34 TAC §§18.1 - 18.8
The Comptroller of Public Accounts proposes amendments to §§18.1-18.8,
concerning the administration and management of the assets of the Tobacco
Settlement Permanent Trust Account and the distribution formula. The purposes
of the amendments are as follows:
First, the amendment to the definitions in §18.1 will reflect changes
intended to protect and grow the corpus, to stabilize and grow distributions
over time and to address deposits into the distribution stabilization account.
Second, the amendment to §18.2 will outline distribution objectives
and change the distribution formula to stabilize and grow distributions over
time.
Third, the amendment to §18.8 will amend the termination clause and
provide for an annual review by the comptroller.
Fourth, amendments to §§18.3-18.8 will make technical and non-substantive
improvements to the sections.
James LeBas, Chief Revenue Estimator, has determined that the proposed
amendments would have no fiscal impact on the state; there could be positive
fiscal implications to the units of local government that receive distributions
from the Trust Account.
Mr. LeBas also has determined that the proposed amendments are intended
to protect and grow the corpus of the Trust Account, as well as to stabilize
and grow the distribution amounts from Trust Account over time. This amendment
is proposed under Government Code, §403.1041(h), and does not require
a statement of fiscal implications for small businesses. There are no additional
costs to persons who are required to comply with the amendment.
Comments on the proposals may be submitted to Lita Gonzalez, Deputy General
Counsel for Agency Affairs, General Counsel Division, 111 E. 17th Street,
Suite 131, Austin, Texas 78774. If a person wants to ensure that the comptroller
considers and responds to a comment made about this proposal, then the person
must ensure that the comptroller receives the comment not later than the 30th
day after the issue date of the Texas Register in which this proposal appears.
The amendments are proposed under Government Code, §403.1041(h),
which authorizes the comptroller to adopt rules related to the management
and implementation of the Tobacco Settlement Permanent Trust Account.
The amendments implement Government Code, §403.1041(h).
§18.1. Purpose and Definitions. [ Intent, Purpose, and Definitions. ]
(a)
Purpose
[
Intent
]. The comptroller
is required by Government Code, §403.1041, to administer the Tobacco
Settlement Permanent Trust Account (trust account) and manage the assets of
the trust account with the advice of and in consultation with the Tobacco
Settlement Permanent Trust Account Investment Advisory Committee (investment
advisory committee). The comptroller is also required to adopt rules necessary
to implement the comptroller's duties under Government Code, §403.1041,
including rules distinguishing the net earnings of the trust account that
may be distributed from earnings used for investment expenses and from the
money and assets that are the corpus of the trust account. A rule adopted
by the comptroller under this subsection must be submitted to the investment
advisory committee and may not become effective before the investment advisory
committee approves the rule. If the investment advisory committee disapproves
a proposed rule, the investment advisory committee is required to provide
the comptroller the specific reasons that the rule was disapproved.
[
(b)
Purpose. The purpose of these
rules is to determine:]
[
(1)
the net earnings of the trust account that
may be distributed;]
[
(2)
the net earnings of the trust account that
may be used for investment expenses; and]
[
(3)
the money and assets that are the corpus of
the trust account.]
(b)
[
(c)
] Definitions. The following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Actual distribution amount--the
amount determined
pursuant to §18.2 of this title (relating to Trust Account Distributions);
[
aggregate dollar amount achieved by multiplying the average market
value of the corpus by the annual distribution rate.
]
(2)
adjusted current income--current income less investment
expenses;
[
Adjusted net earnings--the net earnings reduced by the
dollar amount achieved by multiplying the inflation adjustment factor by the
average market value of the corpus.
]
(3)
average market value of the corpus--the quarterly
average market value of the corpus calculated over the life of the corpus
not to exceed the most recent 12 calendar quarters;
[
Annual distribution
rate--the percentage of the average market value of the corpus approved for
use each year by the investment advisory committee.
]
(4)
average trust account balance
[
Average market
value
]--the
annual average balance of the trust account calculated
over the life of the trust account not to exceed the most recent three calendar
years;
[
quarterly average value of the corpus calculated over the
life of the corpus not to exceed the most recent 12 calendar quarters.
]
(5)
calculated distribution amount--for any calendar year,
the sum of:
[
Corpus-- the value of the initial contributions to
the Tobacco Settlement Permanent Trust Account and any future contributions
and donations upon receipt by the comptroller.
