Local Education Agencies

Plain English Breakdown

The bill does not specify how much money can be in the trust or what types of investments are allowed, leaving these details open-ended.

School District Capital Improvements Investment Trust Act

This bill allows local school boards to create investment trusts for funding future capital improvements with specific requirements and protections.

What This Bill Does

• Allows local education agencies (LEAs) to set up an investment trust to fund future building, renovation, maintenance projects, or other capital improvements.
• Requires LEAs to adopt a capital improvements plan, maintain a reserve of at least two months' worth of expenditures from the general purpose budget, and get approval from the state funding board before setting up the trust.
• Specifies that assets in the investment trust can only be used for paying capital improvement costs or administrative expenses.
• Gives the investment trust similar powers as a corporation and protects its funds from being claimed by creditors.

Who It Names or Affects

• Local school boards in Tennessee
• The state funding board

Terms To Know

Capital improvements

Construction, renovations, improvements, modernizations, and maintenance of buildings, facilities, and grounds owned or operated by a local education agency.

General purpose budget

The primary fund used to cover daily operating expenses of an LEA.

Limits and Unknowns

• The exact financial impact on local education agencies is uncertain due to various factors.
• This bill does not specify the types of investments allowed or the maximum amount that can be in the trust.

Official Summary Text

This bill enacts the "School District Capital Improvements Investment Trust Act," which authorizes a local board of education to
establish an investment trust for the purpose of prospectively funding capital improvements for the benefit of the local board of education's LEA. In order for a local board of education to establish and maintain an investment trust, the local board of e
d
ucation must (i) adopt a capital improvements plan; (ii) maintain a public school fund balance that is no less than two months of expenditures from the LEA's general purpose budget; (iii) adopt, in writing, an investment policy authorizing how assets in t
h
e trust may be invested; (iv) ensure that the trust conforms to all applicable laws, rules, and regulations of the internal revenue service, if any; (v) ensure that the local board of education's capital improvement plan is reviewed by a third party; and

(vi) ensure that the trust document is submitted to, and approved by, the state funding board. This bill provides a local board of education with all the powers necessary or convenient to carry out this bill and the purposes and objectives of the investm
e
nt trust.

REQUIREMENTS OF THE TRUST

This bill provides that such an investment trust is irrevocable, and the assets must be preserved, invested, and expended solely pursuant to, and for the purposes of, this bill and must not be loaned or otherwise tran
sferred or used for any other purpose. The assets of the trust may only be expended to (i) make payments for capital improvements in accordance with the terms of the LEA's capital improvements plan; or (ii) pay the costs of administering the trust. This

bill authorizes the department of the treasury to establish investment guidelines for such trusts.

This bill provides that such an investment trust has the powers, privileges, and immunities of a corporation, and all of its business must be transacted; a
ll of its funds must be invested; and all of its cash, securities, and other property must be held in trust for the purpose for which the trust was created. All assets, income, and distributions of the investment trust must be protected against the claim
s
of creditors of the LEA. Assets, income, and distributions of the trust are not subject to execution, attachment, garnishment, bankruptcy, insolvency laws, or other process whatsoever, and an assignment of any right of any such action is not enforceable

against the trust in any court.

ANNUAL REPORTS AND AUDITS

This bill authorizes a local board of education to prepare annual financial reports, including financial statements, at the close of each fiscal year relative to the activities of the investment
trust. The statements and reports must contain the information required by the state funding board and must be prepared in accordance with the governmental accounting standards board. Additionally, upon the request of the state funding board, a local bo
a
rd of education may file the annual report and financial statements with the chair of the funding board. The report and statements must be filed with the chair no later than 90 calendar days from the date of the request, unless the chair extends the dead
l
ine in writing.

This bill provides that a local board of education's annual report, including financial statements, and all books, accounts, and financial records of such an investment trust are subject to audit by the comptroller of the treasury. An LE
A that maintains such a trust may, with the prior approval of the comptroller, engage licensed independent public accountants to perform any required audits. An audit contract between an LEA and an independent public accountant must be on contract forms
p
rescribed by the comptroller. The LEA is responsible for the reimbursement of the costs of audits prepared by the comptroller and for the payment of fees for audits prepared by licensed independent public accountants.

