Proposed Amendments to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts, and §33.67, Bond Guarantee Program for Charter Schools
(Second Reading and Final Adoption)

February 2, 2018

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION

SUMMARY: This item presents for second reading and final adoption proposed amendments to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts, and §33.67, Bond Guarantee Program for Charter Schools. The proposed amendments would adjust the bond guarantee multiplier, specify the charter district bond guarantee capacity authorized by Senate Bill (SB) 1480, and address Charter District Bond Guarantee Reserve Fund management. No changes are recommended since approved for first reading.

STATUTORY AUTHORITY: Texas Education Code (TEC), §§45.053; 45.0532 and 45.0571, as amended by SB 1480, 85th Texas Legislature, Regular Session, 2017; 45.063; and the Texas Constitution, Article VII, Education, §5(d).

TEC, §45.053(d), grants the State Board of Education (SBOE) the authority to increase by rule the multiplier used in calculating the capacity of the fund.

TEC, §45.0532, as amended by SB 1480, 85th Texas Legislature, Regular Session, 2017, limits the amount of charter district bond guarantees.

TEC, §45.0571, as amended by SB 1480, 85th Texas Legislature, Regular Session, 2017, grants authority to the SBOE to manage the Charter District Bond Guarantee Reserve Fund.

TEC, §45.063, authorizes the SBOE to adopt rules necessary for the administration of the Bond Guarantee Program (BGP).

Texas Constitution, Article VII, §5(d), authorizes the legislature to use the Permanent School Fund (PSF) to establish a BGP that has been enacted under the TEC, Chapter 45, Subchapter C.

EFFECTIVE DATE: The proposed effective date of the proposed amendments is 20 days after filing as adopted with the Texas Register. Under TEC, §7.102(f), the SBOE must approve the rule action at second reading and final adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2018-2019 school year. The earlier effective date will align the rules with recent legislation in a timely manner.

PREVIOUS BOARD ACTION: The SBOE last amended §33.65 effective March 1, 2017, and §33.67 effective October 19, 2015. A discussion item on the proposed amendments was presented to the Committee on School Finance/Permanent School Fund at the September 2017 SBOE meeting. The SBOE approved the proposed amendments for first reading and filing authorization at the November 2017 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 PSF. Specifically, §33.65 and §33.67 establish the BGP for school districts and charter districts in accordance with the constitution and statutory directives.

Legislation from the 85th Texas Legislature, Regular Session, 2017, made changes to the TEC that impact the BGP for school districts and charter districts.

The proposed amendment to §33.65(e)(1) would decrease the multiplier used to determine the PSF's capacity to guarantee bonds to 3.5. The multiplier was previously raised from 3.5 to 3.75 effective September 1, 2017, to allow for more charter capacity in the BGP. With the expansion of the charter capacity authorized by SB 1480, the BGP multiplier could be lowered from 3.75 back to 3.5 and still allow sufficient capacity for new bond guarantees of independent school districts and charter districts.

SB 1480 changed the calculation of the charter capacity in the BGP, necessitating an amendment to the monthly estimation of the charter capacity by the commissioner and establishing a process for the SBOE to adjust, if needed, the annual phase-in of charter capacity for state fiscal years 2018 through 2022. Additionally, SB 1480 explicitly authorized the SBOE to manage the Charter District Bond Guarantee Reserve Fund in the same manner it manages the PSF. This change subjects the Charter District Bond Guarantee Reserve Fund to the same provisions related to the PSF as in other sections of 19 TAC Chapter 33. The proposed amendment to §33.67(d) would add language to specify the available capacity of the PSF to guarantee bonds for charter districts in accordance with SB 1480. In addition, new subsection (l) would be added to address the management of the Charter District Bond Guarantee Reserve Fund.

No changes are recommended since approved for first reading.

FISCAL IMPACT: The Texas Education Agency (TEA) has determined that there are no additional costs to persons or entities required to comply with the proposed amendments. In addition, there is no direct adverse economic impact for small businesses, microbusinesses, or rural communities; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required. There is no effect on local economy for the first five years that the proposed amendments are in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022. The proposed amendments do not impose a cost on regulated persons and, therefore, are not subject to Texas Government Code, §2001.0045.

GOVERNMENT GROWTH IMPACT: The TEA staff has determined that the proposed amendments do not have a government growth impact pursuant to Texas Government Code, §2001.0221.

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. Specifically, the proposed amendments would update and clarify provisions supporting the management and investment of the PSF.

PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendments would have no procedural and reporting implications.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendments would have no locally maintained paperwork requirements.

PUBLIC COMMENTS: Following the November 2017 SBOE meeting, notice of the proposed amendments was filed with the Texas Register, initiating the public comment period. No public comments had been received at the time this item was prepared. A summary of any public comments received regarding the proposal will be provided to the SBOE during the January-February 2018 meeting.

ALTERNATIVES: None.

OTHER COMMENTS AND RELATED ISSUES: None.

MOTION TO BE CONSIDERED: The State Board of Education:

By an affirmative vote of two-thirds of the members of the board, approve for second reading and final adoption the proposed amendments to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts, and §33.67, Bond Guarantee Program for Charter Schools, with an effective date of 20 days after filing as adopted with the Texas Register.

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

Attachments:
I. Statutory Citations (PDF, 31KB)
II. Text of Proposed Amendments to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts, and §33.67, Bond Guarantee Program for Charter Schools (PDF, 138KB)