Rule Review 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, and Subchapter B, Texas Permanent School Fund Corporation Rules

August 31, 2023

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

SUMMARY: Texas Government Code (TGC), §2001.039, establishes a four-year rule review cycle for all state agency rules, including State Board of Education (SBOE) rules. This item presents the review of 19 Texas Administrative Code (TAC) Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, and Subchapter B, Texas Permanent School Fund Corporation Rules. Subchapter A establishes distributions to the Available School Fund, SBOE duties related to the Texas Permanent School Fund (PSF) Corporation, ethical standards for SBOE members, the Bond Guarantee Program (BGP), and compliance with Securities and Exchange Commission (SEC) Rule 15c2-12 related to BGP disclosure as required by the Texas Constitution, Article VII, §5(a) and (f), and the Texas Education Code (TEC), Chapter 43. Subchapter B addresses the term length of SBOE members on the board of directors of the Texas PSF Corporation as required by TEC, §43.053.

STATUTORY AUTHORITY: The statutory authority for the rule review is TGC, §2001.039. The statutory authority for 19 TAC Chapter 33, Subchapter A, is Texas Constitution, Article VII, §5(a) and §5(f); TEC, §43.001 and §43.0031; and Senate Bill (SB) 1232, 87th Texas Legislature, Regular Session, 2021. The statutory authority for 19 TAC Chapter 33, Subchapter B, is Texas Constitution, Article VII, §5(a) and §5(f); TEC, §43.001 and §43.0031 and §43.053.

TGC, §2001.039, requires all state agencies to review their rules at least once every four years.

Texas Constitution, Article VII, §5(a), authorizes the SBOE to make distributions from the PSF to the Available School Fund with certain limits.

Texas Constitution, Article VII, §5(f), authorizes the SBOE to manage and invest the PSF according to the prudent investor standard and make investments it deems appropriate.

TEC, §43.001, describes the PSF as a perpetual endowment.

TEC, §43.0031, requires the SBOE to adopt an ethics policy.

TEC, §43.053, establishes the composition of the board of directors of the Texas PSF Corporation and requires the SBOE to establish by rule the terms of SBOE members of the board of directors.

SB 1232, 87th Texas Legislature, Regular Session, 2021, allowed the SBOE to create the Texas PSF Corporation and delegate its authority to manage the PSF to the Texas PSF Corporation.

The full text of statutory citations can be found in the statutory authority section of this agenda.

FUTURE ACTION EXPECTED: The review of 19 TAC Chapter 33, Subchapter A and Subchapter B, will be presented to the SBOE for adoption at the November 2023 board meeting.

BACKGROUND INFORMATION AND JUSTIFICATION: Chapter 33, Subchapter A, establishes the distributions to the Available School Fund, SBOE duties related to the Texas PSF Corporation, ethical standards for SBOE members, the BGP, and compliance with SEC Rule 15c2-12 related to BGP disclosure. Subchapter B addresses the term length of SBOE members on the board of directors of the Texas PSF Corporation as required by TEC, §43.053.

The SBOE approved revisions to 19 TAC Chapter 33, Subchapter A, for second reading and final adoption at its February 3, 2023 meeting. The revisions:

• removed the 5% floor on the reserve requirement, aligning the reserve capacities for both districts and charters;
• adopted a lower reserve, which allowed more funding for the bond guarantee program as the program was at capacity; and
• modified the ethical standards for SBOE members, the commissioner of education, Texas Education Agency (TEA) staff, and persons who provide services to the SBOE relating to the PSF as a result of SB 1232, 87th Texas Legislature, Regular Session, 2021.

The SBOE also approved new §33.21 for second reading and final adoption at its January 2022 meeting. The revisions organized the rules in Chapter 33 by creating new Subchapter B, Texas Permanent School Fund Corporation Rules, which contains §33.21.

ANTICIPATED REVISIONS TO RULES: The following changes to the rules in 19 TAC Chapter 33, Subchapter A, may be presented to the SBOE for future consideration:

• allowing refunding bonds to be eligible for guarantee if they were denied beginning in November 2022 due to compliance with federal regulation;
• adding a process for how to allocate available capacity among school district and charter applicants when the total amount applied for in a month is greater than the available capacity; and
• adding back language on the distribution that was mistakenly repealed in the recodification related to SB 1232, 87th Texas Legislature, Regular Session, 2021, and the transfer to the Texas PSF Corporation.

PUBLIC COMMENTS: TEA plans to file the review of 19 TAC Chapter 33, Subchapter A and Subchapter B, with the Texas Register following the August-September 2023 SBOE meeting. TEA will accept comments as to whether reasons for adopting 19 TAC Chapter 33, Subchapter A and Subchapter B, continue to exist. The public comment period on the proposed rule review begins October 6, 2023, and ends at 5:00 p.m. on November 10, 2023. The SBOE will take registered oral and written comments on this item at the appropriate committee meeting in November 2023 in accordance with the SBOE operating policies and procedures.

The filing of the proposed review soliciting comments as to whether the reason for adoption continues to exist would not preclude any amendments that may be proposed at different dates through a separate rulemaking process.

Staff Members Responsible:
Mike Meyer, Deputy Commissioner, Finance
Amy Copeland, Director, State Funding
Jim Moore, Foundation School Program Manager, State Funding

Attachment:
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, and Subchapter B, Texas Permanent School Fund Corporation Rules