34 TAC §§18.1 - 18.4
The Comptroller of Public Accounts proposes amendments to §§18.1
- 18.4, concerning the administration and management of the assets of the
Tobacco Settlement Permanent Trust Account (trust account) and the distribution
formula. The purposes of the amendments are as follows:
First, the amendment to the definitions in §18.1 is intended to simplify
the calculation of the distributions made from the trust account; provide
for predictable, stable, and sustainable distributions over time; and protect
and maintain the inflation adjusted value of the corpus.
Second, the amendment to §18.2 will change the distribution formula
to simplify the calculation of the distributions and provide for predictable,
stable, and sustainable distributions over time while maintaining the inflation
adjusted value of the corpus.
Third, the amendment to §18.3 references the required contribution
to the distribution stabilization account consistent with the revised distribution
formula.
Fourth, the amendment to §18.4 will allow the comptroller or a designee,
in addition to the investment advisory committee chair, to call meetings.
John Heleman, Chief Revenue Estimator, has determined that for the first
five-year period the amendments will be in effect, there will be no significant
revenue impact on the state or units of local government.
Mr. Heleman also has determined that for each year of the first five years
the amendments are in effect, the public benefit anticipated as a result of
enforcing the amended rule will be in providing new information regarding
changes to the Tobacco Settlement Permanent Trust Account. The proposed amendments
would have no anticipated significant economic cost to the public. The proposed
amendments would have no fiscal impact on small businesses.
Comments on the proposal may be submitted to Paul Ballard, Chief Executive
Officer, Texas Treasury Safekeeping Trust Company, 208 East 10th Street, Austin,
Texas 78704. 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 trust account.
The amendments implement Government Code, §403.1041(h).
§18.1.Purpose and Definitions.
(a)
(No change.)
(b)
Definitions. The following words and terms, when used in
this chapter, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
(No change.)
(2)
adjusted current
earnings
[
income
]--current
earnings
[
income
] less investment expenses;
(3)
average market value of the
trust account
[
corpus
]--
calculated using the most recent twenty (20) calendar
quarter end market values
[
the quarterly average market value of
the corpus calculated over the life of the corpus not to exceed the most recent
12 calendar quarters
];
[(4)
average trust account balance--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;]
[(5)
calculated distribution amount--for any
calendar year, the sum of:]
[(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;]
(4)
[
(6)
] corpus--the
cumulative
value of
all
[
initial
] contributions to the trust
account, plus
, all inflation adjustments;
[
:
]
[(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:]
[(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);]
(5)
[
(8)
] current
earnings
[
income
]--the sum of interest and dividend income
, income from real
estate and private equity investments, and total returns produced by investments
designated by the governing investment policy as substitutes for fixed income
earned by the trust account
during the calendar year
;
[(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;]
(6)
[
(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
];
(7)
[
(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
beginning
[
end
] of such year;
(8)
[
(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;
(9)
[
(13)
] investment advisory committee--the
Tobacco Settlement Permanent Trust Account Investment Advisory Committee as
defined by Government Code, §403.1041;
(10)
[
(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
amounts
established by the Texas Legislature,
[
0.75% of the trust account
balance
] including, but not limited to, [
transactions fees,
]
custodial fees, and fees for
investment management, administration
[
outside money managers
], investment consultants, or auditors;
(11)
net earnings--the year-end market value
of the trust account less the corpus value and the distribution stabilization
account balance;
(12)
[
(15)
] political subdivision--the
meaning assigned by Government Code, §403.1041;
and
[(16)
total earnings--the sum of all changes
in value from an investment including interest, dividends, and market value
increases and decreases;]
(13)
[
(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)
(No change.)
(b)
Subject to subsection (c) of this section, the actual
distribution amount shall be 5% of the average market value of the trust account
calculated as of the end of the calendar year immediately preceding the distribution.
The actual distribution amount shall be distributed as follows:
[
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.
]
(1)
4.5% to the political subdivisions; and
[
5.0% of the average trust account balance calculated as of the end of such
year; or
]
(2)
0.5% to the distribution stabilization account when
the distribution stabilization account balance is less than the maximum balance,
which shall be equal to three times the amount actually distributed in the
preceding year from the trust account to the political subdivisions. When
the distribution stabilization account balance equals the maximum balance,
this 0.5% portion of the actual distribution amount shall not be distributed
from the trust account.
[
the adjusted current income for such year
plus the balance of the distribution stabilization account at the beginning
of such year.
]
(c)
If the net earnings of the trust account are less
than the calculated actual distribution amount in subsection (b) of this section,
the actual distribution amount shall not exceed the amount in subsection (b)(1)
of this section and shall be funded from the sources, until exhausted, in
the order provided as follows
[
Unless otherwise established by
the comptroller and approved by the investment advisory committee, the 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
]:
(1)
adjusted current earnings;
[
subject to
subsection (b) of this section, the actual distribution amount shall be equal
to the greater of:
]
[(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)
positive net earnings; then
[
subject to
subsection (c)(3) of this section, the balance in the distribution stabilization
account shall be increased by;
]
[(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)
distribution stabilization account
[
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
].
§18.3.Annual Meeting of Investment Advisory Committee.
An annual meeting of the 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
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
and to the distribution
stabilization account
.
§18.4.Other Meetings of the Investment Advisory Committee.
Meetings of the investment advisory committee may be called by the
chair of such committee
, or by the comptroller or the comptroller's designee
.
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 December 20, 2005.
TRD-200505961
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: February 5, 2006
For further information, please call: (512) 475-0387