Second Substitute H.B. 357

Representative Melvin R. Brown proposes to substitute the following bill:

1 SCHOOL TRUST LANDS MODIFICATIONS
2 2000 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Melvin R. Brown
5 AN ACT RELATING TO SCHOOL AND INSTITUTIONAL TRUST LANDS; PROVIDING
6 THAT NO MORE THAN 80% OF THE PERMANENT LAND GRANT TRUST FUND ASSETS
7 MAY BE INVESTED IN COMMON OR PREFERRED STOCKS; MODIFYING THE
8 SELECTION PROCESS FOR THE SCHOOL AND INSTITUTIONAL TRUST LANDS BOARD
9 OF TRUSTEES NOMINATING COMMITTEE; REMOVING ARCHAIC LANGUAGE
10 REGARDING PERFORMANCE AUDITS; MODIFYING PROVISIONS RELATED TO LEGAL
11 REPRESENTATION FOR THE ADMINISTRATION; AND PROVIDING THAT THE
12 DIRECTOR OF THE ADMINISTRATION SHALL EFFICIENTLY MANAGE ALL RANGE
13 RESOURCES ON TRUST LANDS CONSISTENT WITH THE DIRECTOR'S FIDUCIARY
14 DUTIES TO THE BENEFICIARIES.
15 This act affects sections of Utah Code Annotated 1953 as follows:
16 AMENDS:
17 51-7-12, as last amended by Chapter 270, Laws of Utah 1999
18 53C-1-201, as last amended by Chapter 219, Laws of Utah 1998
19 53C-1-203, as last amended by Chapter 243, Laws of Utah 1996
20 53C-1-204, as last amended by Chapter 103, Laws of Utah 1996
21 53C-1-305, as enacted by Chapter 294, Laws of Utah 1994
22 53C-5-101, as enacted by Chapter 294, Laws of Utah 1994
23 Be it enacted by the Legislature of the state of Utah:
24 Section 1. Section 51-7-12 is amended to read:
25 51-7-12. Deposit or investment of permanent land grant trust funds -- Authorized

26 deposits and investments -- Asset manager -- Investment Advisory Committee.
27 (1) The principal of the permanent land grant trust funds established pursuant to the Utah
28 Enabling Act and the Utah Constitution shall be deposited or invested only in the following:
29 (a) any deposit or investment authorized by Section 51-7-11 ;
30 (b) equity securities, including common and preferred stock issued by corporations listed
31 on a major securities exchange, in accordance with the following criteria applied at the time of
32 investment:
33 (i) the treasurer may not invest more than 5%, determined on a cost basis, of the total fund
34 assets in the securities of any one issuer;
35 (ii) the treasurer may not invest more than 25%, determined on a cost basis, of total fund
36 assets in a particular industry;
37 (iii) the treasurer may not invest more than 5%, determined on a cost basis, of the total
38 fund assets in securities of corporations that have been in continuous operation for less than three
39 years;
40 (iv) the fund may not hold in excess of 5% of the outstanding voting securities of any one
41 corporation; and
42 (v) at least 75% of the corporations in which investments are made under Subsection (1)(b)
43 must appear on the Standard and Poor's 500 Composite Stock Price Index;
44 (c) fixed-income securities, including bonds, notes, mortgage securities, zero coupon
45 securities and convertible securities issued by domestic corporations rated A or higher by Moody's
46 Investor's Service, Inc. or by Standard and Poor's Corporation in accordance with the following
47 criteria applied at the time of investment:
48 (i) the treasurer may not invest more than 5%, determined on a cost basis, of the total fund
49 assets in the securities of any one issuer;
50 (ii) the treasurer may not invest more than 25%, determined on a cost basis, of the total
51 fund assets in a particular industry;
52 (iii) the treasurer may not invest more than 5%, determined on a cost basis, of the total
53 fund assets in securities of corporations that have been in continuous operation for less than three
54 years; and
55 (iv) the dollar-weighted average maturity of fixed-income securities acquired under
56 Subsection (1)(c) may not exceed ten years;

