ADOPTED 
 RULES 
 
 An agency may take final action on a section 30 days after a proposal has been 
published in the  Texas Register. The section becomes effective 20 days after 
the agency files the correct document with the  Texas Register, unless a later 
date is specified or unless a federal statute or regulation requires 
implementation of the action on shorter notice. 
 If an agency adopts the section without any changes to the proposed text, only 
the preamble of the notice and statement of legal authority will be published. 
If an agency adopts the section with changes to the proposed text, the proposal 
will be republished with the changes. 
 
   
  TITLE 16. ECONOMIC REGULATION 
 Part I. Railroad Commission of Texas 
  Chapter 9. Liquefied Petroleum Gas Division 
  
  The Railroad Commission of Texas adopts amendments to sec. sec.9.2, 9.953-9. 
956, relating to definitions; specifications for approved low pressure piping 
materials; corrosion protection; piping layout; and joining methods, without 
changes to the versions published in the March 22, 1996, Texas Register  (21 
TexReg 2353). The commission adopts these actions to allow the use of corrugated 
stainless steel tubing (CSST) for LP-gas vapor service inside a building. CSST 
is recognized and accepted by the National Fire Protection Association (in NFPA 
Pamphlet 54, National Fuel Gas Code), the Southern Building Code Congress 
International, the Council of American Building Officials, the American and 
Canadian Gas Associations, and other building codes. Its flexibility means it 
will bend instead of break when a building settles over time or is subject to 
earthquakes or high winds. Its flexibility also means fewer joints are used 
during installation, which decreases the potential for leaks. 
 Adopted amendments in sec.9.2 include a new definition for CSST and amendment 
of the definition for low pressure piping. Section 9.953 describes the types of 
material that may be used in low pressure piping and lists the standards to 
which the material must conform. The adopted amendment in new subsection 
(a)(1)(D) adds the specifications for CSST. 
 Section 9.954 and sec.9.955 describe the protection against corrosion which 
must be used when piping is installed underground and the locations inside a 
building where piping may be installed. The adopted amendments state that CSST 
shall be installed underground only as specified by the manufacturer and shall 
be protected in a manner specified by the manufacturer. 
 Section 9.956 specifies joining methods that must be used. Adopted amendments 
to sec.9.956 include a new subsection (d), which states that CSST shall only be 
joined by methods approved by ANSI/AGA LC-1, Interior Fuel Gas Piping Systems 
Using Corrugated Stainless Steel Tubing. Subsection (f) also has a new sentence 
requiring licensees to keep written proof of any certifications for CSST 
installation and repair. 
 Only one comment was received, which was in favor of the proposed amendments. 
No comments were received from any groups or associations. 
   
  Subchapter A. General Applicability and Requirements 
 
  16 TAC sec.9.2 
 
  The amendment is adopted under the Texas Natural Resources Code, sec.113. 051, 
which authorizes the commission to adopt rules relating to any and all aspects 
or phases of the LP-gas industry that will protect or tend to protect the 
health, welfare, and safety of the general public. 
 Texas Natural Resources Code, sec.113.051 is affected by this amendment. 
 
  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. 
 Issued in Austin, Texas, on May 14, 1996. 
 TRD-9606683 
  Mary Ross McDonald 
 Assistant Director, Office of General Counsel, Gas Services Section 
 Railroad Commission of Texas 
    Effective date: June 4, 1996 
 Proposal publication date: March 22, 1996 
 For further information, please call: (512) 463-7008 
         
         
  Subchapter L. LP-Gas Piping and Piping Systems 
 
  16 TAC sec.sec.9.953-9.956 
 
  The amendments are adopted under the Texas Natural Resources Code, sec.113. 
051, which authorizes the commission to adopt rules relating to any and all 
aspects or phases of the LP-gas industry that will protect or tend to protect 
the health, welfare, and safety of the general public. 
 Texas Natural Resources Code, sec.113.051 is affected by these amendments. 
 
