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November 2023 Committee on School Finance/Permanent School Fund Item 3

Adoption of Rule Review 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, and Subchapter B, Texas Permanent School Fund Corporation Rules

November 17, 2023

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

SUMMARY: Texas Government Code (TGC), §2001.039, establishes a four-year rule review cycle for all state agency rules, including State Board of Education (SBOE) rules. This item presents the adoption of review of 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, and Subchapter B, Texas Permanent School Fund Corporation Rules. Subchapter A establishes distributions to the Available School Fund, SBOE duties related to the Texas Permanent School Fund (PSF) Corporation, ethical standards for SBOE members, the Bond Guarantee Program (BGP), and compliance with Securities and Exchange Commission (SEC) Rule 15c2-12 related to BGP disclosure as required by the Texas Constitution, Article VII, §5(a) and (f), and the Texas Education Code (TEC), Chapter 43. Subchapter B addresses the term length of SBOE members on the board of directors of the Texas PSF Corporation as required by TEC, §43.053.

STATUTORY AUTHORITY: The statutory authority for the rule review is TGC, §2001.039. The statutory authority for 19 TAC Chapter 33, Subchapter A, is Texas Constitution, Article VII, §5(a) and §5(f); TEC, §43.001 and §43.0031; and Senate Bill (SB) 1232, 87th Texas Legislature, Regular Session, 2021. The statutory authority for 19 TAC Chapter 33, Subchapter B, is Texas Constitution, Article VII, §5(a) and §5(f); TEC, §43.001 and §43.053.

TGC, §2001.039, requires all state agencies to review their rules at least once every four years.

Texas Constitution, Article VII, §5(a), authorizes the 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, §43.0031, requires the SBOE to adopt an ethics policy.

TEC, §43.053, establishes the composition of the board of directors of the Texas PSF Corporation and requires the SBOE to establish by rule the terms of SBOE members of the board of directors.

SB 1232, 87th Texas Legislature, Regular Session, 2021, allowed the SBOE to create the Texas PSF Corporation and delegate its authority to manage the PSF to the Texas PSF Corporation.

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

PREVIOUS BOARD ACTION: The review of 19 TAC Chapter 33, Subchapter A and Subchapter B, was presented to the Committee on School Finance/Permanent School Fund for discussion at the August-September 2023 SBOE meeting.

BACKGROUND INFORMATION AND JUSTIFICATION: Chapter 33, Subchapter A, establishes the distributions to the Available School Fund, SBOE duties related to the Texas PSF Corporation, ethical standards for SBOE members, the BGP, and compliance with SEC Rule 15c2-12 related to BGP disclosure. Subchapter B addresses the term length of SBOE members on the board of directors of the Texas PSF Corporation as required by TEC, §43.053.

The SBOE approved revisions to 19 TAC Chapter 33, Subchapter A, for second reading and final adoption at its February 3, 2023 meeting. The revisions:

  • removed the 5% floor on the reserve requirement, aligning the reserve capacities for both districts and charters;
  • adopted a lower reserve, which allowed more funding for the bond guarantee program as the program was at capacity; and
  • modified the ethical standards for SBOE members, the commissioner of education, Texas Education Agency (TEA) staff, and persons who provide services to the SBOE relating to the PSF as a result of SB 1232, 87th Texas Legislature, Regular Session, 2021.

The SBOE also approved new §33.21 for second reading and final adoption at its January 2022 meeting. The revisions organized the rules in Chapter 33 by creating new Subchapter B, Texas Permanent School Fund Corporation Rules, which contains §33.21.

A separate item in this agenda presents for first reading and filing authorization a proposed amendment to Chapter 33, Subchapter A, §33.2, Distributions to the Available School Fund, to reinsert a reference to the PSF distribution policy that was mistakenly repealed in the recodification related to SB 1232 and the transfer to the Texas PSF Corporation.

ANTICIPATED REVISIONS TO RULES: At a future meeting, additional amendments may be presented to the SBOE that would allow refunding bonds to be eligible for guarantee if they were denied beginning in November 2022 due to compliance with federal regulation and would add a process for how to allocate available capacity among school district and charter applicants when the total amount applied for in a month is greater than the available capacity.

If authorized by the SBOE, the TEA will file the adopted review with the Texas Register stating that the SBOE finds the reasons for adopting 19 TAC Chapter 33, Subchapter A and Subchapter B, continue to exist. The filing of the adopted review stating that the reasons for adoption continue to exist would not preclude any amendments that may be proposed at different dates through a separate rulemaking process.

PUBLIC COMMENTS: The TEA filed the notice of proposed review of 19 TAC Chapter 33, Subchapter A and Subchapter B, with the Texas Register following the August-September 2023 SBOE meeting. The public comment period on the proposed rule review began October 6, 2023, and ended at 5:00 p.m. on November 10, 2023. At the time this item was prepared, no comments had been received regarding this review. Any public comments received will be provided to the SBOE during the November 2023 meeting. The SBOE will take registered oral and written comments on the proposed review at the appropriate committee meeting in November 2023 in accordance with the SBOE operating policies and procedures.

MOTION TO BE CONSIDERED: The State Board of Education:

Adopt the review 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, and Subchapter B, Texas Permanent School Fund Corporation Rules

Staff Members Responsible:
Mike Meyer, Deputy Commissioner, Finance
Amy Copeland, Director, State Funding
Jim Moore, Foundation School Program Manager, State Funding

Attachment:
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, and Subchapter B, Texas Permanent School Fund Corporation Rules

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