57 (d) fixed-income securities issued by agencies of the United States and
58 government-sponsored organizations, including mortgage-backed pass-through certificates and
59 mortgage-backed bonds;
60 (e) shares of an open-end diversified management investment company established under
61 the Investment Companies Act of 1940; and
62 (f) shares of or deposits in a pooled-investment program.
63 (2) (a) No more than [65%] 80% of the total fund assets of any of these funds, on a cost
64 basis, may be invested in common or preferred stocks at any one time.
65 (b) At least [35%] 20% of the total assets of these funds shall be invested in fixed-income
66 securities authorized by Subsections (1)(a), (c), and (d).
67 (3) The state treasurer shall use appropriate investment strategies to protect the principal
68 of the funds administered under this section during periods of financial market volatility.
69 (4) (a) The state treasurer may employ professional asset managers to assist in the
70 investment of assets of the permanent trust funds.
71 (b) The treasurer may provide compensation to asset managers from earnings generated
72 by the funds' investments.
73 (5) This section applies only to permanent trust funds in which the principal is prudently
74 invested and held by the state in perpetuity.
75 (6) (a) There is established an advisory committee to give suggestions, advice, and
76 opinions to the state treasurer in regard to this section.
77 (b) The committee shall consist of the following:
78 (i) one member appointed by the president of the University of Utah;
79 (ii) one member appointed by the president of Utah State University;
80 (iii) one member appointed by the state superintendent of public instruction;
81 (iv) one member appointed by the president of the Utah Education Association;
82 (v) one member appointed by the president of the Utah Parent Teachers Association; and
83 (vi) one member appointed by the director of the Department of Human Services.
84 (c) (i) Except as required by Subsection (6)(c)(ii), as terms of current committee members
85 expire, the appointing authority shall appoint each new member or reappointed member to a
86 four-year term.
87 (ii) Notwithstanding the requirements of Subsection (6)(c)(i), the appointing authority

88 shall, at the time of appointment or reappointment, adjust the length of terms to ensure that the
89 terms of committee members are staggered so that approximately half of the committee is
90 appointed every two years.
91 (d) When a vacancy occurs in the membership for any reason, the replacement shall be
92 appointed for the unexpired term.
93 (e) The committee shall meet at least annually and review investment reports prepared by
94 the state treasurer, including information on portfolio composition and investment performance.
95 (7) (a) (i) Members who are not government employees shall receive no compensation or
96 benefits for their services, but may receive per diem and expenses incurred in the performance of
97 the member's official duties at the rates established by the Division of Finance under Sections
98 63A-3-106 and 63A-3-107 .
99 (ii) Members may decline to receive per diem and expenses for their service.
100 (b) (i) State government officer and employee members who do not receive salary, per
101 diem, or expenses from their agency for their service may receive per diem and expenses incurred
102 in the performance of their official duties from the committee at the rates established by the
103 Division of Finance under Sections 63A-3-106 and 63A-3-107 .
104 (ii) A state government member who is a member because of their state government
105 position may not receive per diem or expenses for their service.
106 (iii) State government officer and employee members may decline to receive per diem and
107 expenses for their service.
108 (c) (i) Local government members who do not receive salary, per diem, or expenses from
109 the entity that they represent for their service may receive per diem and expenses incurred in the
110 performance of their official duties at the rates established by the Division of Finance under
111 Sections 63A-3-106 and 63A-3-107 .
112 (ii) Local government members may decline to receive per diem and expenses for their
113 service.
114 Section 2. Section 53C-1-201 is amended to read:
115 53C-1-201. Creation of administration -- Purpose -- Director.
116 (1) (a) There is established within state government the School and Institutional Trust
117 Lands Administration.
118 (b) The administration shall manage all school and institutional trust lands and assets

