Adopted New 19 TAC Chapter 61, School Districts, Subchapter CC, Commissioner's Rules Concerning School Facilities, §61.1038, School District Bond Enhancement Program
I. Statutory Citations (PDF)
II. Text of Adopted New 19 TAC Chapter 61, School Districts, Subchapter CC, Commissioner's Rules Concerning School Facilities, §61.1038, School District Bond Enhancement Program (PDF)
III. Summary of Public Comments and Agency Responses
The rule action presented in this item will be filed as adopted with the Texas Register under the commissioner's rulemaking authority. This item adopts new 19 TAC Chapter 61, School Districts, Subchapter CC, Commissioner's Rules Concerning School Facilities, §61.1038, School District Bond Enhancement Program. The adopted new rule allows the commissioner to implement and administer the provisions of the Texas Education Code (TEC), Chapter 45, Subchapter I, as added by Section 75 of House Bill 3646, 81st Texas Legislature, 2009, which establishes an intercept program to provide credit enhancement for school district bonds.
TEC, Chapter 45, Subchapter I, §45.261 and §45.263.
March 7, 2011.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES:
In March 2009, the Texas Permanent School Fund (PSF) Bond Guarantee Program (BGP) was closed temporarily because a drop in the market had lowered the PSF's value to the point that outstanding guarantees exceeded capacity under federal regulations.
Partly in response to the closure of the BGP, the 81st Texas Legislature, 2009, included in House Bill 3646 provisions establishing an intercept program to provide credit enhancement for school district bonds. Section 75 of House Bill 3646 added these provisions to the TEC as Chapter 45, Subchapter I. TEC, §45.263, directs the commissioner of education to adopt rules necessary for the administration of the new subchapter.
The adopted new rule implements the provisions of the TEC, Chapter 45, Subchapter I. Specifically, the adopted new rule sets out the statutory provisions for the intercept credit enhancement program, provides definitions, sets out the data sources used for prioritization of applications, explains application and approval requirements, provides a description of how applications would be processed, and sets out eligibility requirements, limitations on access to the credit enhancement, financial exigency provisions, and credit enhancement restrictions. The rule explains what effect defeasance would have on bonds approved for credit enhancement, the responsibilities of school districts that are unable to make payments on enhanced bonds, how payments would be made under the program, and how the Foundation School Program would be reimbursed for payments. The rule also describes penalties for repeated failure of a district to make payments on enhanced bonds.
In a technical correction, the definition for "existing annual debt service" in subsection (b)(6) as proposed was deleted at adoption, as the term is not used elsewhere in the rule. Subsequent subsections and subsection references were renumbered accordingly.
The following changes were made at adoption in response to public comments received for proposed new 19 TAC §61.1039, Open-Enrollment Charter School Bond Enhancement Program. Because statute requires that that program's structure and procedures be "substantially similar" to those of the program to be implemented through 19 TAC §61.1038, the comments that were received for proposed new 19 TAC §61.1039 and that were applicable to 19 TAC §61.1038 were treated as comments received for 19 TAC §61.1038.
The definition for "total debt service" in subsection (b)(14) as proposed, adopted as subsection (b)(13), was modified to reference the final maturity schedule.
Subsection (d)(2)(B) was modified to provide for a notice of denial of approval that includes the reasons for the denial.
Subsection (f)(1)(C) was modified to use the same language used for the corresponding provision of 19 TAC §61.1039.
Subsection (f)(2)(A) was deleted, and subsequent subsections and a subsection reference were relettered accordingly.
In subsection (f)(2)(D) as proposed, adopted as subsection (f)(2)(C), the term "present value savings" was changed to "net present value savings."
The Texas Education Agency (TEA) has determined that there are no additional costs to the state or persons required to comply with the rule action, but there are fiscal implications for school districts. The fiscal implications for school districts are not beyond what is imposed by the authorizing statute. Any costs to school districts to participate in the intercept credit enhancement program are outweighed by the program's benefits.
Administration of the program provides school districts with access to low-cost bonds. Potential savings to school districts are impossible to estimate at this time. Districts approved to issue bonds with the benefit of the credit enhancement provided by the intercept credit enhancement program will experience a savings in two ways. First, the credit enhancement will be provided at a cost lower than that for private bond insurance. Second, districts will be able to get lower interest rates on bonds that had a credit enhancement than they could otherwise get. Actual savings will be influenced by the unique circumstances of each school district that proposed to issue bonds, including the market's assessment of the district's financial condition and the cost and availability of private bond insurance.
The TEA has determined that 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 new intercept credit enhancement program will provide low-cost bond insurance to school districts in Texas during periods in which the PSF BGP is closed. The program will also ensure that the bonds issued by school districts under the program are rated competitively in the bond market. A competitive bond rating allows districts to market their bonds at lower interest rates and thus reduces the long-term costs of the bonds for school districts and taxpayers.
PROCEDURAL AND REPORTING IMPLICATIONS:
A school district that wishes to receive the credit enhancement for its bonds must submit an application for the enhancement that includes the following: the name of the school district and the principal amount of the bonds to be issued; the name and address of the district's paying agent for those bonds; and the maturity schedule, estimated interest rate, and date of the bonds. A single application will be used to apply for the PSF BGP guarantee and for the program's credit enhancement. An applicant school district will also be required to submit any additional information related to the bonds that the commissioner specifically requested to make an approval determination. A school district that applies for credit enhancement of refunding bonds must provide evidence that issuing the refunding bonds will result in a net present value savings and that the refunding bonds did not have a maturity date later than the final maturity date of the bonds being refunded.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS:
The adopted rule action has no locally maintained paperwork requirements.
The public comment period on the proposal began October 29, 2010, and ended November 29, 2010. Attachment III provides a summary of public comments and corresponding agency responses.
OTHER COMMENTS AND RELATED ISSUES:
Staff Members Responsible:
Shirley Beaulieu, Associate Commissioner, Finance/Chief Financial Officer
Lisa Dawn-Fisher, Deputy Associate Commissioner, School Finance
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