Texas Legislature's House Committee to Investigate Expenditures of State Funds was created in 1935 by a simple resolution during the Regular Session of the 44th Legislature. A resolution introduced by Representative Petsch on January 23, 1935 pointed out that, prior to June 20,1933, the Board of Education, which managed the Permanent School Fund, had invested almost $2.5 million dollars of that fund in what proved in danger of being worthless bonds. Then, after June 30, 1933, the Board invested an additional $5.5 million in the same type of bonds. Representative Petsch proposed that a committee of five, employing all necessary auditors and reporters, be appointed to investigate the situation of the Permanent School Fund and the bond investments made by the Board of Education. The resolution was initially sent to the Committee on Education and, on January 25, 1935, while it was in committee, Governor Allred wrote to the Legislature expressing his interest in seeing such an investigation and suggesting calling upon the State Auditor for help. The resolution came out of committee on February 6th, calling for an investigating committee of seven and authorization to call upon the State Auditor and the Attorney General for assistance. The simple resolution was adopted with the amendment that the investigation it called for should be handled by the committee appointed in accordance with House Simple Resolution [H.S.R.] No. 39.

House Simple Resolution 39 was introduced by Representative King on January 30th to provide for the creation of a committee to inquire into the matter of the necessity for appropriations for the maintenance of the various State departments, and to investigate the use to which past appropriations have been put, and the necessity for making various appropriations in the future. The resolution, calling for a seven member investigating committee, was approved on February 6th and, on February 8th, Representatives King, Calvert, Graves, Pope, Knetsch, Hunter, and Petsch were appointed to the Committee to Investigate Expenditures of State Funds (also referred to as the Committee in Regard to Investigating State Departments and the Special Committee Appointed to Investigate the Permanent School Fund).

By mid-March it had become apparent that the scope of the committee's work would make it unable to complete its investigation of the Permanent School Fund, and the other State departments which had been brought to its attention, by the committee's original March deadline. The members, thus, requested an extension until the end of the 44th Legislative session. The committee's reports were finally submitted on May 10th and 11th. A separate report concentrating on the Permanent School Fund was associated with the larger committee report. In addition to the school fund, the committee had investigated the Life Insurance Commissioner, the State Highway Department, the School for the Deaf and Dumb, the Jack and Stallion Fund, counterfeit cigarette taxes, the State Superintendent of Public Instruction, the State Health Officer, the Board of Barber Examiners, and an individual's misrepresentation of himself as an agent of the Governor. The reports made a number of specific recommendations, including the creation of a standing general investigating committee, the passage of certain legislation, the appointment of a bond expert to advise the School Board, and the appointment of a full-time attorney to look after the collection of monies due to the Permanent School Fund.