September 2025 Committee on School Finance/Permanent School Fund Item 2

Determination as to Whether Transfers May be Made from the Permanent School Fund to the Available School Fund

September 12, 2025

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: 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.  The board will determine whether transfers may be made from the PSF to the ASF in fiscal year 2026.

STATUTORY AUTHORITY: Texas Constitution, Article VII, §2 and §5; 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.

Article VII §5(a)(1) establishes the six percent distribution rate limit, and §5(a)(2) describes the 10-year test.

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 links above.

PREVIOUS BOARD ACTION: At the September 2024 meeting, the board determined that a distribution for fiscal year 2025 is permitted under Texas Constitution, Article VII, Subsection 5(a)(1) and (2).

BACKGROUND INFORMATION AND JUSTIFICATION: On November 4, 2008, the chair of the SBOE sought an opinion from the Attorney General 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 Attorney General 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.

Staff Member Responsible:
Jared Stout, Senior Vice President of Risk and Deputy Chief Investment Officer, Texas PSF Corporation