Review of the Report on Permanent School Fund Percentage Distribution Rates
Under Consideration for Fiscal Years 2014 and 2015
April 20, 2012
COMMITTEE OF THE FULL BOARD: ACTION
STATE BOARD OF EDUCATION: ACTION
SUMMARY: This item provides an opportunity for the board to evaluate and approve the report on Permanent School Fund percentage distribution rates under consideration for fiscal years 2014 and 2015.
STATUTORY AUTHORITY: Texas Constitution, Article 7, Section 5.
PREVIOUS BOARD ACTION: At the November 2010 meeting, the committee approved the amount to be paid from the Permanent School Fund (PSF) to the Available School Fund (ASF) during the state 2012-2013 fiscal biennium. The amount approved is 3.5% of the average 16 state fiscal quarters preceding the convening of the 2011 regular session of the Texas Legislature, which is estimated to be $1.58 billion. This amount includes $200 million expected to be transferred to the investment assets of the PSF by the School Land Board during the 2012-2013 state fiscal biennium.
Upon action by the School Land Board to approve an additional $300 million transfer to the investment assets of the PSF, for a total of at least $500 million during the 2012-2013 state fiscal biennium, the amount to be paid from the PSF to the ASF during the state 2012-2013 fiscal biennium is increased to 4.2% of the average 16 state fiscal quarters preceding the convening of the 2011 regular session of the Texas Legislature.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The amendment to Article 7 of the Constitution changed the Permanent School Fund distribution from an income-based policy to a total return policy. This distribution rate is to be determined by a vote of two-thirds of the total membership of the State Board of Education taken before the regular session of the legislature convenes. If the State Board of Education does not adopt a rate, then the legislature will adopt a rate by general law or appropriation. The current rate is 4.2% of the average market value for the trailing 16 state fiscal quarters ending November 30, 2010.
According to the General Appropriations Act (HB 1): Permanent School Fund Distribution Rate. At least 45 days prior to the adoption of the distribution rate from the Permanent School Fund to the Available School Fund by the State Board of Education, the Texas Education Agency shall report to the Legislative Budget board and the Governor on the following:
a. The distribution rate or rates under consideration;
b. The assumption and methodology used in determining the rate or rates under consideration;
c. The annual amount the distribution rate or rates under consideration are estimated to provide, and the difference between them and the annual distribution amounts for the preceding three biennia; and
d. The optimal distribution amount for the preceding biennium, based on an analysis of intergenerational equity, and the difference between it and the actual distribution amount.
FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $2.0 billion during the 2012-2013 biennium.
PUBLIC AND STUDENT BENEFIT: The distribution of the Permanent School Fund will flow to the school districts and reduce the tax burden to the public and the state of Texas.
PROCEDURAL AND REPORTING IMPLICATIONS: Not applicable.
PUBLIC COMMENTS: None.
ALTERNATIVES: No alternative actions are proposed regarding this item.
OTHER COMMENTS AND RELATED ISSUES: None.
Commissioner of Education
Staff Member Responsible:
Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund
The Texas Constitution, Article 7, Section 5 - Permanent School Fund; Available School Fund; Use of Funds; Distribution of Available School Fund