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, §61.1039, Open-Enrollment Charter School 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 J, as added by Section 75 of House Bill 3646, 81st Texas Legislature, 2009, which allows for the establishment of an open-enrollment charter school facilities credit enhancement program to help charter holders obtain financing for the purchase, repair, or renovation of real property for facilities.

STATUTORY AUTHORITY:

TEC, Chapter 45, Subchapter J, §§45.302, 45.303, and 45.308.

EFFECTIVE DATE:

March 7, 2011.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES:

Section 75 of House Bill 3646, 81st Texas Legislature, 2009, added the TEC, Chapter 45, Subchapters I and J. Subchapter J allows for the establishment of a charter school facilities credit enhancement program to help charter holders obtain financing to purchase, repair, or renovate real property for facilities. The TEC, §45.308, requires the commissioner to adopt rules to administer the program if the commissioner establishes the program.

The adopted new 19 TAC §61.1039 sets out the statutory provisions for the credit enhancement program, provides definitions, and explains the requirements of and policies related to the program's application and approval process. The adopted new rule also provides limitations on access to the program and explains program payment conditions and restrictions.

The following technical corrections were made to the rule at adoption. The term "existing annual debt service" was changed to "annual debt service" in subsection (b)(2)(A). The definition for "existing annual debt service" in subsection (b)(10) as proposed was deleted, as after the technical correction to subsection (b)(2)(A) was made, the term "existing annual debt service" no longer appeared elsewhere in the rule. Subsequent subsections and references to these subsections were renumbered accordingly. Finally, in a technical correction in response to public comment, the term "annual debt service" was replaced with the term "proposed annual debt service" in the second sentence of subsection (b)(19) as proposed, adopted as subsection (b)(18).

The following changes were made at adoption in response to public comment.

The definition for "annual debt service" in subsection (b)(2) was modified to reflect that another entity would be issuing bonds on behalf of the charter holder and to provide for privately placed bonds that do not have a final official statement.

The definition for "bond resolution" in subsection (b)(6) was modified to specify that the resolution is adopted by the governing body of an issuer of debt for the benefit of a charter holder instead of by the governing body of the charter holder.

The definition for "combination issue" in subsection (b)(7) was modified to reference both the TEC, Chapter 53, and the Texas Government Code, Chapter 1207.

The definition for "new money issue" in subsection (b)(13) as proposed, adopted as subsection (b)(12), was modified to reference the term "educational facility," as defined in the TEC, §53.02, instead of the term "instructional facility," as defined in the TEC, §46.001.

The definition for "refunding issue" in subsection (b)(20) as proposed, adopted as subsection (b)(19), was modified to reference both the TEC, Chapter 53, and the Texas Government Code, Chapter 1207.

Subsection (c)(2) was modified to provide for charter schools that have not yet received an academic accountability rating or accreditation rating because they are in their first year of operation.

Subsection (d)(1)(B) was modified to make provisions for charter schools that have not yet received an accreditation rating because they are in their first year of operation.

Subsection (d)(1)(G) was modified to replace the term "complaints" with the term "formal complaints."

Subsection (d)(3) was modified to specify that the lien would be released insofar as the enhanced bonds were concerned but that the property would be presumed to be public property under the TEC, §12.128, and would remain so.

The debt service coverage ratio specified in subsection (e)(1) was changed from "1.25" to "at least 1.20."

Subsection (f)(3)(A) as proposed was deleted. Subsequent subsections were relettered accordingly.

In subsection (f)(3)(B) as proposed, adopted as subsection (f)(3)(A), the term "present value savings" was changed to "net present value savings."

A reference in subsection (f)(4) as proposed to debt issued "by" charter holders was changed to a reference to debt issued "for the benefit" of charter holders.

Subsection (g)(3) was modified to provide for notice to be provided in writing and for a notice of denial of approval that includes the reasons for the denial.

Subsection (g)(4)(B) was modified to reflect that another entity would be issuing bonds on behalf of the charter holder.

FISCAL IMPACT:

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 local entities, which are charter holders. The fiscal implications for charter holders are not beyond what are imposed by the authorizing statute. Any costs to charter holders to participate in the intercept credit enhancement program are outweighed by the program's benefits.

Administration of the program will provide charter holders with access to low-cost bonds. Potential savings to charter holders are impossible to estimate at this time. Charter holders that are 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, charter holders will be able to get lower interest rates on bonds that have a credit enhancement than they could otherwise get. Actual savings will be influenced by the unique circumstances of each charter holder that proposes to issue bonds, including the market's assessment of the charter holder's financial condition and the cost and availability of private bond insurance.

In addition, 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 credit enhancement program will help charter holders obtain financing for the purchase, repair, or renovation of real property for facilities. Students at open-enrollment charter schools will benefit from improved school facilities.

PROCEDURAL AND REPORTING IMPLICATIONS:

A charter holder 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 charter holder and the principal amount of the bonds to be issued; the name and address of the charter holder's paying agent for those bonds; and the maturity schedule, estimated interest rate, and date of the bonds. An applicant charter holder must also submit any additional information related to the bonds that the commissioner specifically requests to make an approval determination. A charter holder 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 do not have a maturity date later than the final maturity date of the bonds being refunded.

A charter holder that receives initial credit enhancement approval must provide a written notice by facsimile or email to the TEA two business days before issuing a preliminary official statement (POS) for the bonds that are eligible for the credit enhancement or two business days before soliciting investment offers, if the bonds will be privately placed without the use of a POS.

A charter holder that then receives confirmation from the TEA that program capacity continues to be available must provide written notice to the TEA of the placement of an agenda item on a meeting of the bond issuer's board of directors to approve the bond sale no later than two business days before the meeting. If the bond sale is to be completed pursuant to a delegation by the charter holder to a pricing officer or committee, notice must be given no later than two business days before the execution of a bond purchase agreement by such pricing officer or committee.

A charter holder that has bonds approved for the credit enhancement issued on its behalf must have its independent auditor confirm in the charter holder's annual financial report that bond funds have been used in accordance with the purpose specified in the application. This data collection requirement will be added to the Financial Accountability System Resource Guide.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS:

The adopted rule action has no locally maintained paperwork requirements.

PUBLIC COMMENTS:

The public comment period on the proposal began October 8, 2010, and ended November 8, 2010. Attachment III provides a summary of public comments and corresponding agency responses.

ALTERNATIVES:

None.

OTHER COMMENTS AND RELATED ISSUES:

None.

Staff Members Responsible:

Shirley Beaulieu, Associate Commissioner, Finance/Chief Financial Officer
Lisa Dawn-Fisher, Deputy Associate Commissioner, School Finance

For additional information, email rules@tea.state.tx.us.

Page last modified on 8/30/2011.