]
(A)
fifty percent (50%) of the
adjusted current income for such year;
(B)
twenty-five percent (25%) of
the positive balance of the distribution stabilization account at the beginning
of such year, and
(C)
twenty-five percent (25%) of
the cumulative net gains calculated as of the beginning of such year;
(6)
corpus--the value of initial contributions to the
trust account, plus:
[
Distribution stabilization account--a separate
account consisting of any amount of adjusted net earnings that exceed the
distributions as determined by the investment advisory committee. These amounts
are available for distribution in years when the adjusted net earnings of
the account are below the actual distribution amount. These amounts are accounted
for separately from the corpus and will not be part of the corpus unless otherwise
directed by the investment advisory committee.
]
(A)
any future contributions and
donations received by the comptroller for deposit in the trust account;
(B)
all annual inflation adjustments;
and
(C)
all amounts transferred from
the distribution stabilization account pursuant to §18.2 of this title
(relating to Trust Account Distributions);
(7)
cumulative net gains--all realized and unrealized
gains on investments in the trust account calculated over the life of the
trust account, less:
[
Inflation adjustment factor--the average annual
percentage change in the United States Consumer Price Index (CPI) for the
most recent 12 quarters as published by the United States Bureau of Labor
Statistics.
]
(A)
all realized and unrealized
losses on such investments during the same period;
(B)
all inflation adjustments during
the same period;
(C)
all such gains included in
the amounts actually distributed from the trust account to the political subdivisions
during the same period, and
(D)
all amounts of current net
realized gains transferred to the distribution stabilization account during
the same period pursuant to §18.2 of this title (relating to Trust Account
Distributions);
(8)
current income--the sum of interest and dividend income
earned by the trust account;
[
Investment advisory committee--the
Tobacco Settlement Permanent Trust Account Investment Advisory Committee as
defined by Government Code, §403.1041.
]
(9)
current net realized gains--for any calendar year,
all realized gains on investments in the trust account for such year, less
all realized losses on such investments for such year;
[
Investment
expenses--the portion of the total earnings of the trust account that may
be used to pay investment related expenses not to exceed 0.75% of the average
market value of the corpus including, but not limited to, transaction fees,
custodial fees, and fees for outside money managers, investment consultants,
or auditors.
]
(10)
distribution stabilization account--a separate account
consisting of the amounts of adjusted current income and current net realized
gains transferred pursuant to §18.2 of this title (relating to Trust
Account Distributions). These amounts are accounted for separately from the
corpus and will not be part of the corpus unless otherwise directed by the
investment advisory committee;
[
Net earnings--the total earnings
of the trust account less investment expenses.
]
(11)
inflation adjustment--for any calendar year, the
dollar amount achieved by multiplying the inflation adjustment factor calculated
as of the end of such year by the average market value of the corpus calculated
as of the end of such year;
[
Political subdivision--has the meaning
assigned by Government Code, §403.1041.
]
(12)
inflation adjustment factor--the average annual percentage
change in the United States Consumer Price Index for All Urban Consumers (CPI-U)
for the most recent 12 quarters as published by the United States Bureau of
Labor Statistics;
[
Total earnings--the sum of all changes in value
from an investment including interest, dividends, and market value increases
and decreases.
]
(13)
investment advisory committee
[
Trust account
]--the Tobacco Settlement Permanent Trust Account
Investment Advisory
Committee as defined by Government Code, §403.1041;
[
as defined
by Government Code, §403.1041.
]
(14)
investment expenses--the portion
of the total earnings of the trust account that may be used to pay investment
related expenses not to exceed 0.75% of the trust account balance including,
but not limited to, transactions fees, custodial fees, and fees for outside
money managers, investment consultants, or auditors;
(15)
political subdivision--the
meaning assigned by Government Code, §403.1041;
(16)
total earnings--the sum of
all changes in value from an investment including interest, dividends, and
market value increases and decreases;
(17)
trust account--the Tobacco
Settlement Permanent Trust Account as defined by Government Code, §403.1041;
and
(18)
trust account balance--at
any given time, the sum of the corpus and the total earnings calculated over
the life of the trust account, less:
(A)
all investment expenses during the same period;
(B)
the amounts actually distributed from the trust
account to the political subdivisions during the same period; and
(C)
the balance of the distribution stabilization
account.
§18.2.Trust Account Distributions.
(a)
The
trust account
[
Tobacco Settlement Permanent
Trust Account (trust account)
] shall balance the present needs and interests
of the political subdivisions with those of the future. The trust account
distribution objectives
[
spending policy objectives
] shall
be to:
(1)
provide a predictable, stable stream of distributions over
time;
(2)
ensure that the inflation-adjusted value of distributions
is maintained over the long- term;
and
(3)
ensure that the inflation-adjusted value of the corpus
after distributions
is
[
are
] maintained over the long-term.