  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. 
 Issued in Austin, Texas, on May 14, 1996. 
 TRD-9606684 
  Mary Ross McDonald 
 Assistant Director, Office of General Counsel, Gas Services Section 
 Railroad Commission of Texas 
    Effective date: June 4, 1996 
 Proposal publication date: March 22, 1996 
 For further information, please call: (512) 463-7008 
         
               
  TITLE 19. EDUCATION 
 Part II. Texas Education Agency 
  Chapter 33. Statement of Investment Objectives, Policies, and Guidelines of 
the Texas Permanent School Fund 
  
  19 TAC sec.sec.33.5, 33.10, 33.40, 33.45, 33.60 
 
  (Editor's Note: The following adopted rules were originally published in the 
May 7, 1996 issue of the Texas Register. The preamble indicated that they were 
being adopted without changes. However, the sections did contain some changes 
from the proposal. The text to those rules are being printed in this issue. 
These adopted rules are effective September 1, 1996. Also, there is a correction 
of error on these adopted rules being published in the In Addition Section of 
this issue.) 
   
  
  sec.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, and the standards of 
conduct and conflict of interest procedures of the Texas Education Agency (TEA). 
   
  (c) Persons affected by this section. A reference to an SBOE member includes 
the SBOE member and each member of his or her immediate family (spouse or 
children), members of a firm with which they are associated, or individuals with 
whom they have a financial association. 
   
  (d) Assets affected by this section. The provisions of this section apply to 
all PSF assets, both publicly and nonpublicly traded investments. 
   
  (e) Disclosure. An SBOE member shall not participate in a discussion or vote 
on a matter in which the member has direct or indirect financial interest. In 
addition, an SBOE member shall fully disclose any substantial interest, as 
defined in the Texas Government Code, Chapter 572, in any publicly or 
nonpublicly traded PSF investment. 
   
  (f) Prohibitions against direct placement. For purposes of this chapter, 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 underwriters. No SBOE member shall: 
 
  (1) have a financial interest in a direct placement investment of the PSF; 
   
  (2)  serve as an officer, director, or employee of an entity in which a direct 
placement investment is made by the PSF; 
   
  (3) 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; 
   
  (4) act as a representative or agent of a third party in dealing with a PSF 
manager or consultant; or 
   
  (5) 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. 
     
  (g) Solicitation of support. In addition to the prohibitions specified in 
subsections (a)-(f) of this section, no SBOE member shall solicit support on 
behalf of another 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 all SBOE 
members. 
   
  (h) Responsibilities of investment managers and consultants. Each investment 
manager retained by the PSF shall be notified in writing of the code of ethics 
contained in this section and the related conflict of interest laws of Texas. 
Any future investment shall strictly conform to this code of ethics. The manager 
or consultant 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 all SBOE members. An investment manager, consultant, or 
other person retained in a fiduciary capacity must comply with the provisions of 
this section. 
   
  (i) 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 comply with the provisions of the 
Texas Government Act, as stated in the Texas Government Code, Chapter 572, and 
the standards of conduct and conflict of interest procedures of the TEA when 
hiring an external professional. The SBOE shall select each professional based 
solely on merit and subject to the provisions of sec.33.55 of this title 
(relating to Standards for Selecting Consultants, Investment Managers, 
Custodians, and Other Professionals To Provide Outside Expertise for the Texas 
Permanent School Fund). 
 
     
  sec.33.10. Purposes of Texas Permanent School Fund Assets and the Statement of 
Investment Policy. 
 
  (a) The purpose of the Texas Permanent School Fund (PSF), as defined by the 
Texas Constitution, shall be to support and maintain an efficient system of 
public free schools. The State Board of Education (SBOE) views the PSF as a 
perpetual institution. Consistent with its perpetual nature, the PSF shall be an 
endowment fund with a long-term investment horizon. The SBOE shall strive to 
manage the PSF consistently with respect to the following: generating income for 
the benefit of the public free schools of Texas, the growth of the corpus of the 
PSF, protecting capital, and balancing the needs of present and future 
generations of Texas school children. 
   
