Review of the Report on Permanent School Fund Percentage Distribution Rates
Under Consideration for Fiscal Years 2018 and 2019

July 22, 2016

COMMITTEE OF THE FULL BOARD: ACTION
STATE BOARD OF EDUCATION: CONSENT

SUMMARY: This item provides an opportunity for the board to evaluate and approve the report on Permanent School Fund percentage distribution rates under consideration for fiscal years 2018 and 2019. The board will consider various factors associated with the distribution rate such as expected returns, inflation, and student growth. Additionally, this item provides the opportunity for the board to discuss anticipated instructional material needs for the 2018-2019 biennium.

STATUTORY AUTHORITY: Texas Constitution, Article 7, Section 5.

PREVIOUS BOARD ACTION: At the July 2014 meeting, the board approved the percentage distribution rate to the Available School Fund from the Permanent School Fund for fiscal years 2016 and 2017 to be between 2.75% and 3.5%.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The amendment to Article 7 of the Constitution changed the Permanent School Fund distribution from an income-based policy to a total return policy. This distribution rate is to be determined by a vote of two-thirds of the total membership of the State Board of Education taken before the regular session of the legislature convenes. If the State Board of Education does not adopt a rate, then the legislature will adopt a rate by general law or appropriation. The current rate is 3.5% of the average market value for the trailing 16 state fiscal quarters ending November 30, 2014.

Rider 43 in the General Appropriations Act (HB 1, 84th Texas Legislature) provides the following guidance:

Permanent School Fund Distribution Rate. At least 45 days prior to the adoption of the distribution rate from the Permanent School Fund to the Available School Fund by the State Board of Education, the Texas Education Agency shall report to the Legislative Budget board and the Governor on the following:

a. The distribution rate or rates under consideration;
b. The assumptions and methodology used in determining the rate or rates under consideration;
c. The annual amount the distribution rate or rates under consideration are estimated to provide, and the difference between them and the annual distribution amounts for the preceding three biennia; and
d. The optimal distribution amount for the preceding biennium, based on an analysis of intergenerational equity, and the difference between it and the actual distribution amount.

FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $2.1 billion during the 2016-2017 biennium.

PUBLIC AND STUDENT BENEFIT: The distribution of the Permanent School Fund will flow to the school districts and reduce the tax burden to the public and the state of Texas.

PROCEDURAL AND REPORTING IMPLICATIONS: Not applicable.

PUBLIC COMMENTS: None.

OTHER COMMENTS AND RELATED ISSUES: None.

Staff Member Responsible:
Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund

Attachment:
The Texas Constitution, Article 7, Section 5 - Permanent School Fund; Available School Fund; Use of Funds; Distribution of Available School Fund (PDF, 21KB)