Current Bill Text

SENATE BILL 593
By Walley

HOUSE BILL 224
By Haston

HB0224
000957
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 49,
relative to capital improvements.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Title 49, Chapter 2, is amended by adding
the following as a new part:
49-2-901.
This part is known and may be cited as the "School District Capital Improvements
Investment Trust Act."
49-2-902.
As used in this part, unless the context otherwise requires:
(1) "Capital improvements" means construction, renovations,
improvements, modernizations, and maintenance of buildings, facilities, and
grounds owned or operated by a local education agency;
(2) "Capital improvements plan" means a written plan developed by a
local board of education that details needed capital improvements for a period of
no less than five (5) years, which may be amended by the LEA;
(3) "General purpose budget" means the primary fund used to cover daily
operating expenses of an LEA; and
(4) "State funding board" or "funding board" means the board created
pursuant to § 9-9-101.
49-2-903.

- 2 - 000957

A local board of education may establish an investment trust for the purpose of
prospectively funding capital improvements for the benefit of the local board of
education's LEA. In order for a local board of education to establish and maintain an
investment trust pursuant to this part, then local board of education shall:
(1) Adopt a capital improvements plan;
(2) Maintain a public school fund balance that is no less than two (2)
months of expenditures from the LEA's general purpose budget;
(3) Adopt, in writing, an investment policy authorizing how assets in the
trust may be invested;
(4) Ensure that the trust conforms to all applicable laws, rules, and
regulations of the internal revenue service, if any;
(5) Ensure that the local board of education's capital improvement plan is
reviewed by a third party; and
(6) Ensure that the trust document is submitted to, and approved by, the
state funding board.
49-2-904.
(a) A trust created under this part is irrevocable, and the assets thereof must be
preserved, invested, and expended solely pursuant to, and for the purposes of, this
section and must not be loaned or otherwise transferred or used for any other purpose.
The assets of the trust may only be expended to:
(1) Make payments for capital improvements in accordance with the
terms of the LEA's capital improvements plan; or
(2) Pay the costs of administering the trust.
(b) The department of the treasury may establish investment guidelines for trusts
established under this part.

- 3 - 000957

(c) An investment trust created pursuant to this part has the powers, privileges,
and immunities of a corporation, and all of its business must be transacted, all of its
funds must be invested, and all of its cash, securities, and other property must be held in
trust for the purpose for which the trust was created.
(d) Notwithstanding another law to the contrary, all assets, income, and
distributions of the investment trust must be protected against the claims of creditors of
the LEA, including, but not limited to, construction managers, contractors, and sub-
contractors. Assets, income, and distributions of the investment trust are not subject to
execution, attachment, garnishment, bankruptcy, insolvency laws, or other process
whatsoever, and an assignment of any right of any such action is not enforceable
against the investment trust in any court.
49-2-905.
A local board of education that establishes an investment trust under this part
has all powers necessary or convenient to carry out this part and the purposes and
objectives of the investment trust, including, but not limited to:
(1) The power to invest funds of the trust in an instrument, obligation,
security, or property that constitutes a legal investment, as provided in the
investment policy adopted pursuant to § 49-2-903(3);
(2) The power to contract for the provision of a service necessary for the
management or operation of the investment trust;
(3) The power to contract with financial consultants, auditors, and other
consultants as necessary to carry out the local board of education's
responsibilities under this part;
(4) The power to prepare annual financial reports, including financial
statements, at the close of each fiscal year relative to the activities of the trust.

- 4 - 000957

The statements and reports must contain the information required by the state
funding board and must be prepared in accordance with the governmental
accounting standards board; and
(5) Upon the request of the state funding board, the power to file the
annual report and financial statements with the chair of the funding board. The
report and statements must be filed with the chair no later than ninety (90)
calendar days from the date of the request, unless the chair extends the deadline
established in this subdivision (5) in writing.
49-2-906.
A local board of education's annual report, including financial statements, and all
books, accounts, and financial records of a trust created under this part are subject to
audit by the comptroller of the treasury. An LEA that maintains a trust under this part
may, with the prior approval of the comptroller of the treasury, engage licensed
independent public accountants to perform any required audits. An audit contract
between an LEA and an independent public accountant must be on contract forms
prescribed by the comptroller of the treasury. The LEA is responsible for the
reimbursement of the costs of audits prepared by the comptroller of the treasury and for
the payment of fees for audits prepared by licensed independent public accountants.
SECTION 2. This act takes effect upon becoming a law, the public welfare requiring it.