Bond Guarantee Program Capacity Increases Following State Board of Education Action
AUSTIN — April 5, 2023 — The State Board of Education (SBOE) has taken steps to address the nearly exhausted Bond Guarantee Program (BGP) by voting to lower the amount set aside for reserve from 5% to 0.25%. This action freed up nearly $6 billion in capacity, allowing the Texas Education Agency (TEA) to approve all February applications from school districts and charters seeking to take advantage of the program’s AAA bond rating. After considering the maturity of guaranteed bonds and the new guarantees approved in February, the program’s remaining capacity stands at $5.37 billion. “I am pleased that the Bond Guarantee Program can continue to partner with charter and public school districts throughout the state to guarantee important bond projects while saving taxpayers hundreds of millions of dollars each year,” said Keven Ellis, SBOE Chair.
While the SBOE’s action has alleviated capacity concerns in the short term, the BGP remains subject to an outdated 2009 Internal Revenue Service cap on the amount of debt the Permanent School Fund (PSF) can guarantee. TEA and PSF Corporation staff have been seeking a remedy at the federal level for more than two years.
From November 2022 to January 2023, when available program capacity shrank as the program approached the IRS limit, TEA was forced to turn down $8.4 billion in applications because the BGP did not have sufficient capacity under the federal limit. The denials represented 92% of the dollar value of all applications in those three months. U.S. Representatives Lloyd Doggett, D-Austin, and Jodey Arrington, R-Lubbock have jointly introduced federal legislation to free the BGP from the outdated IRS limit. The PSF assets (at cost value) have almost doubled in size since the IRS set the BGP limit at $117.3 billion in December 2009.
Background: The BGP guarantees bonds issued by Texas school districts and charter districts by means of the Texas Permanent School Fund, a diversified investment portfolio that supports public and charter schools. The PSF’s AAA credit rating means that school and charter districts pay lower interest rates on bonds guaranteed by the PSF, allowing more money to go toward school district needs, instead of financing costs. Since the BGP’s inception in 1983, it has guaranteed around $220 billion in charter and public school debt.