Second Regular Session Sixty-fifth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 06-0214.01 Esther van Mourik SENATE BILL 06-007 SENATE SPONSORSHIP Windels, Bacon, Spence, and Tupa HOUSE SPONSORSHIP Penry, Benefield, King, Merrifield, and Pommer Senate Committees House Committees Education A BILL FOR AN ACT Concerning state school lands. Bill Summary (Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments that may be subsequently adopted.) Interim Committee on School Finance. Directs all money earned from the management of the state school lands, including interest earned on the public school fund and proceeds received by the state for mineral leases, land surface leases, and timber sales on said lands, to be deposited into the public school fund and treated as principal. Allows the corpus of the public school fund to grow from the 2006-07 fiscal year until the value of the fund reaches $2.35 billion. Allows the expenditure of up to $19 million of interest earned on the fund and up to $12 million of proceeds received for mineral leases, land surface leases, and timber sales in any fiscal year in which Colorado personal income grows less than 4.5% between the 2 prior calendar years. Allows the state treasurer to invest in additional types of securities, and modifies the manner in which a loss is calculated. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. 22-41-101 (1) and (2), Colorado Revised Statutes, are amended to read: 22-41-101. Composition of fund. (1) The general assembly hereby finds and declares that: (a) For fiscal years 1994-95 and 1995-96, a total of ten million eight hundred thousand dollars was transferred from the state public school fund to the public school fund in accordance with sections 24 and 25 of House Bill 95-1327, enacted at the first regular session of the sixtieth general assembly; (b) House Bill 95-1327 also amended this section to require that interest earned on moneys transferred to the public school fund during these two fiscal years be retained in the fund; (c) Through the language added by section 3 of House Bill 95-1327, the general assembly intended that only the interest earned on the moneys transferred to the public school fund in accordance with sections 24 and 25 of House Bill 95-1327 be retained in the fund; (d) The general assembly did not intend that interest earned on other moneys transferred to the public school fund during the 1994-95 and 1995-96 fiscal years also be retained in the public school fund; (e) The fact that this interest has been retained in the fund does not result in the interest becoming principal of the public school fund and does not prevent the transfer of this interest to any other fund in accordance with law; (f) As soon as practicable and in accordance with law, the state treasurer should comply with the provisions of this section and transfer the interest earned on all moneys transferred to the public school fund during the 1994-95 and 1995-96 fiscal years, except for the interest earned on moneys transferred to the fund pursuant to sections 24 and 25 of House Bill 95-1327, to the public school income fund. (2) The public school fund of the state shall consist of the proceeds of such lands as have been, or may be, granted to the state by the federal government for educational purposes; all estates that may escheat to the state; all other grants, gifts, or devises that may be made to the state for educational purposes; and such other moneys as the general assembly may appropriate or transfer. The interest earned on any moneys transferred to the public school fund during the 1994-95 and 1995-96 fiscal years pursuant to sections 24 and 25 of House Bill 95-1327 shall remain in the public school fund and may not be transferred to any other fund. SECTION 2. 22-41-102 (3), Colorado Revised Statutes, is amended to read: 22-41-102. Fund inviolate. (3) (a) For the 2003-04 fiscal year and each fiscal year thereafter through the 2005-06 fiscal year, the amount of interest expended from the public school fund shall not exceed nineteen million dollars. Any interest earned on the investment of the moneys in the public school fund that exceeds the amount specified in this subsection (3) paragraph (a) shall remain in the public school fund and shall become part of the principal of the fund. (b) Except as provided in paragraph (c) of this subsection (3), for the 2006-07 fiscal year and each fiscal year thereafter until the corpus of the fund has a market value of two billion three hundred fifty million dollars, any income earned on the investment of moneys in the public school fund, including interest as set forth in section 22-41-106 shall remain in the fund and shall become part of the principal of the fund. (c) In any fiscal year in which Colorado personal income grows less than four and one-half percent between the two most recent calendar years ending prior to the fiscal year, up to nineteen million dollars of interest earned on the investment of the moneys in the public school fund may be expended from the public school fund in the maintenance of the schools in the state. SECTION 3. 22-41-104 (1) and (2), Colorado Revised Statutes, are amended to read: 22-41-104. Lawful investments. (1) The state treasurer in the state treasurer's discretion may invest and reinvest moneys accrued or accruing to the public school fund in the types of deposits and investments authorized in sections 24-36-109, 24-36-112, and 24-36-113, C.R.S., sections 22-41-104.5, 24-36-109, 24-36-112, and 24-36-113, C.R.S., and bonds issued by school districts. (2) (a) The state treasurer has authority, to be exercised at the state treasurer's discretion, to effect exchanges or sales whenever such exchanges or sales will not result in any ultimate loss of principal and to effect exchanges or sales that will result in a loss of principal whenever such loss can be offset by a corresponding gain within three fiscal years of such exchange or sale. No exchange or sale of securities shall be consummated by the state treasurer that will result in a net loss of principal unless the general assembly has previously appropriated a sum to the public school fund equivalent to the anticipated net loss of principal from such exchange or sale a realized aggregate loss of principal for the public school fund for the fiscal year in which the transaction occurs. (b) A realized aggregate loss of principal is deemed to have occurred when, in a fiscal year, the earnings retained in the public school fund combined with the total proceeds derived from the liquidation of investments and any write-offs of all or a portion of any investments does not exceed the cost of those investments. SECTION 4. 