January 2014 Committee on School Finance Permanent School Fund Item 1

Proposed New 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund,
§33.67, Bond Guarantee Program for Charter Schools
(Second Reading and Final Adoption)

January 31, 2014

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

SUMMARY:
This item presents for second reading and final adoption proposed new 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.67, Bond Guarantee Program for Charter Schools. The proposed new rule would implement provisions of the Texas Education Code (TEC), Chapter 12, Subchapter D, and Chapter 45, Subchapter C, that were added by Senate Bill (SB) 1, Article 59, 82nd Texas Legislature, First Called Session, 2011, and amended by House Bill (HB) 885, 83rd Texas Legislature, Regular Session, 2013. These provisions expand the Permanent School Fund (PSF) Bond Guarantee Program to allow for guarantee of bonds issued for the benefit of open-enrollment charter schools.

STATUTORY AUTHORITY: TEC, §7.102(c)(33) and §45.063, and Texas Constitution, Article VII, §5(d).

EFFECTIVE DATE: The proposed effective date of proposed new 19 TAC §33.67 is 20 days after filing as adopted with the Texas Register to implement the latest policy in a timely manner. Under the TEC, §7.102(f), the State Board of Education (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 2014-2015 school year.

PREVIOUS BOARD ACTION: The SBOE approved proposed new 19 TAC §33.67 for first reading and filing authorization at the board's November 2013 meeting.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The TEC, §7.102(c)(33), authorizes the SBOE to adopt rules for the implementation of the PSF Bond Guarantee Program as authorized in the TEC, Chapter 45, School District Funds, Subchapter C, Guaranteed Bonds. The TEC, §45.063, authorizes the SBOE to adopt rules necessary for the administration of the program.

SB 1, Article 59, 82nd Texas Legislature, First Called Session, 2011, added statutory provisions to the TEC, Chapter 12, Subchapter D, and Chapter 45, Subchapter C, that expanded the PSF Bond Guarantee Program to allow for the guarantee of bonds issued for the benefit of open-enrollment charter schools under the TEC, Chapter 53. HB 885, 83rd Texas Legislature, Regular Session, 2013, amended those statutory provisions to explicitly allow for the guarantee of refunding and refinanced bonds issued for the benefit of open-enrollment charter schools, up to an amount equal to one-half of the total amount available for the guarantee of charter school bonds.

Existing §33.65 is the rule the SBOE adopted to implement the Bond Guarantee Program for school districts. Proposed new §33.67 is the rule that would implement the provisions of SB 1, 82nd Texas Legislature, First Called Session, 2011, and HB 885, 83rd Texas Legislature, Regular Session, 2013, to extend the program's guarantee to bonds for open-enrollment charter schools.

Section 33.67 would set out the statutory provisions for the Bond Guarantee Program for charter schools, provide definitions, and explain bond eligibility requirements and how the capacity of the PSF to guarantee charter school bonds is determined. The rule would also establish the requirements of and policies related to the program's application and approval process. In addition, the rule would allow for the commissioner to allocate specific holdings of the PSF under certain conditions, explain what effect defeasance would have on guaranteed bonds, and set out program payment conditions and guarantee restrictions.

FISCAL IMPACT: The proposed rule action would have fiscal implications for open-enrollment charter schools, but not any beyond what are provided for by the authorizing statute. Any costs to open-enrollment charter schools to participate in the guarantee program would be outweighed by the program's benefits.

Administration of the program would provide open-enrollment charter schools with access to low-cost bonds. Potential savings to charter schools are impossible to estimate at this time. Charter schools approved to have bonds issued with the benefit of the guarantee provided by the guarantee program would experience a savings in two ways. First, the guarantee would be provided at a cost lower than that for private bond insurance. Second, charter schools would be able to get lower interest rates on bonds that had a guarantee than they could otherwise get. Actual savings would be influenced by the unique circumstances of each open-enrollment charter school that proposed to have bonds issued, including the market's assessment of the school's financial condition and the cost and availability of private bond insurance.

The Texas Education Agency (TEA) has determined that there are no additional costs to the state or persons required to comply with the proposed rule action. In addition, there is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

PUBLIC AND STUDENT BENEFIT: The proposed new rule would implement the Bond Guarantee Program for charter schools, which would provide low-cost bond insurance to open-enrollment charter schools in Texas. The program would also ensure that the bonds issued on behalf of charter schools under the program were rated competitively in the bond market. A competitive bond rating allows open-enrollment charter schools to market their bonds at lower interest rates and thus reduces the long-term costs of the bonds for the charter schools.

PROCEDURAL AND REPORTING IMPLICATIONS: A charter holder that wished to receive the guarantee for its bonds would have to submit an application for the guarantee that included the following: the name of the charter holder and the principal amount of the bonds to be issued; the name and address of the charter holder's paying agent for those bonds; and the maturity schedule, estimated interest rate, and date of the bonds. An applicant charter holder would also be required to submit any additional information related to the bonds that the commissioner specifically requested to make an approval determination. A charter holder that was applying for the guarantee of refunding bonds would have to provide evidence that issuing the refunding bonds would result in a present value savings and that the refunding bonds did not have a maturity date later than the final maturity date of the bonds being refunded.

A charter holder that received initial guarantee approval would be required to provide a written notice by facsimile or email to the TEA two business days before issuing a preliminary official statement for the bonds that would be eligible for the guarantee or two business days before soliciting investment offers, if the bonds would be privately placed without the use of a preliminary official statement.

A charter holder that then received confirmation from the TEA that program capacity continued to be available would be required to provide written notice to the TEA of the placement of an item to approve the bond sale on the agenda of a meeting of the bond issuer's board of directors no later than two business days before the meeting. If the bond sale were to be completed pursuant to a delegation by the issuer to a pricing officer or committee, notice would be required to be given no later than two business days before the execution of a bond purchase agreement by such pricing officer or committee.

A charter holder that had bonds approved for the guarantee issued on its behalf would be required to have its independent auditor confirm in the charter holder's annual financial report that bond funds had been used in accordance with the purpose specified in the application. This data collection requirement will be added to the Financial Accountability System Resource Guide.

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

PUBLIC COMMENTS: Following the November 2013 SBOE meeting, notice of the proposed new rule was filed with the Texas Register, initiating the official public comment period. A summary of public comments received regarding the proposal will be provided to the SBOE during the January 2014 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 proposed new 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.67, Bond Guarantee Program for Charter Schools, with an effective date of 20 days after filing as adopted with the Texas Register.

Staff Members Responsible:
Lisa Dawn-Fisher, Associate Commissioner
School Finance / Chief School Finance Officer

Amanda Brownson, Director
State Funding

Attachments:
I. Statutory Citations (PDF, 39KB)
II. Text of Proposed New 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.67, Bond Guarantee Program for Charter Schools (PDF, 72KB)