Discussion of 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules,
§33.5, Code of Ethics

November 9, 2017

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: DISCUSSION
STATE BOARD OF EDUCATION: NO ACTION

SUMMARY: This item provides an opportunity for the committee to discuss 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics.

STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.102(c)(31) and (33), 43.0031-43.0034, and 43.004; Texas Government Code, §2263.004; and the Texas Constitution, Article VII, §5(a)(2), (d), and (f).

TEC, §7.102(c)(31), states that the State Board of Education (SBOE) may invest the Permanent School Fund (PSF) within the limits of the authority granted by the Texas Constitution, Article VII, §5, and the TEC, Chapter 43.

TEC, §7.102(c)(33), authorizes the SBOE to adopt an annual report on the status of the guaranteed bond program and states that the SBOE may adopt rules as necessary to administer the guaranteed bond program as provided under the TEC, Chapter 45, Subchapter C.

TEC, §43.0031, requires the SBOE to adopt and enforce an ethics policy regarding management and investment of the PSF.

TEC, §43.0032, requires disclosure of certain relationships with entities that provide services relating to the management and investment of the PSF, requires the board to define those relationships, and prohibits giving advice when relationships exist in certain circumstances.

TEC, §43.0033, requires certain persons providing services to the SBOE regarding management and investment of the PSF to file expenditure reports.

TEC, §43.0034, requires the SBOE to prescribe forms for statements of possible conflicts of interest and waivers of possible conflicts of interest under the TEC, §43.0032, and reports of expenditures under the TEC, §43.0033.

TEC, §43.004, requires the SBOE to adopt written investment objectives for the PSF and employ a service to analyze the performance of the PSF.

Texas Government Code, §2263.004, requires the SBOE to adopt by rule standards of conduct applicable to certain financial advisors or service providers.

Texas Constitution, Article VII, §5, describes the PSF, the limit on distributions to the Available School Fund, the setting of spending rates by the SBOE, and the ten-year distribution test; authorizes a bond guarantee utilizing the PSF; and describes the management of the PSF by the SBOE.

BOARD RESPONSE: This item is presented for review and comment.

PREVIOUS BOARD ACTION: The SBOE adopted §33.5 effective September 1, 1996, and last amended it effective August 21, 2016.

FUTURE ACTION EXPECTED: Proposed amendment to 19 TAC §33.5 will be presented for first reading and filing authorization at the January/February 2018 SBOE meeting.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: In accordance with statute, the rules in 19 TAC Chapter 33 establish investment objectives, policies, and guidelines for the Texas Permanent School Fund.

Section 33.5 describes the code of ethics and disclosures, including prescribed forms that apply to members, relevant staff, and service providers, regarding the management of the PSF as required by statute.

This item provides an opportunity for the committee to discuss changes to §33.5 that would improve and clarify how the rule applies to investments of the PSF in investment funds.

FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $2.5 billion during the 2018-2019 biennium. Fiscal implications will be assessed after the committee gives direction regarding the proposed amendment to bring forward for first reading and filing authorization.

PUBLIC AND STUDENT BENEFIT: The distribution of the PSF will flow to the school districts and reduce the tax burden to the public and the State of Texas. The proposed amendment would update and clarify provisions supporting the management and investment of the PSF.

PROCEDURAL AND REPORTING IMPLICATIONS: Procedural and reporting implications will be assessed after the committee gives direction regarding the proposed amendment to bring forward for first reading and filing authorization.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: Locally maintained paperwork requirements will be assessed after the committee gives direction regarding the proposed amendment to bring forward for first reading and filing authorization.

PUBLIC COMMENTS: The public comment period will begin when the proposal, approved for first reading and filing authorization, is published in the Texas Register.

ALTERNATIVES: None.

OTHER COMMENTS AND RELATED ISSUES: None.

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

Attachments:
I. Statutory Citations (PDF, 30KB)
II. Text of 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.5, Code of Ethics (PDF, 66KB)