22-41-104.5 (1), Colorado Revised Statutes, is amended BY THE ADDITION OF THE FOLLOWING NEW PARAGRAPHS to read: 22-41-104.5. Other financial transactions. (1) The state treasurer may engage in financial transactions whereby: (e) Publicly traded corporate equity securities are purchased with moneys accrued or accruing to the public school fund; except that: (I) Any investment of the public school fund moneys in the common or preferred stock, or both, of any single corporation shall not exceed five percent of the then-book value of the fund. (II) The public school fund shall not acquire more than five percent of the outstanding stock or bonds of any single corporation. (III) The aggregate amount of moneys of the public school fund invested in common or preferred stock or in corporate bonds, notes, or debentures that are convertible into common or preferred stock shall not exceed fifty percent of the then-book value of the fund. No more than ten percent of these investments shall be in the common or preferred stock of corporations not organized under the laws of the United States or any state, territory, or possession of the United States or the District of Columbia or of the Dominion of Canada or any province thereof. (f) Publicly traded corporate equity securities owned by the public school fund are sold and profits reinvested pursuant to section 22-41-104 (1). SECTION 5. 22-41-105, Colorado Revised Statutes, is amended to read: 22-41-105. Income distinguished from principal. Any amount paid as a premium for an interest-bearing obligation in excess of the amount realized upon disposition of said obligation shall be recovered as a return of principal. out of interest thereafter derived from the public school fund. Such recovery shall be made and recorded on a systematic basis applied consistently from year to year. SECTION 6. 22-41-106, Colorado Revised Statutes, is amended to read: 22-41-106. Disposition of income. Except as provided in section 22-41-102 (3) (c), for the 2006-07 fiscal year and each fiscal year thereafter until the corpus of the public school fund has a market value of two billion three hundred fifty million dollars, all interest derived from the investment and reinvestment of the public school fund shall be credited to the public school income fund and periodically transferred therefrom to the state public school fund. SECTION 7. 22-41-109 (9), Colorado Revised Statutes, is repealed as follows: 22-41-109. Bond guarantee loans. (9) In order to assure sufficient liquidity to meet obligations under the provisions of this section, the state treasurer shall invest moneys in the public school fund in an amount equal to at least ten percent of the principal amount of bonds guaranteed under this section in interest-bearing obligations of the United States as provided in section 22-41-104 (1) (d) with maturity dates of three years or less. SECTION 8. 36-1-116 (1) (a) and (1) (b) (I), Colorado Revised Statutes, are amended to read: 36-1-116. Disposition of rentals, royalties, and timber sale proceeds. (1) (a) (I) Except as provided in subparagraph (II) subparagraphs (II) and (III) of this paragraph (a), proceeds received by the state for the sale of timber on public school lands; rental payments for the use and occupation of the surface of said lands; and rentals or lease payments for sand, gravel, clay, stone, coal, oil, gas, geothermal resources, gold, silver, or other minerals on said lands shall be credited to the public school income fund for distribution as provided by law. as provided for in section 22-41-101(2), C.R.S. (II) For the 2005-06 state fiscal year, and each state fiscal year thereafter, the first twelve million dollars of proceeds received by the state for the sale of timber on public school lands, rental payments for the use and occupation of the surface of said lands, and rentals or lease payments for sand, gravel, clay, stone, coal, oil, gas, geothermal resources, gold, silver, or other minerals on said lands shall be credited to the public school income fund for distribution as provided by law. Any amount of such proceeds and payments received by the state during such fiscal year in excess of twelve million dollars shall be credited to the permanent public school fund as provided for in section 22-41-101 (2), C.R.S., and shall become part of the principal of the permanent public school fund. (III) For the 2006-07 state fiscal year and each state fiscal year thereafter, if Colorado personal income grows less than four and one-half percent between the two most recent calendar years ending prior to the fiscal year, up to twelve million dollars of proceeds received by the state for the sale of timber on public school lands, rental payments for the use and occupation of the surface of said lands, and rentals or lease payments for sand, gravel, clay, stone, coal, oil, gas, geothermal resources, gold, silver, or other minerals on said lands shall be expended in the support of common schools. (b) (I) Except as provided in subparagraph (II) of this paragraph (b), royalties and other payments for the depletion or extraction of a natural resource on said public school lands shall be credited to the permanent public school fund as provided for in section 22-41-101 (2), C.R.S. SECTION 9. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.