September 2016 Committee on School Finance Permanent School Fund Item 6

Determination as to Whether Transfers May be Made from the Permanent School Fund to the Available School Fund

September 16, 2016

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

SUMMARY:
This item provides an opportunity for the board to review the requirement in Article VII, §5(a)(2) that the total amount distributed over 10 years cannot exceed the total return on all investment assets of the PSF over the same 10 year period. The board will determine whether transfers may be made from the Permanent School Fund to the Available School Fund in fiscal year 2017.

STATUTORY AUTHORITY: Texas Constitution, Article VII, §5.

PREVIOUS BOARD ACTION:
At the September 2015 meeting, the board determined that a distribution for fiscal year 2016 is permitted under Texas Constitution Article VII, Subsection 5(a)(2).

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES:
On November 4, 2008, the chair of the State Board of Education (SBOE) sought an opinion from the Attorney General regarding the implementation of Texas Constitution, Article VII, §5(a)(2) in limiting transfers from the Permanent School Fund (PSF) to the Available School Fund (ASF). A supplementary request was made on January 14, 2009. On April 13, 2009, the Attorney General responded to the requests, noting that Article VII, §5(a)(1) and §5(a)(2) require distinct calculations using different methodologies and covering different time periods.

The Attorney General stated that the SBOE is the entity authorized to apply the limits of Article VII, §5(a)(2) in the first instance to the amount distributed from the PSF to the ASF.

Article VII, §5(a)(2) requires an annual determination by the SBOE of whether a transfer can be made from the PSF to the ASF based on the preceding nine state fiscal years and the current fiscal year.

FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $2.1 billion during the 2016-2017 biennium.

PUBLIC AND STUDENT BENEFIT: The distribution of the Permanent School Fund will flow to the school districts and reduce the tax burden to the public and the state of Texas.

PROCEDURAL AND REPORTING IMPLICATIONS:
None.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: None.

PUBLIC COMMENTS: None.

OTHER COMMENTS AND RELATED ISSUES: None.

Staff Member Responsible:

Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund

Attachment:
The Texas Constitution, Article 7, Section 5 - Permanent School Fund; Available School Fund; Use of Funds; Distribution of Available School Fund (PDF, 21KB)