September 2015 Committee on School Finance Permanent School Fund Item 3
Proposed Amendment 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
(Second Reading and Final Adoption)
September 11, 2015
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION
SUMMARY: This item presents for second reading and final adoption proposed amendment 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. The proposed amendment would modify the definition of nationally recognized investment rating firm and exclude student and teacher housing from the projects eligible for a guarantee under the definition of new money issue. The proposal would also increase the multiplier used in calculating the capacity of the fund.
STATUTORY AUTHORITY: Texas Constitution, Article VII, §5, and Texas Education Code (TEC), §§7.102(c)(33), 45.053, 45.054, 45.055, 45.056, and 45.063.
Texas Constitution, Article VII, §5, authorizes the legislature to use the permanent school fund to establish a bond guarantee program that has been enacted under the TEC, Chapter 45, Subchapter C. TEC, §7.102(c)(33), requires the State Board of Education (SBOE) to adopt annual reports on the status of the guaranteed bond program and authorizes the SBOE to adopt rules as necessary to administer the bond guarantee program.
TEC, §45.053, authorizes the SBOE to increase the limit of bonds that may be guaranteed within certain parameters established by the statute. TEC, §45.054, requires a school district to issue bonds either under TEC, Chapter 45, Subchapter A, or Government Code, Chapter 1207, Subchapter A, to be eligible to receive the guarantee. TEC, §45.055, requires an application that meets certain parameters to receive the guarantee. TEC, §45.056, requires an applicant to be investigated and only upon satisfaction that the bonds should be guaranteed may the guarantee be issued. TEC, §45.063, authorizes the SBOE to adopt rules to administer the bond guarantee program.
EFFECTIVE DATE: The proposed effective date of the proposed amendment to 19 TAC §33.65 would be 20 days after filing as adopted with the Texas Register in order 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 2016-2017 school year.
PREVIOUS BOARD ACTION: Section 33.65 was adopted effective September 1, 1996, and last amended effective January 8, 2015. A discussion item regarding proposed amendment to 19 TAC §33.65 was presented to the committee during its April 2015 meeting. The proposed amendment was approved for first reading and filing authorization at the July 2015 SBOE meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: Section 33.65 is the rule the SBOE adopted to implement the Permanent School Fund (PSF) Bond Guarantee Program. The rule sets out the statutory provisions for the Bond Guarantee Program, provides definitions, specifies bond eligibility requirements, and explains the requirements of and policies related to the program's application process. The rule also describes how PSF capacity to guarantee bonds is determined, provides limitations on access to the program, and allows for the commissioner to allocate specific holdings of the PSF under certain conditions. In addition, the rule provides requirements specific to districts that have declared financial exigency, explains what effect defeasance has on guaranteed bonds, and sets out specific program conditions for bonds issued or guaranteed on certain specified dates. The rule also explains program payment conditions and guarantee restrictions.
The proposed amendment to 19 TAC §33.65 would modify two definitions in subsection (b) and modify a calculation in subsection (e), as follows.
To maximize the coverage of the fund, the SBOE previously adopted in rule a prohibition for a district to qualify for a guarantee after an investigation of the applicant if the district would earn a similar investment rating on their own without the bond guarantee. The current definition in subsection (b)(9) of a nationally recognized investment rating firm is set to expire on September 1, 2015. The board requested that the agency develop a request for qualifications (RFQ) to select nationally recognized statistical rating organizations that are eligible for use. This proposal would amend the bond guarantee program rule for school districts to reference the qualifications that the agency developed during the RFQ process.
The current definition in subsection (b)(10) of a new money issue eligible for the guarantee does not explicitly exclude student and teacher housing from the projects that can be guaranteed. The proposal would exclude these projects from being eligible for the guarantee after investigation of the charter applicant.
The current multiplier in subsection (e)(1) used in the calculation of capacity is set at three times the value of the fund. The proposal would increase this multiplier to three and one-fourth times the cost value of the PSF in accordance with the board's authority to increase the multiplier.
Attachment II reflects the proposal as approved for first reading and filing authorization at the July 2015 SBOE meeting. At the time this item was prepared, staff was in the process of gathering input regarding the prohibition against using the Bond Guarantee Program to guarantee bonds to construct student and teacher housing, as directed during the July meeting of the Committee on School Finance/Permanent School Fund. Possible revisions to the proposal will be provided as a separate exhibit at the September 2015 meeting for consideration by the SBOE for second reading and final adoption.
FISCAL IMPACT: The proposed rule action would have fiscal implications for school districts, but not any beyond what is provided for by the authorizing statute. Any costs to school districts to participate in the guarantee program are outweighed by the program's benefits.
Administration of the program provides school districts with access to low-cost bonds. Potential savings to school districts are impossible to estimate at this time. Districts that are approved to issue bonds with the benefit of the guarantee provided by the guarantee program experience a savings in two ways. First, the guarantee is provided at a cost lower than that for private bond insurance. Second, districts are able to get lower interest rates on bonds that have a guarantee than they can otherwise get. Actual savings are influenced by the unique circumstances of each school district that proposes to issue bonds, including the market's assessment of the district's financial condition and the cost and availability of private bond insurance.
The Texas Education Agency 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 amendment would incorporate modifications to the Bond Guarantee Program, which provides low-cost bond insurance to school districts in Texas. The program also ensures that the bonds issued by school districts under the program are rated competitively in the bond market. A competitive bond rating allows districts to market their bonds at lower interest rates and thus reduces the long-term costs of the bonds for school districts and taxpayers.
PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendment would have no procedural and reporting implications.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would have no locally maintained paperwork requirements.
PUBLIC COMMENTS: Following the July 2015 SBOE meeting, notice of the proposed amendment to 19 TAC §33.65 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 at the September 2015 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 amendment 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, with an effective date of 20 days after filing as adopted with the Texas Register.
Staff Members Responsible:
Von Byer, General Counsel
Legal Services
Lisa Dawn-Fisher, Associate Commissioner
School Finance / Chief School Finance Officer
Attachments:
I. Statutory Citations (PDF, 24KB)
II. Text of Proposed Amendment 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 (PDF, 69KB)