  (b) The purposes of the investment policy statement are to: 
 
  (1)  specify the investment objectives, policies, and guidelines the SBOE 
considers appropriate and prudent, considering the needs of the PSF, and to 
comply with the Texas Constitution by directing PSF assets. Although the PSF is 
not subject to the provisions of the Employee Retirement Income Security Act 
(ERISA) of 1974, as amended, the SBOE intends to comply with the provisions of 
ERISA regarding fiduciary responsibility to the greatest extent possible. 
Further, the provisions of the Uniform Management of Institutional Funds Act, as 
stated in the Texas Property Code, sec.sec.163.001-163.009, shall apply, to the 
extent they are consistent with the provisions of the Texas Constitution, 
Article VII, governing the operation of the PSF; 
   
  (2)  establish SBOE performance criteria for an investment manager; 
   
  (3)  communicate the investment objectives, guidelines, and performance 
criteria to the SBOE, PSF investment staff and managers, and all other parties; 
   
  (4) guide the ongoing oversight of PSF investment and test compliance with the 
Texas Constitution and other applicable statutes; 
   
  (5)  document that the SBOE is fulfilling its responsibilities for managing 
PSF investments solely in the interests of the PSF; and 
   
  (6) document that the SBOE is fulfilling its responsibilities under Texas law. 
 
       
  sec.33.40. Trading and Brokerage Policy. 
 
  (a) Security transaction policy. 
 
  (1) The following principles shall guide all Texas Permanent School Fund (PSF) 
transactions. 
 
  (A) Best execution and lowest cost must apply to each PSF trade. 
   
  (B) Ongoing efforts must be made to reduce trading costs, in terms of both 
commissions and market impact, provided the investment returns of the PSF are 
not jeopardized. 
     
  (2) The State Board of Education (SBOE) may enter into brokerage commission 
recapture agreements or soft dollar agreements. 
   
  (3) The SBOE may evaluate transaction activity annually through a trading cost 
analysis. 
     
  (b) Directed Trades. The SBOE may adopt directed trade procedures for the PSF 
portfolio according to procedures developed by the SBOE Committee on the 
Permanent School Fund. 
   
  (c) Guidelines for selecting a brokerage firm. 
 
  (1) Introduction and basic principles. 
 
  (A)  The SBOE intends that any transaction of publicly traded security occur 
through a brokerage firm or automated trading system, regardless of location, to 
obtain the lowest transaction cost consistent with best execution. 
   
  (B)  Each investment manager shall be responsible for selecting brokerage 
firms or automated trading systems through which PSF trading shall be completed. 
The selections must meet PSF guidelines and be for the exclusive benefit of the 
PSF. 
     
  (2) Guidelines for selection. The broker or dealer firm must: 
 
  (A) have appropriate trading and comprehensive, proprietary, in-house research 
capabilities and market expertise; 
   
  (B) be in compliance with applicable federal and Texas laws related to 
conducting business as a broker or dealer; 
   
  (C) be a member in good standing of the major financial exchanges; 
   
  (D) have on-site, in-house trading capability and direct access to major 
markets; 
   
  (E) have in-house access to trading support equipment; 
   
  (F) trade for competitive rates that provide the lowest transaction cost 
consistent with best execution; 
   
  (G) be financially able to accommodate a capital commitment trade over an 
industry standard settlement period; 
   
  (H) have the ability and record to clear and settle trades without unnecessary 
delays or fails; and 
   
  (I) have been in business as a broker or dealer for a reasonable period of 
time to ensure financial and operational stability. 
     
  (3) Relationship with historically underutilized business. A broker or dealer 
firm may have an independent contractual relationship with a historically 
underutilized business. 
   
  (4) Review and evaluation. At least annually, the SBOE Committee on the 
Permanent School Fund shall review the brokerage firms used by PSF investment 
managers and all transactions for compliance with the provisions of this 
section. 
 
       
  sec.33.45. Proxy Voting Policy. The State Board of Education (SBOE) recognizes 
its fiduciary obligations with respect to the voting of proxies of companies 
with securities that are owned by the Texas Permanent School Fund (PSF). Because 
the issues related to proxy voting are complex and directly impact investment 
values, the SBOE believes the PSF is best suited to vote the proxies of shares 
held in the PSF portfolio. Therefore, as part of the PSF investment policy, the 
SBOE instructs the PSF executive administrator and investment staff to vote all 
of the PSF proxies of companies according to the following guidelines. 
 
