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First Substitute S.B. 98

Representative Lloyd W. Frandsen proposes to substitute the following bill:


             1     
EDUCATION BUDGET RESERVE ACCOUNT

             2     
2000 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Sponsor: Lyle W. Hillyard

             5      AN ACT RELATING TO BUDGETARY PROCEDURES; ESTABLISHING AN EDUCATION
             6      BUDGETARY RESERVE ACCOUNT; DEFINING ITS REVENUE SOURCES AND
             7      PARAMETERS; AUTHORIZING ITS INVESTMENT IN CERTAIN COMMON AND
             8      PREFERRED STOCKS AND BONDS; AND DEFINING APPROPRIATIONS THAT MAY BE
             9      MADE FROM THE ACCOUNT.
             10      This act affects sections of Utah Code Annotated 1953 as follows:
             11      ENACTS:
             12          51-7-12.3, Utah Code Annotated 1953
             13          63-38-2.6, Utah Code Annotated 1953
             14      Be it enacted by the Legislature of the state of Utah:
             15          Section 1. Section 51-7-12.3 is enacted to read:
             16          51-7-12.3. Deposit or investment of Budgetary Reserve Account -- Authorized
             17      deposits and investments -- Asset manager.
             18          (1) Notwithstanding the requirements of Section 51-7-11 , the principal of the Education
             19      Budget Reserve Account established by Section 63-38-2.6 shall be deposited or invested only in
             20      the following:
             21          (a) any deposit or investment authorized by Section 51-7-11 ;
             22          (b) equity securities, including common and preferred stock issued by corporations listed
             23      on a major securities exchange, in accordance with the following criteria applied at the time of
             24      investment:
             25          (i) the treasurer may not invest more than 5%, determined on a cost basis, of the total


             26      account assets in the securities of any one issuer;
             27          (ii) the treasurer may not invest more than 25%, determined on a cost basis, of the total
             28      account assets in a particular industry;
             29          (iii) the treasurer may not invest more than 5%, determined on a cost basis, of the total
             30      account assets in securities of corporations that have been in continuous operation for less than
             31      three years;
             32          (iv) the account may not hold in excess of 5% of the outstanding voting securities of any
             33      one corporation; and
             34          (v) at least 75% of the corporations in which investments are made under Subsection (1)(b)
             35      must appear on the Standard and Poor's 500 Composite Stock Price Index;
             36          (c) fixed-income securities, including bonds, notes, mortgage securities, zero coupon
             37      securities and convertible securities issued by domestic corporations rated A or higher by Moody's
             38      Investor's Service, Inc. or by Standard and Poor's Corporation in accordance with the following
             39      criteria applied at the time of investment:
             40          (i) the treasurer may not invest more than 5%, determined on a cost basis, of the total
             41      account assets in the securities of any one issuer;
             42          (ii) the treasurer may not invest more than 25%, determined on a cost basis, of the total
             43      account assets in a particular industry;
             44          (iii) the treasurer may not invest more than 5%, determined on a cost basis, of the total
             45      account assets in securities of corporations that have been in continuous operation for less than
             46      three years; and
             47          (iv) the dollar-weighted average maturity of fixed-income securities acquired under
             48      Subsection (1)(c) may not exceed ten years;
             49          (d) fixed-income securities issued by agencies of the United States and
             50      government-sponsored organizations, including mortgage-backed pass-through certificates and
             51      mortgage-backed bonds;
             52          (e) shares of an open-end diversified management investment company established under
             53      the Investment Companies Act of 1940; and
             54          (f) shares of or deposits in a pooled-investment program.
             55          (2) (a) No more than 65% of the total account assets of any of these funds, on a cost basis,
             56      may be invested in common or preferred stocks at any one time.


             57          (b) At least 35% of the total assets of the total account assets shall be invested in
             58      fixed-income securities authorized by Subsections (1)(a), (c), and (d).
             59          (3) The state treasurer shall use appropriate investment strategies to protect the principal
             60      of the funds administered under this section during periods of financial market volatility.
             61          (4) (a) The state treasurer may employ professional asset managers to assist in the
             62      investment of assets of the Education Budget Reserve Account.
             63          (b) The treasurer may provide compensation to asset managers from earnings generated
             64      by the accounts' investments.
             65          (5) The council shall give suggestions, advice, and opinions to the state treasurer in regard
             66      to this section.
             67          Section 2. Section 63-38-2.6 is enacted to read:
             68          63-38-2.6. Establishing an Education Budget Reserve Account -- Providing for
             69      deposits and expenditures from the account.
             70          (1) There is created within the Uniform School Fund a restricted account to be known as
             71      the Education Budget Reserve Account, which is designated to receive the surplus revenue
             72      required by this section.
             73          (2) (a) Beginning June 30, 2001, at the end of any fiscal year in which the Division of
             74      Finance, in conjunction with the completion of the annual audit by the state auditor, determines
             75      that there is a Uniform School Fund surplus, 25% of the surplus shall be transferred to the
             76      Education Budget Reserve Account, except that the amount in the Education Budget Reserve
             77      Account may not exceed 8% of the Uniform School Fund appropriation amount for the fiscal year
             78      in which the surplus occurred.
             79          (b) The amount to be transferred to the Education Budget Reserve Account shall be
             80      determined before any other contingency appropriation using surplus funds.
             81          (3) (a) Any appropriation made by the Legislature from the Education Budget Reserve
             82      Account may only be used to cover operating deficits or retroactive tax refunds.
             83          (b) The Education Budget Reserve Account is available for appropriation to fund operating
             84      deficits in public education appropriations.
             85          (4) All interest generated from investments of money in the Education Budget Reserve
             86      Account shall be deposited into the account.


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