Discussion of Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.65, Guarantee Program for School District Bonds
January 12, 2010
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: DISCUSSION
STATE BOARD OF EDUCATION: NO ACTION
SUMMARY: This item presents proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.65, Guarantee Program for School District Bonds, for discussion. The proposed amendment would modify the policies for administration of the school district bond guarantee program to comply with requirements related to the recent decision of the Internal Revenue Service to reopen the program and to align with the policies of the intercept program to provide credit enhancement for school district bonds that was established by the Texas Education Code (TEC), Chapter 45, Subchapter I, as added by Section 75 of House Bill 3646, 81st Texas Legislature, 2009. The proposed amendment would also modify the existing limitations on access to the guarantee and add explanations of the actions that would follow a default by a school district.
STATUTORY AUTHORITY: TEC, §7.102(c)(33) and §45.063.
BOARD RESPONSE: This item is presented for review and comment.
PREVIOUS BOARD ACTION: Section 33.65 was adopted to be effective September 1, 1996, and amended to be effective December 5, 2004; December 25, 2005; and February 22, 2009.
FUTURE ACTION EXPECTED: The proposed amendment to 19 TAC §33.65 would be presented to the State Board of Education (SBOE) for first reading and filing authorization at the March 2010 meeting. Second reading and final adoption would then be presented at the May 2010 meeting with a proposed effective date of 20 days after filing as adopted, if approved by a vote of two-thirds of the members of the SBOE.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The TEC, §7.102(c)(33), authorizes the SBOE to adopt rules for the implementation of the guarantee bond program as authorized in the TEC, Chapter 45, School District Funds, Subchapter C, Guaranteed Bonds. The TEC, §45.063, authorizes the SBOE to adopt rules necessary for the administration of the bond guarantee program. Section 33.65 is the rule the SBOE adopted to implement the program.
Section 33.65 sets out the statutory provisions for the bond guarantee program, provides definitions, and explains the requirements of and policies related to the program's application process. The rule also provides limitations on access to the guarantee program and allows for the commissioner to allocate specific holdings of the Permanent School Fund (PSF) under certain conditions. The rule explains what effect defeasance has on guaranteed bonds and sets out specific program conditions for bonds issued or guaranteed on certain specified dates. The rule also explains program payment conditions and guarantee restrictions. Text of the current rule is shown in Attachment II.
The proposed amendment to 19 TAC §33.65 would modify the policies for administration of the school district bond guarantee program to comply with requirements related to the recent decision of the Internal Revenue Service to reopen the program and to align with the policies of the intercept program to provide credit enhancement for school district bonds that was established by the TEC, Chapter 45, Subchapter I, as added by Section 75 of House Bill 3646, 81st Texas Legislature, 2009. The proposed amendment would also modify the existing limitations on access to the guarantee and add explanations of the actions that would follow a default by a school district. The proposed amendment will be provided to the committee at the January 2010 meeting.
FISCAL IMPACT: The proposed rule action would have fiscal implications for school districts, but not any beyond what is provided for by the authorizing statute. Any costs to school districts to participate in the guarantee 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 that are approved to issue bonds with the benefit of the guarantee provided by the guarantee program experience a savings in two ways. First, the guarantee is provided at a cost lower than that for private bond insurance. Second, districts are able to get lower interest rates on bonds that have a guarantee than they can otherwise get. Actual savings are influenced by the unique circumstances of each school district that proposes to issue bonds, including the market's assessment of the district's financial condition and the cost and availability of private bond insurance.
The Texas Education Agency has determined that there are no additional costs to the state or persons required to comply with the proposed rule action. In addition, 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 guarantee program provides low-cost bond insurance to school districts in Texas. The program also ensures 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: None.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: None.
PUBLIC COMMENTS: None
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: None.
Respectfully submitted,
Robert Scott
Commissioner of Education
Staff Members Responsible:
Adam Jones, Deputy Commissioner
Finance and Administration/Chief Operating Officer
Lisa Dawn-Fisher, Deputy Associate Commissioner
School Finance
Attachments:
I. Statutory Citations
II. Text of Current 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.65, Guarantee Program for School District Bonds
Separate Exhibit:
Text of Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, §33.65, Guarantee Program for School District Bonds
(to be provided at the January 2010 meeting)