November 2019 Committee on School Finance/Permanent School Fund Item 8

Review of the Permanent School Fund Liquid Account

November 15, 2019

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

SUMMARY:  This item provides an opportunity for the committee and board to review the bill requirements contained in House Bill (HB) 4388, 86th Texas Legislature, 2019.  The committee will consider implementation of the liquid account.

STATUTORY AUTHORITY:  Texas Constitution, Article VII, §2 and §5; Texas Education Code (TEC) §43.0052; Texas Natural Resources Code (NRC), §§32.068, 51.402, and 51.414; and 19 Texas Administrative Code (TAC) Chapter 33.

The Texas Constitution, Article VII, §2 and §5 establish the permanent school fund, the assets that comprise the permanent school fund, the bond guarantee program, the available school fund, and authorize the State Board of Education (SBOE) to manage and invest the permanent school fund in accordance with the prudent person standard.

TEC, §43.0052 establishes a quarterly reporting requirement.  Each quarter the State Board of Education shall provide to the School Land Board a financial report on the portion of the permanent school fund assets and funds for which the State Board of Education is responsible.

NRC, §32.068 establishes a quarterly reporting requirement.  Each quarter the School Land Board shall provide to the State Board of Education a financial report on the portion of the permanent school fund assets and funds for which the School Land Board is responsible.

NRC, §51.402 establishes maximum market values and valuation timing of investments.

NRC, §51.414 establishes the Permanent School Fund Liquid Account as an account in the permanent school fund in the State Treasury to be managed by the State Board of Education.

Administrative rules found in 19 TAC Chapter 33 provide a statement of investment objectives, policies, and guidelines of the Texas Permanent School Fund and Bond Guarantee Program as adopted by the SBOE. 

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

PREVIOUS BOARD ACTION:  At the September 2019 meeting, the board approved that the investment of the funds in the liquid account be implemented in two phases.  Over the near-term, the Texas Education Agency will invest and manage the Permanent School Fund Liquid Account against a blended benchmark consisting of the three-month U.S. Treasury bill and the Bloomberg Barclays U.S. Aggregate 1-3 Year Total Return Index as allocated at the end of the prior month. 

BACKGROUND INFORMATION AND JUSTIFICATION:  None.

PUBLIC 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. 

PUBLIC COMMENTS:  None

Staff Members Responsible:
Holland Timmins, Executive Administrator and Chief Investment Officer, Texas Permanent School Fund