July 2015 Committee on School Finance Permanent School Fund Item 3
Proposed Amendment 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, §33.67, Bond Guarantee Program for Charter Schools
(First Reading and Filing Authorization)
July 17, 2015
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION
SUMMARY: This item presents proposed amendment 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, §33.67, Bond Guarantee Program for Charter Schools. The proposed amendment would modify the definition of nationally recognized investment rating firm and exclude student and teacher housing from the projects eligible for a guarantee under the definition of new money issue. The proposed amendment would also require the commissioner to maintain a 5.0% reserve so that charter school guarantees do not exceed capacity as the value of the fund changes and new guarantees in process are issued. In addition, the proposed amendment would specify additional requirements for a charter district relating to the fulfillment of financial obligations and the classification of property purchased or improved with bond proceeds that is serviced with state funds.
STATUTORY AUTHORITY: Texas Education Code (TEC), §7.102(c)(33) and §45.063, and the Texas Constitution, Article VII, Section 5.
EFFECTIVE DATE: The proposed effective date of the proposed amendment to 19 TAC §33.67 would be 20 days after filing as adopted with the Texas Register in order to implement the latest policy in a timely manner. Under the TEC, §7.102(f), the State Board of Education (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 2016-2017 school year.
PREVIOUS BOARD ACTION: Section 33.67 was adopted effective March 3, 2014, and last amended effective January 8, 2015. A discussion item regarding proposed amendment to 19 TAC §33.67 was presented to the committee during its April 2015 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. Section 33.67 is the rule the SBOE adopted 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, explains bond eligibility requirements, and describes how PSF capacity to guarantee 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 specific program payment conditions and guarantee restrictions.
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 proposed amendment to 19 TAC §33.67, shown as Attachment II, would modify the following provisions.
In subsection (b)(16), the current definition of nationally recognized investment rating firm is set to expire on September 1, 2015. The board requested that the agency develop a request for qualifications (RFQ) to select nationally recognized statistical rating organizations (NRSROs) that are eligible for use. This proposal would amend the bond guarantee program rule for charter schools to reference the qualifications that the agency developed during the RFQ process.
In subsection (b)(17)(A), the proposal would amend the definition of new money issue to add language to exclude student and teacher housing as eligible projects, consistent with proposed changes to the bond guarantee rule for school districts.
In subsection (d)(1), proposed new language would be added to require the commissioner to maintain a 5.0% reserve when issuing charter school guarantees to prevent fluctuations in the value of the fund and new money issuances from causing the charter school guaranteed debt to exceed charter school capacity.
In subsection (e)(2)(A)(vii), proposed new language would be added to amend the eligibility criteria for designation as a "charter district" to require that a charter district must not have violated a covenant related to a financial obligation within the preceding three years to be eligible for the provision of a guarantee.
Finally, in subsection (f)(5)(F), proposed new language would be added to require charter districts to classify all property purchased or improved with bond proceeds that is serviced with state funds as state property in the charter district's annual financial report. This proposed language comports with the TEC, §12.128.
FISCAL IMPACT: The proposed rule action would have fiscal implications for open-enrollment charter schools, but not any beyond what are provided for by the authorizing statute. Any costs to open-enrollment charter schools to participate in the guarantee program would be outweighed by the program's benefits.
Administration of the program would provide open-enrollment charter schools with access to low-cost bonds. Potential savings to charter schools are impossible to estimate at this time. Charter schools approved to have bonds issued with the benefit of the guarantee provided by the guarantee program would experience a savings in two ways. First, the guarantee would be provided at a cost lower than that for private bond insurance. Second, charter schools would be able to get lower interest rates on bonds that had a guarantee than they could otherwise get. Actual savings would be influenced by the unique circumstances of each open-enrollment charter school that proposed to have bonds issued, including the market's assessment of the school's financial condition and the cost and availability of private bond insurance.
The Texas Education Agency has determined that there are no additional costs to the state or persons required to comply with the proposed rule action. In addition, there is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.
PUBLIC AND STUDENT BENEFIT: The proposed amendment would incorporate modifications to the Bond Guarantee Program for charter schools, which provides low-cost bond insurance to open-enrollment charter schools in Texas. The program also ensures that the bonds issued on behalf of charter schools under the program are rated competitively in the bond market. A competitive bond rating allows open-enrollment charter schools to market their bonds at lower interest rates and thus reduces the long-term costs of the bonds for the charter schools.
PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendment would have no procedural and reporting implications.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would have no locally maintained paperwork requirements.
PUBLIC COMMENTS: The official public comment period will begin when the proposal is published in the Texas Register.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: A request for a public hearing on the proposal submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register.
Proposed amendment to 19 TAC §33.65, Bond Guarantee Program for School Districts, is presented for first reading and filing authorization as a separate item in this agenda.
MOTION TO BE CONSIDERED: The State Board of Education:
Approve for first reading and filing authorization proposed amendment 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, §33.67, Bond Guarantee Program for Charter Schools.
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 Proposed Amendment 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, §33.67, Bond Guarantee Program for Charter Schools (PDF, 76KB)