(b)
In order to preserve the purchasing power of future trust
account distributions and of the underlying corpus, the actual distribution
amount
for any calendar year shall in no event exceed the lesser of:
[
should not over time exceed the adjusted net earnings over time
].
(1)
5.0% of the average trust account
balance calculated as of the end of such year; or
(2)
the adjusted current income
for such year plus the balance of the distribution stabilization account at
the beginning of such year.
(c)
Unless otherwise established by the comptroller and approved
by the
investment advisory committee, the
[
Tobacco Settlement
Permanent Trust Account Investment Advisory Committee (investment advisory
committee), each
] actual distribution amount
for each calendar
year and the maximum balance in the distribution stabilization account at
the end of such year
shall be
determined as follows
[
based on the following formula
]:
(1)
subject to subsection (b) of this section, the actual
distribution amount shall be equal to the greater of:
[
deduct investment
expenses from total earnings to determine net earnings
];
(A)
the calculated distribution amount or;
(B)
the amount actually distributed from the
trust account to the political subdivisions for the previous year multiplied
by a factor equal to the sum of 1.0 and the inflation adjustment factor;
(2)
subject to subsection (c)(3) of this section, the
balance in the distribution stabilization account shall be increased by
[
multiply the inflation adjustment factor by the market value of the corpus
to determine the amount to deduct from net earnings to determine adjusted
net earnings
];
(A)
an amount equal to fifty percent
(50%) of the adjusted current income for such year less the difference between
the actual distribution amount and the calculated distribution amount for
such year; and
(B)
twenty-five (25%) of the current
net realized gains for such year,
(3)
the maximum balance in the distribution stabilization
account shall be equal to the amount actually distributed from the trust account
to the political subdivisions for the previous year multiplied by three (3),
and the amount that exceeds such maximum balance, if any, shall be added to
the corpus
[
to the extent that adjusted net earnings exceed the
actual distribution amount, the excess will be accumulated in the distribution
stabilization account to stabilize distributions during future years that
adjusted net earnings are less than the actual distribution amount unless
otherwise directed by the investment advisory committee
].
§18.3.Annual Meeting of Investment Advisory Committee.
An annual meeting of the
investment advisory committee
[
Tobacco Settlement Permanent Trust Account Investment Advisory Committee (investment
advisory committee)
] shall be held on or before April 1st of each calendar
year. The comptroller shall report to the investment advisory committee the
performance of the
trust account
[
Tobacco Settlement Permanent
Trust Account (trust account)
] for the preceding calendar year. The
investment advisory committee shall adopt the actual distribution amount to
be used by the comptroller to make the distributions from the trust account
to the political subdivisions.
§18.4.Other Meetings of the Investment Advisory Committee.
Meetings of the
investment advisory committee
[
Tobacco
Settlement Permanent Trust Account Investment Advisory Committee
] may
be called by the chair
of such committee
.
§18.5.Annual Distributions.
Distributions from the
trust account
[
Tobacco Settlement
Permanent Trust Account
] to the beneficiaries shall be made annually
as soon as practicable after the Texas Department of Health makes the certification
to the comptroller required under Health & Safety Code, Chapter 12, Subchapter
J, including the percentage of each annual distribution to be paid to each
political subdivision.
§18.6.Administration and Management of the Trust Account.
The comptroller's administration of the
trust account
[
Tobacco Settlement Permanent Trust Account (trust account)
] and management
of the assets of the trust account, including revisions to the comptroller's
investment policy statement, shall be with the advice of and in consultation
with the
investment advisory committee
[
Tobacco Settlement
Permanent Trust Account Investment Advisory Committee
].
§18.7.Compliance Audits.
The
investment advisory committee
[
Tobacco Settlement
Permanent Trust Account Investment Advisory Committee
] shall order an
annual audit of compliance with
these rules and
the investment
policy statement [
and rules related to the Tobacco Settlement Permanent
Trust Account
].
§18.8. Annual Review. [ Sunset Provision. ]
The rules under Texas Administrative Code, Title 34, Part 1, Chapter
18, shall
be reviewed annually by the comptroller
[
automatically
expire and terminate on April 1, 2003
].
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 17, 2003.
TRD-200300286
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: March 2, 2003
For further information, please call: (512) 475-0387