SBOE Member to deviate from
the provisions of this section to the commissioner of education for distribution
to the SBOE. A PSF Service Provider or other person retained in a fiduciary
capacity must comply with the provisions of this section.
(l)
Gifts and entertainment.
(1)
Bribery. SBOE Members are prohibited from soliciting, offering,
or accepting gifts, payments, and other items of value in exchange for an
official act, including a vote, recommendation, or any other exercise of official
discretion (Texas Penal Code, §36.02).
(2)
Acceptance of gifts.
(A)
An SBOE Member may not accept gifts, favors, services,
or benefits that may reasonably tend to influence the SBOE Member's official
conduct or that the SBOE Member knows or should know are intended to influence
the SBOE Member's official conduct. For purposes of this section, a gift does
not include an item with a value of less than $50, excluding cash or negotiable
instruments.
(B)
An SBOE Member may not accept a gift, favor, service, or
benefit from a person that the SBOE Member knows is interested or is likely
to become interested in a charter, contract, purchase, payment, claim, or
other pecuniary transaction over which the SBOE has discretion.
(C)
An SBOE Member may not accept a gift, favor, service, or
benefit from a person that the SBOE Member knows to be subject to the regulation,
inspection, or investigation of the SBOE or the TEA.
(D)
An SBOE Member may not solicit, accept, or agree to accept
a benefit from a person with whom civil or criminal litigation is pending
or contemplated by the SBOE or the TEA.
(E)
So long as the gift or benefit is not given by a person
subject to the SBOE's or the TEA's regulation, inspection, or investigation,
an SBOE Member may accept a gift, payment, or contribution from an individual
who is not registered as a lobbyist with the Texas Ethics Commission if it
fits into one of the following categories:
(i)
items worth less than $50 (may not be cash, checks, or
negotiable instruments);
(ii)
independent relationship, such as kinship, or a personal,
professional, or business relationship independent of the SBOE Member's official
capacity;
(iii)
fees for services rendered outside the SBOE Member's
official capacity;
(iv)
government property issued by a governmental entity that
allows the use of the property; or
(v)
food, lodging, entertainment, and transportation, if accepted
as a guest and the donor is present.
(F)
The following provisions govern the disposition of an individual
who is registered as a lobbyist with the Texas Ethics Commission.
(i)
An SBOE Member may not accept:
(I)
loans, cash, or negotiable instruments; or
(II)
travel or lodging for a pleasure trip.
(ii)
An SBOE Member may accept:
(I)
food and beverages, if the lobbyist is present;
(II)
entertainment worth up to $500 in a calendar year, if
the lobbyist is present;
(III)
gifts, other than awards and mementos, that combined
do not exceed $500 in value for a calendar year. This does not include food,
entertainment, lodging, and transportation;
(IV)
individual awards and mementos worth not more than $500
each; or
(V)
travel and lodging in connection with a fact-finding trip
or to a seminar or conference at which the SBOE Member is providing services.
The lobbyist must be present.
(G)
An SBOE Member may not solicit, agree to accept, or accept
an honorarium in consideration for services that the SBOE Member would not
have been asked to provide but for the SBOE Member's official position. An
SBOE Member may accept food, transportation, and lodging in connection with
a speech performed as a result of the SBOE Member's position. An SBOE Member
must report the food, lodging, or transportation accepted under this subparagraph
in the SBOE Member's annual personal financial statement.
(H)
Under no circumstances shall an SBOE Member accept a prohibited
gift if the source of the gift is not identified or if the SBOE Member knows
or has reason to know that the gift is being offered through an intermediary.
(I)
If an unsolicited prohibited gift is received by an SBOE
Member, he or she should return the gift to its source. If that is not possible
or feasible, the gift should be donated to charity. The SBOE Member shall
report the return of the gift or the donation of the gift to the commissioner
of education.
(J)
A PSF Service Provider shall file a report annually on
April 30 of each year on the expenditure report provided in this subsection
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." The expenditure report must describe in detail any expenditure
of more than $50 made by the person on behalf of:
(i)
an SBOE Member;
(ii)
the commissioner of education; or
(iii)
an employee of the TEA or of a nonprofit corporation
created under the Texas Education Code, §43.006.
Figure: 19 TAC §33.5(l)(2)(J)(iii)
(K)
This subsection does not apply to campaign contributions.
(m)
Compliance with professional standards.
(1)
SBOE Members and PSF Service Providers who are members
of professional organizations which promulgate standards of conduct must comply
with those standards.
(2)
PSF Service Providers must comply with the Code of
Ethics and Standards of Professional Conduct of the Association for Investment
Management and Research.
(n)
Transactions between PSF Service Providers and/or consultants.
(1)
PSF Service Providers or persons who act as consultants
to the SBOE regarding investment and management of the PSF shall not engage
in any transaction involving the assets of the PSF with another PSF Service
Provider or a person who acts as a consultant to the SBOE regarding investment
and management of the PSF.
(2)
PSF Service Providers and/or consultants to the SBOE
who provide advice regarding investment and management of the PSF shall report
to the SBOE on a quarterly basis all investment transactions or trades and
any fees or compensation paid in connection with the transactions or trades
with another PSF Service Provider or a person who acts as a consultant to
the SBOE regarding investment and management of the PSF.