  (1) Routine matters. Routine proxy proposals shall be voted in support of 
company proposals unless there is a clear reason not to do so. Routine matters 
include: 
 
  (A) electing directors; 
   
  (B) determining the size of a board; 
   
  (C) changing a corporate name; 
   
  (D) appointing an auditor; 
   
  (E) splitting stock; 
   
  (F) amending articles of incorporation that are required to comply with 
federal or state regulation; and 
   
  (G) changing the date, time, or location of an annual meeting. 
     
  (2) Business matters. Business proposals that do not eliminate the rights of 
shareholders, especially minority shareholders, or the status of securities 
held, including ownership status, shall not be treated as routine; rather, they 
shall be carefully analyzed. These issues may be voted with management. However, 
business proposals that are nonroutine or would impair the economic interests of 
shareholders shall be voted against management. Examples of such proposals 
include: 
 
  (A) requests to alter bylaws to require a super majority to approve mergers; 
   
  (B) anti-takeover proposals that could restrict tender offers or deny majority 
owners from exercising judgment; 
   
  (C)  proposals to dilute existing shares by issuing substantially more stock 
without adequate explanation by management; and 
   
  (D) proposals that would enrich management excessively or substantially 
increase compensation awards or employment contracts to senior management that 
become effective when ownership of the company changes (also known as "golden 
parachute" awards). 
     
  (3) Other matters. On all other matters, the PSF executive administrator and 
investment staff shall vote proxies judged to be in the best interests of the 
PSF. 
   
  (4) Reporting to SBOE. At each regularly scheduled SBOE meeting, the PSF 
executive administrator shall advise the SBOE of all instances in which the PSF 
executive administrator voted against management. sec.33.60. Performance and 
Review Procedures. As requested by the State Board of Education (SBOE) or Texas 
Permanent School Fund (PSF) investment staff, evaluation and periodic investment 
reports shall supply critical information on a continuing basis, such as the 
amount of trading activity, investment performance, cash positions, 
diversification ratios, rates of return, and other perspectives of the 
portfolios. The reports shall address compliance with investment policy 
guidelines. 
   
  (1) Performance measurements. The SBOE Committee on the Permanent School Fund 
shall review at least quarterly the performance of each investment manager 
portfolio of the PSF in terms of the provisions of this chapter. The investment 
performance review shall include comparisons with representative benchmark 
indices, a broad universe of investment managers, and the consumer price index. 
A time-weighted return formula (which minimizes the effect of contributions and 
withdrawals) shall be used for investment return analysis. The review also may 
include quarterly performance analysis and comparisons of retained firms. The 
services of an outside, independent consulting firm that provides performance 
measurement and evaluation shall be retained. 
   
  (2) Meeting and reports. At least annually, the SBOE Committee on the 
Permanent School Fund shall meet with the PSF investment managers and custodian 
to review their responsibilities, the PSF portfolio, and investment results in 
terms of the provisions of this chapter. 
   
  (3) Review and modification of investment policy statement. The SBOE Committee 
on the Permanent School Fund shall review the provisions of this chapter at 
least once a year to determine if modifications are necessary or desirable. Upon 
approval by the SBOE, any modifications shall be promptly reported to all 
investment managers and other responsible parties. 
   
  (4) Compliance with this chapter and Texas statutes. Annually, the SBOE 
Committee on the Permanent School Fund shall confirm that the PSF and each of 
its managed portfolios have complied with the provisions of this chapter 
concerning exclusions imposed by the SBOE, proxy voting, and trading and 
brokerage selection. 
   
  (5) Significant events. The SBOE must be notified promptly if any of the 
following events occur within the custodian or external investment manager 
organizations: 
 
  (A) any event that is likely to adversely impact to a significant degree the 
management, professionalism, integrity, or financial position of the custodian 
or investment manager. A custodian must report the loss of an account of $500 
million or more. An investment manager must report the loss of an account of $25 
million or more; 
   
  (B) a loss of one or more key people; 
   
  (C)  a significant change in investment philosophy; 
   
  (D) the addition of a new portfolio manager on the sponsor's account; 
   
  (E) a change in ownership or control, through any means, of the custodian or 
investment manager; or 
   
  (F) any violation of policy. 
         
