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September 11, 2024 Committee of the Full Board Item 8

Consideration and Adoption of Proposed Ranges of Distributions for Fiscal Year 2026 and Fiscal Year 2027

September 13, 2024

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

SUMMARY: This item provides an opportunity for the committee and board to review the requirements in Article VII, §5(a)(1) and (2), Texas Constitution, that states, the total amount distributed from the Permanent School Fund (PSF) to the Available School Fund (ASF) is not more than six percent of the average market value of the PSF on the last day of each of the sixteen state fiscal quarters preceding the regular session of the legislature that begins before that state biennium; and over the 10-year period the distributions may not exceed the total return on all investment assets of the PSF over the same 10-year period. 

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 Permanent School Fund 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 September 2023 meeting, the board determined that a distribution for fiscal year 2024 is permitted under Texas Constitution, Article VII, Subsection 5(a)(1) and (2).

At the June 2024 meeting, the board received a report on the 5a distribution rate to the Available School Fund from the Permanent School Fund.  The board took no action at the meeting.

BACKGROUND INFORMATION AND JUSTIFICATION: On November 4, 2008, the chair of the SBOE sought an opinion from the Attorney General (AG) regarding the implementation of Texas Constitution, Article VII, §5(a)(2) in limiting transfers from the PSF to the ASF.  A supplementary request was made on January 14, 2009.  On April 13, 2009, the AG responded to the requests, noting that Article VII, §5(a)(1) and §5(a)(2) require distinct calculations using different methodologies and covering different time periods. 

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 on the following shall be sent to the Legislative Budget Board (LBB) and the Governor:

  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; and
  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:
Robert L. Borden, Chief Executive Officer, Texas PSF Corporation

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