April 2015 Committee on School Finance Permanent School Fund Item 3
Discussion of 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.67, Bond Guarantee Program for Charter Schools
April 16, 2015
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: DISCUSSION
STATE BOARD OF EDUCATION: NO ACTION
SUMMARY: This item provides the committee the opportunity to discuss 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.67, Bond Guarantee Program for Charter Schools. There are no proposed amendments at this time, but the committee may wish to discuss potential amendments in light of the recent Attorney General Opinion No. KP-0005 related to the calculation of capacity for the Bond Guarantee Program. This item also provides the committee the opportunity to discuss the definition of nationally recognized investment ratings firm since the current definition expires September 1, 2015.
STATUTORY AUTHORITY: Texas Education Code (TEC), §7.102(c)(33) and §45.063, and the Texas Constitution, Article VII, Section 5.
BOARD RESPONSE: This item is presented for review and comment.
PREVIOUS BOARD ACTION: Section 33.67 was adopted effective March 3, 2014 and last amended effective January 8, 2015.
FUTURE ACTION EXPECTED: Any proposed amendment to 19 TAC §33.67 resulting from this discussion could be presented to the State Board of Education (SBOE) for first reading and filing authorization at a future meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The TEC, §7.102(c)(33), authorizes the SBOE to adopt rules for the implementation of the Permanent School Fund (PSF) Bond Guarantee Program as authorized in the TEC, Chapter 45, School District Funds, Subchapter C, Guaranteed Bonds. The TEC, §45.063, authorizes the SBOE to adopt rules necessary for the administration of the program.
Senate Bill (SB) 1, Article 59, 82nd Texas Legislature, First Called Session, 2011, added statutory provisions to the TEC, Chapter 12, Subchapter D, and Chapter 45, Subchapter C, that expanded the PSF Bond Guarantee Program to allow for the guarantee of bonds issued for the benefit of open-enrollment charter schools under the TEC, Chapter 53. House Bill (HB) 885, 83rd Texas Legislature, Regular Session, 2013, amended those statutory provisions to explicitly allow for the guarantee of refunding and refinanced bonds issued for the benefit of open-enrollment charter schools, up to an amount equal to one-half of the total amount available for the guarantee of charter school bonds.
Section 33.65 is the rule the SBOE adopted to implement the Bond Guarantee Program for school districts. Section 33.67 is the rule the SBOE adopted to implement the provisions of SB 1, 82nd Texas Legislature, First Called Session, 2011, and HB 885, 83rd Texas Legislature, Regular Session, 2013, to extend the program's guarantee to bonds for open-enrollment charter schools.
Section 33.67 sets out the statutory provisions for the Bond Guarantee Program for charter schools, provides definitions, and explains bond eligibility requirements and how the capacity of the PSF to guarantee charter school bonds is determined. The rule also establishes the requirements of and policies related to the program's application and approval process. In addition, the rule allows for the commissioner to allocate specific holdings of the PSF under certain conditions, explains what effect defeasance has on guaranteed bonds, and sets out program payment conditions and guarantee restrictions. The current text of 19 TAC §33.67 is shown in Attachment II.
The TEC, §45.0532, limits the amount of charter district bonds that can receive the guarantee to a percentage of the fund's overall capacity for guaranteeing bonds reflective of the number of charter students in the total public school student population. The capacity available to charter schools is a function of the total capacity available under the program. The commissioner recently sought an attorney general opinion on whether that limitation applies to the capacity available on a monthly basis or whether the limitation applies to the cumulative total of charter district bond issuances.
In Attorney General Opinion No. KP-0005, the attorney general concluded that a court would likely construe the TEC, §45.0532, as being a limitation on the cumulative total amount of outstanding charter bond guarantees, rather than a monthly capacity calculation. This item presents the committee with the opportunity to discuss amending the rule related to the calculation of capacity in light of Attorney General Opinion No. KP-0005.
This item also provides the committee the opportunity to discuss the definition of a nationally recognized investment ratings firm since the current definition expires September 1, 2015. At its November 2014 meeting, in response to public comment, the SBOE took action to limit the definition of nationally recognized investment ratings firm and to add an expiration date of September 1, 2015, to provide time for the agency to develop a more precise definition for consideration at a future meeting. The SBOE directed staff to work with stakeholders to develop criteria that could be used to develop a Request for Qualifications (RFQ) system that would be used to identify rating firms that school districts and charter schools could use when applying for the Bond Guarantee Program. At its February 2015 meeting, the SBOE approved the issuance of an RFQ for rating agency services.
FISCAL IMPACT: Fiscal implications will be assessed after the committee gives direction regarding any proposed amendment to bring forward for first reading and filing authorization.
PUBLIC AND STUDENT BENEFIT: The Bond Guarantee Program provides low-cost bond insurance to school districts and charter schools in Texas. The program also ensures that the bonds issued by school districts and charter schools under the program are rated competitively in the bond market. A competitive bond rating allows school districts and charter schools to market their bonds at lower interest rates and thus reduces the long-term costs of the bonds for school districts, charter schools, and taxpayers.
PROCEDURAL AND REPORTING IMPLICATIONS: Procedural and reporting implications will be assessed after the committee gives direction regarding any proposed amendment to bring forward for first reading and filing authorization.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: Locally maintained paperwork requirements will be assessed after the committee gives direction regarding any proposed amendment to bring forward for first reading and filing authorization.
PUBLIC COMMENTS: The official public comment period will begin when a proposal, approved for first reading and filing authorization, is published in the Texas Register.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: Discussion about the recent attorney general opinion on the calculation of the PSF bond guarantee limit for the Bond Guarantee Program for charter schools is presented as a separate item in this agenda.
Discussion of 19 TAC §33.65, Bond Guarantee Program for School Districts, is also presented as a separate item in this agenda.
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, 18KB)
II. Text of 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.67, Bond Guarantee Program for Charter Schools (PDF, 76KB)