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June 26, 2024 Committee of the Full Board Item 2

Permanent School Fund Percentage Distribution Rates Under Consideration for Fiscal Years 2026 and 2027

June 28, 2024

COMMITTEE OF THE FULL BOARD: ACTION
STATE BOARD OF EDUCATION: CONSENT

SUMMARY: This item provides an opportunity for the board to evaluate and approve the report on Permanent School Fund (PSF) percentage distribution rates under consideration for fiscal years 2026 and 2027.  The board will consider various factors associated with the distribution rate such as expected returns, inflation, and student population growth. Additionally, this item provides the opportunity for the board to discuss anticipated instructional material needs for the 2026-2027 biennium.

STATUTORY AUTHORITY: Texas Constitution, Article VII, §2 and §5; and 19 Texas Administrative Code (TAC) Chapter 33.

The Texas Constitution, Article VII, §2 and §5 establish the permanent school fund, the assets that comprise the permanent school fund, the bond guarantee program, the available school fund, and authorize the State Board of Education (SBOE) to manage and invest the permanent school fund in accordance with the prudent person standard.

19 TAC Chapter 33 codifies administrative rules that provide a statement of investment objectives, policies, and guidelines of the Texas PSF and Bond Guarantee Program as adopted by the SBOE.

The full text of statutory citations can be found in the statutory authority section of this agenda.

PREVIOUS BOARD ACTION: At the June 2022 meeting, the board approved the percentage distribution rate to the Available School Fund (ASF) from the PSF for fiscal years 2024 and 2025 to be between 2.50% and 3.33%.

BACKGROUND INFORMATION AND JUSTIFICATION: The distribution rate is to be determined by a vote of two-thirds of the total membership of the SBOE taken before the regular session of the legislature convenes.  If the SBOE does not adopt a rate, then the legislature will adopt a rate by general law or appropriation.  The current rate is 3.32% of the average market value for the trailing 16 state fiscal quarters ending November 30, 2022.

According to the FY 2024-25 General Appropriations Act (HB 1), in Rider 38 of the Texas Education Agency bill pattern, at least 45 days prior to the adoption of the distribution rate from the PSF to the ASF by the SBOE, a report shall be sent to the Legislative Budget Board and the Governor on the following:

  1. The distribution rate or rates under consideration
  2. The assumptions and methodology used in determining the rate or rates under consideration
  3. 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
  4. 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

Staff Member Responsible:
Mark Shewmaker, Senior Investment Officer and Director of Special Projects, Texas Permanent School Fund Corporation

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