119 within the state, except as otherwise provided in Chapter 3 of this title and Section 51-7-12 .
120 (2) The administration is an independent state agency and not a division of any other
121 department.
122 (3) (a) It is subject to the usual legislative and executive department controls except as
123 follows:
124 (i) (A) the director may make rules as approved by the board that allow the administration
125 to classify a business proposal submitted to the administration as protected under Section
126 63-2-304 , for as long as is necessary to evaluate the proposals;
127 (B) the administration shall return the proposal to the party who submitted the proposal,
128 and incur no further duties under Title 63, Chapter 2, Government Records Access and
129 Management Act, if the administration determines not to proceed with the proposal;
130 (C) the administration shall classify the proposal pursuant to law if it decides to proceed
131 with the proposal; and
132 (D) Section 63-2-403 does not apply during the review period;
133 (ii) the director shall make rules in compliance with Title 63, Chapter 46a, Utah
134 Administrative Rulemaking Act, except that the director, with the board's approval, may establish
135 a procedure for the expedited approval of rules, based on written findings by the director showing:
136 (A) the changes in business opportunities affecting the assets of the trust;
137 (B) the specific business opportunity arising out of those changes which may be lost
138 without the rule or changes to the rule;
139 (C) the reasons the normal procedures under Section 63-46a-4 cannot be met without
140 causing the loss of the specific opportunity;
141 (D) approval by at least five board members; and
142 (E) that the director has filed a copy of the rule and a rule analysis, stating the specific
143 reasons and justifications for its findings, with the Division of Administrative Rules and notified
144 interested parties as provided in Subsection 63-46a-4 (7); and
145 (iii) the administration shall comply with Title 67, Chapter 19, Utah State Personnel
146 Management Act, except as follows:
147 (A) the board may approve, upon recommendation of the director, that exemption for
148 specific positions under Subsections 67-19-12 (2) and 67-19-15 (1) is required in order to enable
149 the administration to efficiently fulfill its responsibilities under the law. The director shall consult

150 with the director of the Department of Human Resource Management prior to making such a
151 recommendation. The positions of director, deputy director, assistant director, legal counsel
152 appointed under Subsection 53C-1-305 (2), administrative assistant, and public affairs officer are
153 exempt under Subsections 67-19-12 (2) and 67-19-15 (1);
154 (B) salary for exempted positions, except for the director, shall be set by the director, after
155 consultation with the director of the Department of Human Resource Management, within ranges
156 approved by the board. The board and director shall consider salaries for similar positions in
157 private enterprise and other public employment when setting salary ranges; and
158 (C) the board may create an annual incentive and bonus plan for the director and other
159 administration employees designated by the board, based upon the attainment of financial
160 performance goals and other measurable criteria defined and budgeted in advance by the board;
161 and
162 (iv) the administration shall comply with Title 63, Chapter 56, Utah Procurement Code,
163 except where the board approves, upon recommendation of the director, exemption [under Section
164 63-56-3 ] from the Utah Procurement Code, and simultaneous adoption of policies for procurement,
165 which enable the administration to efficiently fulfill its responsibilities under the law.
166 (b) (i) The board and director shall review the exceptions under Subsection (3)(a) and
167 make recommendations for any modification, if required, which the Legislature would be asked
168 to consider during its annual General Session.
169 (ii) The board and director may include in their recommendations any other proposed
170 exceptions from the usual executive and legislative controls the board and director consider
171 necessary to accomplish the purpose of this title.
172 (4) The administration is managed by a director of school and institutional trust lands
173 appointed by a majority vote of the board of trustees with the consent of the governor.
174 (5) (a) The board of trustees shall provide policies for the management of the
175 administration and for the management of trust lands and assets.
176 (b) The board shall provide policies for the ownership and control of Native American
177 remains that are discovered or excavated on school and institutional trust lands in consultation with
178 the Division of Indian Affairs and giving due consideration to Title 9, Chapter 9, Part 4, Native
179 American [Graves] Grave Protection and Repatriation Act.
180 (6) In connection with joint ventures for the development of trust lands and minerals