(o)
Compliance and enforcement.
(1)
The SBOE will enforce this rule through its chair and vice
chair and the commissioner of education.
(2)
Any violation will be reported to the chair and vice
chair of the SBOE and the commissioner of education and a recommended action
will be presented to the SBOE. A violation of this section may result in the
termination of the contract or a lesser sanction. Repeated minor violations
may also result in the termination of the contract.
(3)
The executive director of the PSF shall act as custodian
of all statements, waivers, and reports required under this section for purposes
of public disclosure requirements.
(4)
The ethics officer of the TEA may respond to inquiries
concerning the provisions of this section. The ethics officer may confer with
the general counsel and the executive director of the PSF.
(p)
Ethics training. The SBOE shall receive annual training
regarding state ethics laws through the Texas Ethics Commission and the TEA's
ethics officer.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on March 13, 2000.
TRD-200001894
Criss Cloudt
Associate Commissioner, Policy Planning and Research
Texas Education Agency
Effective date: April 2, 2000
Proposal publication date: November 26, 1999
For further information, please call: (512) 463-9701
19 TAC §33.40
The Texas Education Agency (TEA) adopts an amendment to §33.40,
concerning trading and brokerage policy of the Texas Permanent School Fund
(PSF), without changes to the proposed text as published in the February 4,
2000, issue of the
Texas Register
(25 TexReg
652).
The section establishes procedures and guidelines concerning security transaction
policy, directed trades, and selection of a brokerage firm.
The adopted amendment modifies language in subsection (c) to bring the
brokerage selection guidelines for historically-underutilized business (HUB)
certified, soft dollar, commission recapture, and electronic communications
network (ECN) brokers into line with the basic business models of those types
of brokerage concerns. A technical correction is also adopted to the phrase
"Direct Trades" in subsection (b) for consistency with
Texas Register
format requirements.
No comments were received regarding the adoption of the amendment.
The amendment is adopted under the Texas Education Code, §7.102(c)(31),
which authorizes the State Board of Education to invest the PSF within the
limits of the authority granted by the Texas Constitution, Article VII, §5,
and the Texas Education Code, Chapter 43.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on March 13, 2000.
TRD-200001895
Criss Cloudt
Associate Commissioner, Policy Planning and Research
Texas Education Agency
Effective date: April 2, 2000
Proposal publication date: February 4, 2000
For further information, please call: (512) 463-9701
Subchapter C. HEARINGS HELD UNDER THE TEXAS DRIVER AND TRAFFIC SAFETY EDUCATION ACT
19 TAC §157.31
The Texas Education Agency (TEA) adopts the repeal of §157.31,
concerning hearings held under the Texas Driver and Traffic Safety Education
Act, without changes to the proposed text as published in the February 4,
2000, issue of the
Texas Register
(25 TexReg
654) and will not be republished.
The section establishes hearing rules for commercial driver training schools
and driver training instructors regulated under the Texas Driver and Traffic
Safety Education Act.
Senate Bill 777, 76th Texas Legislature, 1999, amended the Texas Driver
and Traffic Safety Education Act and transferred all rulemaking authority
for the regulation of driver training programs from the State Board of Education
to the commissioner of education. This repeal is necessary since identical
provisions have been adopted under the commissioner of education's rulemaking
authority and are found in 19 TAC §176.1301, which became effective December
26, 1999.
No comments were received regarding adoption of the repeal.
The repeal is adopted under Texas Civil Statutes, Article 4413(29c), §6,
as amended by Senate Bill 777, 76th Texas Legislature, 1999, which authorizes
the commissioner of education to adopt rules necessary to implement the Texas
Driver and Traffic Safety Education Act.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on March 13, 2000.
TRD-200001896
Criss Cloudt
Associate Commissioner, Policy Planning and Research
Texas Education Agency
Effective date: April 2, 2000
Proposal publication date: February 4, 2000
For further information, please call: (512) 463-9701
The Texas Education Agency (TEA) adopts the repeal of §§176.1-176.21
and 176.101-176.122, concerning driver training schools, without changes to
the proposed text as published in the February 4, 2000, issue of the
The sections establish minimum standards of operation for driver training
schools and for driving safety schools and course providers, including definitions,
requirements, and procedures related to: school and instructor licensure;
exempt schools; school personnel; courses of instruction; school facilities
and equipment; student complaints; records; and application fees and other
charges.
Senate Bill 777, 76th Texas Legislature, 1999, amended the Texas Driver
and Traffic Safety Education Act and transferred all rulemaking authority
for the regulation of driver training programs from the State Board of Education
to the commissioner of education. This repeal of rules governing driver training
schools is necessary since rules for driver training schools have been adopted
under the commissioner of education's rulemaking authority and are found in
19 TAC Chapter 176, Subchapter AA and Subchapter BB, which became effective
December 26, 1999.
No comments were received regarding the adoption of the repeals.
Subchapter A. MINIMUM STANDARDS FOR OPERATION OF TEXAS DRIVER EDUCATION SCHOOLS
Chapter 157.
HEARINGS AND APPEALS
Chapter 176.
DRIVER TRAINING SCHOOLS