January 2016 Committee on School Finance Permanent School Fund Item 6
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
January 28, 2016
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, for possible changes to clarify language and terminology and to update language to reflect changes in the investment market environment.
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, Section 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. The 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. The 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. The TEC, §43.0033, requires certain persons providing services to the SBOE regarding management and investment of the PSF to file expenditure reports. The TEC, §43.0034, requires the SBOE to adopt forms for conflicts of interest and expenditure reports.
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 rules in 19 TAC Chapter 33 effective September 1, 1996. The SBOE last revised rules in Chapter 33 with an amendment to §33.65, Bond Guarantee Program, adopted effective February 1, 2016, and an amendment to §33.67, Bond Guarantee Program for Charter Schools, adopted effective October 19, 2015.
FUTURE ACTION EXPECTED: First reading and filing authorization 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, will be presented at the April 2016 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 33.1 describes the composition, limitation on distribution, and SBOE management of the PSF as required by the Texas Constitution. Section 33.2 describes the yearly process by which the SBOE determines PSF distributions subject to the constitutional limitations. 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. Section 33.10 and §33.15 describe the investment policy of the PSF as required by statute. Section 33.20 describes the relevant duties of entities assisting the SBOE in their duty to manage the PSF, which ensures transparency and appropriate division of duties in fulfilling constitutional and statutory requirements. Section 33.25 describes the parameters that must be met by the SBOE investment managers, which ensures investments meet constitutional, statutory, and policy objectives established by and for the SBOE. Section 33.30 establishes performance standards that the SBOE's PSF committee should follow to ensure management of the fund complies with constitutional, statutory, and policy objectives. Section 33.35 establishes guidelines for custodians and securities lending agents, which ensures investments meet constitutional, statutory, and policy objectives established by and for the SBOE. Section 33.40 establishes the board's trading and brokerage policy to meet the statutory requirements of adopting policies and objectives. Section 33.45 establishes the board's policy regarding proxy voting as necessary given their constitutional and statutory investment authority. Section 33.50 establishes the socially and politically responsible investment policy of the board in accordance with statutory requirements to adopt an investment policy. Section 33.55 sets out the standards the SBOE uses in selecting outside expertise to ensure transparency and meeting the constitutional, statutory, and policy objectives established by and for the SBOE. Section 33.60 establishes requirements for performance and review procedures in accordance with statutory requirements to analyze performance. Section 33.65 and §33.67 establish the bond guarantee program for school districts and charter districts in accordance with the constitution and statutory directives.
FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $2.1 billion during the 2016-2017 biennium. Fiscal implications will be assessed after the committee gives direction regarding proposed amendments 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. Proposed amendments 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 amendments 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 amendments to bring forward for first reading and filing authorization.
PUBLIC COMMENTS: The official public comment period will begin when the amendments are published as proposed 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, 31KB)
II. Text of Current 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund (PDF, 320KB)
III. Text of Adopted Amendment to 19 TAC §33.65, Bond Guarantee Program for School Districts (As approved by the SBOE at its September 2015 meeting, and with an effective date of February 1, 2016, as approved by the SBOE at its November 2015 meeting) (PDF, 69KB)