AUSTIN – The Texas Permanent School Fund Bond Guarantee Program, closed since March, will re-open in early 2010 and will once again back the bonds issued to pay for school construction. This will save Texas school districts millions of dollars in interest costs.

The Internal Revenue Service informed the Texas Education Agency that it will update its regulation to allow bonds to be guaranteed up to 500 percent of the cost value of the Permanent School Fund as of today.

“This IRS ruling increases our capacity to back school district bonds by hundreds of millions of dollars. It will help school districts to build new buildings for generations to come. It will also help school districts keep tax rates down because this will save them money,” Commissioner of Education Robert Scott said.

The Permanent School Fund currently has a cost value of roughly $23 billion, which includes assets managed by State Board of Education and TEA, as well as the General Land Office. To date, the fund was able to back bonds up to 250 percent of the lower of its cost or value. Today’s action and legislation enacted by the Texas Legislature in 2007 will permit the State Board of Education to increase the capacity by up to 100 percent, contingent on the PSF maintaining a AAA rating.

"I am pleased with the decision by the IRS to increase our state's bonding capacity for the Permanent School Fund," said Sen. Florence Shapiro, chair of the Senate Education Committee. "This is something I have been working on for some time - starting with the passage of SB 389 in the 2007 session to increase the multiplier, and again this year with SB 1255. This change will now bring much needed facilities funding options to schools across the state."

The agency was forced to close the Bond Guarantee Program on March 11 when turmoil in the stock market caused the value of the PSF to fall dramatically, reducing its capacity to back bonds. The program has been closed ever since.
With today’s ruling, the agency expects to re-open the program as soon as possible, which means TEA could be evaluating applications from school districts for bond guarantees as early as late January.

To permit the guarantee of school bonds by the Bond Guarantee Program, TEA must reopen the application process for Texas school districts.

When the PSF backs a school district bond it gives the bonds the equivalent of the highest rating available, AAA. The higher the bond rating, the better the interest rate a district receives when it sells its bonds. A lower interest rate can save districts millions of dollars.

Since its inception in 1983, the Bond Guarantee Program has backed more than $83 billion in bonds.

Page last modified on 4/25/2010.