181 approved by the board under Subsection 53C-1-303 (4)(c), the administration may become a
182 member of a limited liability company under Title 48, Chapter 2b, Utah Limited Liability
183 Company Act, and is considered a person under Subsection 48-2b-102 (6) for such purposes.
184 Section 3. Section 53C-1-203 is amended to read:
185 53C-1-203. Board of trustees nominating committee -- Composition --
186 Responsibilities -- Per diem and expenses.
187 (1) There is established an 11 member board of trustees nominating committee.
188 (2) (a) The State Board of Education shall appoint five members to the nominating
189 committee from different geographical areas of the state.
190 (b) The governor shall appoint five members to the nominating committee as follows:
191 (i) one individual from a nomination list of at least two names of individuals
192 knowledgeable about institutional trust lands submitted by the [commissioner of higher education
193 after consultation with institutional trust land beneficiaries, other than the public school trust land
194 beneficiaries] University of Utah and Utah State University on an alternating basis every four
195 years;
196 (ii) one individual from a nomination list of at least two names submitted by the livestock
197 industry;
198 (iii) one individual from a nomination list of at least two names submitted by the Utah
199 Petroleum Association;
200 (iv) one individual from a nomination list of at least two names submitted by the Utah
201 Mining Association; and
202 (v) one individual from a nomination list of at least two names submitted by the executive
203 director of the Department of Natural Resources after consultation with statewide wildlife and
204 conservation organizations.
205 (c) The president of the Utah Association of Counties shall designate the chair of the
206 Public Lands Steering Committee, who must be an elected county commissioner or councilor, to
207 serve as the eleventh member of the nominating committee.
208 (3) (a) Except as required by Subsection (3)(b), each member shall serve a four-year term.
209 (b) Notwithstanding the requirements of Subsection (3)(a), the state board and the
210 governor shall, at the time of appointment or reappointment, adjust the length of terms to ensure
211 that the terms of committee members are staggered so that approximately half of the committee

212 is appointed every two years.
213 (c) When a vacancy occurs in the membership for any reason, the replacement shall be
214 appointed for the unexpired term.
215 (4) The nominating committee shall select a chair from its membership by majority vote.
216 (5) (a) The nominating committee shall nominate at least two candidates for each position
217 or vacancy which occurs on the board of trustees except for the governor's appointee under
218 Subsection 53C-1-202 (5).
219 (b) The nominations shall be by majority vote of the committee.
220 (6) (a) (i) Members who are not government employees shall receive no compensation or
221 benefits for their services, but may receive per diem and expenses incurred in the performance of
222 the member's official duties at the rates established by the Division of Finance under Sections
223 63A-3-106 and 63A-3-107 .
224 (ii) Members may decline to receive per diem and expenses for their service.
225 (b) (i) State government officer and employee members who do not receive salary, per
226 diem, or expenses from their agency for their service may receive per diem and expenses incurred
227 in the performance of their official duties from the committee at the rates established by the
228 Division of Finance under Sections 63A-3-106 and 63A-3-107 .
229 (ii) State government officer and employee members may decline to receive per diem and
230 expenses for their service.
231 (c) (i) Higher education members who do not receive salary, per diem, or expenses from
232 the entity that they represent for their service may receive per diem and expenses incurred in the
233 performance of their official duties from the committee at the rates established by the Division of
234 Finance under Sections 63A-3-106 and 63A-3-107 .
235 (ii) Higher education members may decline to receive per diem and expenses for their
236 service.
237 Section 4. Section 53C-1-204 is amended to read:
238 53C-1-204. Policies established by board -- Director.
239 (1) (a) The board shall establish policies for the management of the School and
240 Institutional Trust Lands Administration.
241 (b) The policies shall:
242 (i) be consistent with the Utah Enabling Act, the Utah Constitution, and state law;

243 (ii) reflect undivided loyalty to the beneficiaries consistent with fiduciary duties;
244 (iii) require the return of not less than fair market value for the use, sale, or exchange of
245 school and institutional trust assets;
246 (iv) seek to optimize trust land revenues and increase the value of trust land holdings
247 consistent with the balancing of short and long-term interests, so that long-term benefits are not
248 lost in an effort to maximize short-term gains;
249 (v) maintain the integrity of the trust and prevent the misapplication of its lands and its
250 revenues; and
251 (vi) have regard for and seek General Fund appropriation compensation for the general
252 public's use of natural and cultural resources consistent with the duties of the administration as
253 trustee for the beneficiaries.
254 (2) The board shall ensure that the administration is managed according to law.
255 (3) The board shall establish due process procedures governing adjudicative proceedings
256 conducted by the administration.
257 (4) The board and the director shall recommend to the governor and the Legislature any
258 necessary or desirable changes in statutes relating to the trust or their trust responsibilities.
259 (5) Policies adopted by the Board of State Lands and Forestry prior to the effective date
260 of this act regarding school and institutional trust lands, shall remain in effect until amended or
261 repealed by the board.
262 [(6) Prior to the 1995 General Session, the board shall determine and make
263 recommendations to the governor and the Legislature regarding the feasibility of and necessity for
264 performance audits of the administration by a certified public accounting firm on a regular basis
265 of at least once every three years.]
266 [(7)] (6) The board shall develop policies for the long-term benefit of the trust utilizing
267 the broad discretion and power granted to it in this title.
268 [(8)] (7) (a) (i) On at least three occasions during each calendar year and in cooperation
269 with the director, the board shall consult with an advisory committee consisting of five county
270 commissioners appointed by the Utah Association of Counties concerning the impact of trust land
271 management practices on rural economies.
272 (ii) The director shall notify the chair of the committee prior to any proposed board
273 actions. At the request of the committee and prior to taking the proposed action, the board shall