                 
  TITLE 34. PUBLIC FINANCE 
 Part I. Comptroller of Public Accounts 
  Chapter 3. Tax Administration 
  
  Subchapter V. Franchise Tax 
 
  34 TAC sec.3.569 
 
  The Comptroller of Public Accounts adopts new sec.3.569, concerning eligible 
child credit, without changes to the proposed text as published in the February 
20, 1996, issue of the  Texas Register (21 TexReg 1373). 
 The new section is proposed in accordance with House Bill 327, 74th 
Legislature, 1995, creating the credit for wages paid to certain children 
committed to the Texas Youth Commission. 
 No comments were received regarding adoption of the new section. 
 The new section is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
 The new section implements the Tax Code, sec.sec.171.681-171.687. 
 
  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. 
 Issued in Austin, Texas, on May 15, 1996. 
 TRD-9606694 
  Martin Cherry 
 Chief, General Law 
 Comptroller of Public Accounts 
    Effective date: June 5, 1996 
 Proposal publication date: February 20, 1996 
 For further information, please call: (512) 463-4028 
         
               
  TITLE 40. SOCIAL SERVICES AND ASSISTANCE 
 Part II. Texas Rehabilitation Commission 
  Chapter 106. Contract Administration 
  
  Subchapter B. Acquisition of Goods and Services for Adjudication of Claims by 
Disability Determination Services 
 
  40 TAC sec.106.37 
 
  The Texas Rehabilitation Commission (TRC) adopts new sec.106.37, without 
changes to the proposed text as published in the April 12, 1996, issue of the 
Texas Register  (21 TexReg 3155). 
 The new rule is to implement the Commission's contracting authority contained 
in Title 7, sec.111.052, Texas Human Resources Code, and to formalize by rule 
that purchases by the Disability Determination Services must comply with the 
laws, rules, regulations, and guidelines of the Social Security Administration. 
 No comments were received regarding the new rule. 
 The new rule is adopted under Texas Human Resources Code, Title 7, sec.111. 
018, which provides the Texas Rehabilitation Commission with the authority to 
promulgate rules consistent with Title 7, Texas Human Resources Code. 
 The Texas Human Resources Code, Title 7, Chapter 111, sec.111.052, is affected 
by this new rule. 
 
  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. 
 Issued in Austin, Texas, on May 14, 1996. 
 TRD-9606665 
  Charles W. Schiesser 
 General Counsel 
 Texas Rehabilitation Commission 
    Effective date: June 4, 1996 
 Proposal publication date: April 12, 1996 
 For further information, please call: (512) 483-4051 
         
         
  Subchapter D. Debarment 
 
  40 TAC sec.sec.106.41-106.44 
 
  The Texas Rehabilitation Commission (TRC) adopts new sec. sec.106.41-106.44, 
without changes to the proposed text as published in the April 12, 1996, issue 
of the Texas Register  (21 TexReg 3155). 
 The new rules implement the Commission's contracting authority contained in 
Title 7, sec.111.052, Texas Human Resources Code, and formalize by rule and make 
available to the public the Commission's Debarment procedures. 
 No comments were received regarding adoption of the new rules. 
 The new rules are adopted under Texas Human Resources Code, Title 7, sec.111. 
018, which provides the Texas Rehabilitation Commission with the authority to 
promulgate rules consistent with Title 7, Texas Human Resources Code. 
 The Texas Human Resources Code, Title 7, Chapter 111, sec.111.052, is affected 
by these new rules. 
 
  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. 
 Issued in Austin, Texas, on May 14, 1996. 
 TRD-9606667 
  Charles W. Schiesser 
 General Counsel 
 Texas Rehabilitation Commission 
    Effective date: June 4, 1996 
 Proposal publication date: April 12, 1996 
 For further information, please call: (512) 483-4051