January 2021 Committee on School Finance/Permanent School Fund Item 11
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
(Second Reading and Final Adoption)
January 29, 2021
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: CONSENT
SUMMARY: This item presents for second reading and final adoption proposed amendments to 19 Texas Administrative Code (TAC) Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules. The proposed amendments would amend the asset allocation of the Permanent School Fund (PSF), update transactions and restrictions that apply to the PSF, and update cross references and a section title. No changes are recommended since approved for first reading.
STATUTORY AUTHORITY: Texas Constitution, Article VII, §5(a) and (f); Texas Education Code (TEC), §43.001; §43.0052, as added by House Bill (HB) 4388, 86th Texas Legislature, 2019; and Texas Natural Resources Code (NRC), §32.012, as amended by Senate Bill (SB) 608, 86th Texas Legislature, 2019; NRC, §32.0161, as added by SB 608, 86th Texas Legislature, 2019; and NRC, §32.068, and §51.414, as added by HB 4388, 86th Texas Legislature, 2019.
Texas Constitution, Article VII, §5(a), authorizes the State Board of Education (SBOE) to make distributions from the PSF to the available school fund with certain limits.
Texas Constitution, Article VII, §5(f), authorizes the SBOE to manage and invest the PSF according to the prudent investor standard and make investments it deems appropriate.
TEC, §43.001, describes the PSF as a perpetual endowment.
TEC, §43.0052, as added by HB 4388, 86th Texas Legislature, 2019, and TNRC, §32.068 and §51.414, as added by HB 4388, 86th Texas Legislature, 2019, created the Liquid Account within the PSF to be managed by the SBOE and require the SBOE and School Land Board to send quarterly investment and financial reports to the other.
TNRC, §32.012, as amended by SB 608, 86th Texas Legislature, 2019, and §32.0161, as added by SB 608, require the SBOE to submit to the governor a list of six nominees for each of two positions on the School Land Board and requires the SBOE and the School Land Board to hold a joint annual public meeting to discuss the PSF.
The full text of statutory citations can be found in the statutory authority section of this agenda.
EFFECTIVE DATE: The proposed effective date of the proposed amendments is 20 days after filing as adopted with the Texas Register. Under TEC, §7.102(f), the 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 2021-2022 school year. The earlier effective date would allow the rules to align with statute as soon as possible.
PREVIOUS BOARD ACTION: The SBOE adopted rules in Chapter 33 effective September 1, 1996. The proposed rules were last revised by the SBOE as follows. Section 33.5 was amended effective
May 28, 2018. Sections 33.15, 33.25, 33.35, and 33.60 were amended effective March 15, 2020. At the September 2020 SBOE meeting, the Committee on School Finance/Permanent School Fund discussed possible amendments to Chapter 33. At the November 2020 meeting, the SBOE approved the proposed amendments to 19 TAC Chapter 33, Subchapter A, for first reading and filing authorization.
BACKGROUND INFORMATION AND JUSTIFICATION: In accordance with statute, the rules in Chapter 33 establish investment objectives, policies, and guidelines for the PSF.
The proposed amendment to §33.5, Code of Ethics, would update a reference to 19 TAC §33.20,
Responsible Parties and their Duties.
The proposed amendment to §33.15, Objectives, would amend the asset allocation of the PSF.
The proposed amendment to §33.25, Permissible and Restricted Investments and General Guidelines for Investment Managers, would update transactions and restrictions that apply to the PSF.
The proposed amendment to §33.35, Guidelines for the Custodian and the Securities Lending Agent, would update the section title to include the PSF Liquid Account.
The proposed amendment to §33.60, Performance and Review Procedures, would update a reference from the TNRC to the TEC.
No changes are recommended since approved for first reading.
FISCAL IMPACT: No changes have been made to this section since published as proposed.
The Texas Education Agency (TEA) has determined that there are no additional costs to state or local government required to comply with the proposal.
LOCAL EMPLOYMENT IMPACT: No changes have been made to this section since published as proposed.
The proposal has no effect on local economy; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.
SMALL BUSINESS, MICROBUSINESS, AND RURAL COMMUNITY IMPACT: No changes have been made to this section since published as proposed.
The proposal has no direct adverse economic impact for small businesses, microbusinesses, or rural communities; therefore, no regulatory flexibility analysis specified in Texas Government Code, §2006.002, is required.
COST INCREASE TO REGULATED PERSONS: No changes have been made to this section since published as proposed.
The proposal does not impose a cost on regulated persons, another state agency, a special district, or a local government and, therefore, is not subject to Texas Government Code, §2001.0045.
TAKINGS IMPACT ASSESSMENT: No changes have been made to this section since published as proposed.
The proposal does not impose a burden on private real property and, therefore, does not constitute a taking under Texas Government Code, §2007.043.
GOVERNMENT GROWTH IMPACT: No changes have been made to this section since published as proposed.
TEA staff prepared a Government Growth Impact Statement assessment for this proposed rulemaking. During the first five years the proposed rulemaking would be in effect, it would expand an existing regulation by adding to the list of prohibited transactions and restrictions in §33.25.
The proposed rulemaking would not create or eliminate a government program; would not require the creation of new employee positions or elimination of existing employee positions; would not require an increase or decrease in future legislative appropriations to the agency; would not require an increase or decrease in fees paid to the agency; would not create a new regulation; would not limit or repeal an existing regulation; would not increase or decrease the number of individuals subject to its applicability; and would not positively or adversely affect the state's economy.
PUBLIC BENEFIT AND COST TO PERSONS: No changes have been made to this section since published as proposed.
The proposal would update and clarify provisions supporting the management and investment of the PSF. There is no anticipated economic cost to persons who are required to comply with the proposal.
DATA AND REPORTING IMPACT: No changes have been made to this section since published as proposed.
The proposal would have no new data and reporting impact.
PRINCIPAL AND CLASSROOM TEACHER PAPERWORK REQUIREMENTS: No changes have been made to this section since published as proposed.
TEA has determined that the proposal would not require a written report or other paperwork to be completed by a principal or classroom teacher.
PUBLIC COMMENTS: Following the November 2020 SBOE meeting, notice of proposed amendments to 19 TAC Chapter 33, Subchapter A, was filed with the Texas Register, initiating the public comment period. The public comment period began December 18, 2020, and ended January 22, 2021. No comments had been received at the time this item was prepared. A summary of any public comments received regarding the proposal will be provided to the SBOE during the January 2021 meeting. The SBOE will take registered oral and written comments on the proposal at the appropriate committee meeting in January 2021 in accordance with the SBOE board operating policies and procedures.
MOTION TO BE CONSIDERED: The State Board of Education:
Approve for second reading and final adoption 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; and
Make an affirmative finding that immediate adoption 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, is necessary and shall have an effective date of 20 days after filing as adopted with the Texas Register. (Per TEC, §7.102(f), a vote of two-thirds of the members of the board is necessary for an earlier effective date.)
Staff Member Responsible:
Holland Timmins, Executive Administrator and Chief Investment Officer, Texas Permanent School Fund
Attachment:
Text 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