274 meet with the committee at the next scheduled board meeting.
275 (b) The association shall appoint the commissioners from five different counties based on
276 such factors as a county's total acreage of trust lands, the revenues generated from trust lands in
277 the county, and the potential for economic development of trust lands within the county.
278 (c) The advisory committee may request additional consultations it considers necessary
279 or appropriate, to be scheduled within a reasonable time after receipt of the request by the
280 administration.
281 [(9)] (8) The board shall utilize the services of the attorney general as provided in Section
282 53C-1-305 .
283 [(10)] (9) The board may:
284 (a) (i) establish advisory committees to advise the board, director, or administration on
285 policies affecting the management of the trust, and pay the compensation and travel expenses in
286 accordance with rules adopted by the Division of Finance; and
287 (ii) after conferring with the director, hire consultants to advise the board, director, or
288 administration on issues affecting the management of the trust, and pay compensation to the
289 consultants from monies appropriated for that purpose;
290 (b) with the consent of the state risk manager, authorize the director to manage lands or
291 interests in lands held by any other public or private party, if:
292 (i) all management costs are compensated by the parties;
293 (ii) there is a commensurate return to the beneficiaries; and
294 (iii) the additional responsibilities do not detract from the administration's responsibilities
295 and its duty of undivided loyalty to the beneficiaries;
296 (c) issue subpoenas or authorize a hearing officer to issue subpoenas, to compel the
297 attendance of witnesses and the production of documents in adjudicative proceedings authorized
298 by law and administer oaths in the performance of official duties; and
299 (d) submit in writing to the director a request for responses, to be made within a reasonable
300 time, to questions concerning policies and practices affecting the management of the trust.
301 [(11)] (10) Board members shall be given access to all administration records and
302 personnel consistent with law and as necessary to permit the board to accomplish its
303 responsibilities to ensure that the administration is in full compliance with applicable policies and
304 law.

305 Section 5. Section 53C-1-305 is amended to read:
306 53C-1-305. Attorney general to represent administration.
307 (1) The attorney general shall:
308 (a) represent the board, director, or administration in any legal action relating to trust lands
309 except as otherwise provided in Subsection (3);
310 (b) review leases, contracts, and agreements submitted for review prior to execution; and
311 (c) undertake suits for the collection of royalties, rental, and other damages in the name
312 of the state.
313 (2) The attorney general may institute actions against any party to enforce this title or to
314 protect the interests of the trust beneficiaries.
315 (3) The administration may, with the consent of the attorney general, employ inhouse legal
316 counsel to perform the duties of the attorney general under Subsections (1) and (2).
317 (4) In those instances where the interests of the trust beneficiaries conflict with those of
318 state officers or executive department agencies for which the attorney general acts as legal advisor
319 under Utah Constitution Article VII, Section 16, the board may, with the consent of the attorney
320 general [shall appoint inhouse and], employ independent counsel[, when required, with the consent
321 of the board] to represent and protect those interests.
322 Section 6. Section 53C-5-101 is amended to read:
323 53C-5-101. Management of range resources.
324 (1) The director is responsible for the efficient management of all range resources on lands
325 under the director's administration, consistent with his fiduciary duties of financial support to the
326 beneficiaries.
327 (2) This management shall be based on sound resource management principles.