September 2014 Committee on School Finance Permanent School Fund Item 3
Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts
(First Reading and Filing Authorization)
September 19, 2014
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: 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, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts, for first reading and filing authorization. The proposed amendment would add a definition of bond to the rule to define more precisely the types of debt that are eligible for guarantee. The proposed amendment would also modify the rule to require that each issuance of bonds approved for the guarantee be approved by the attorney general. In addition, the proposed amendment would add a definition of nationally recognized investment rating firm to provide consistency with the charter school bond guarantee rules.
STATUTORY AUTHORITY: Texas Education Code (TEC), §7.102(c)(33) and §45.063, and the Texas Constitution, Article VII, Section 5.
EFFECTIVE DATE: The proposed effective date of the proposed amendment to 19 TAC §33.65 would be 20 days after filing as adopted with the Texas Register in order to implement the latest policy in a timely manner. Under the TEC, §7.102(f), the State Board of Education (SBOE) must approve the rule action at second reading and final adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2015-2016 school year.
PREVIOUS BOARD ACTION: Section 33.65 was adopted effective September 1, 1996, and last amended effective December 26, 2013. A discussion item regarding proposed amendment to 19 TAC §33.65 was presented to the committee during its April 2014 meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The TEC, §7.102(c)(33), authorizes the SBOE to adopt rules for the implementation of the Permanent School Fund (PSF) Bond Guarantee 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 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, specifies bond eligibility requirements, and explains the requirements of and policies related to the program's application process. The rule also describes how PSF capacity to guarantee bonds is determined, provides limitations on access to the program, and allows for the commissioner to allocate specific holdings of the PSF under certain conditions. In addition, the rule provides requirements specific to districts that have declared financial exigency, 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.
At the April 2014 meeting of the Committee on School Finance/PSF, committee members discussed a fellow board member's proposal to amend the rule to allow commercial paper notes to be eligible for the Bond Guarantee Program and agency legal counsel's recommendation to not make that change. Committee members also discussed a recommendation from agency legal counsel and staff members to instead address any ambiguity about which debt instruments are eligible for the program by amending the rule to define these debt instruments more precisely. At the July 2014 meeting of the committee, during discussion of the report of the PSF executive administrator and chief investment officer, committee members directed agency staff members to present, for first reading and filing authorization at the September 2014 meeting, a proposed amendment to the rule to define eligible debt instruments more precisely, as described by agency legal counsel.
The proposed amendment to 19 TAC §33.65, shown as Attachment II, would define eligible debt more precisely by:
• adding a definition of the term bond in subsection (b) that specifies, in part, that a bond is a debt instrument with a term of at least three years that has approval from the attorney general; and
• modifying subsection (g)(4)(A) to require that each issuance of bonds be approved by the attorney general for the bonds to be guaranteed.
The proposed amendment would also add a definition of nationally recognized investment rating firm in subsection (b) that specifies that that term means an investment rating firm that is, or is part of, Standard & Poor's, Moody's, or Fitch and is designated by the United States Securities and Exchange Commission as a nationally recognized statistical rating organization.
Corresponding technical edits would be made throughout the rule to update cross references as necessary.
FISCAL IMPACT: The Texas Education Agency has determined that there are no fiscal implications to persons or entities 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 the Texas Government Code, §2006.002, is required.
PUBLIC AND STUDENT BENEFIT: The Bond 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.
By defining more precisely the debt that is eligible for the program, the proposed amendment would clarify Bond Guarantee Program rules.
PROCEDURAL AND REPORTING IMPLICATIONS: The proposed amendment would have no new procedural and reporting implications.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would have no locally maintained paperwork requirements.
PUBLIC COMMENTS: The official public comment period will begin when the amendment is published as proposed in the Texas Register.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: A request for a public hearing on the proposal submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register.
Proposed amendment to 19 TAC §33.67, Bond Guarantee Program for Charter Schools, is presented for first reading and filing authorization as a separate item in this agenda.
MOTION TO BE CONSIDERED: The State Board of Education:
Approve for first reading and filing authorization proposed amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts.
Staff Members Responsible:
Lisa Dawn-Fisher, Associate Commissioner
School Finance / Chief School Finance Officer
Amanda Brownson, Director
State Funding
Attachments:
I. Statutory Citations (PDF, 18KB)
II. Text of Proposed Amendment to 19 TAC Chapter 33, Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund, Subchapter A, State Board of Education Rules, §33.65, Bond Guarantee Program for School Districts (PDF, 62KB)