Board puts Permanent School Fund at risk
Last week, a slim majority of the State Board of Education passed a proposal to use the Permanent School Fund to buy real estate and lease it to charter schools — an unorthodox plan that could affect the fund’s viability.
Despite warnings from the board’s fiduciary counsel, its investment managers and the Texas Education Agency’s staff, some members of the board were determined to use the fund as a way to boost charter schools in Texas, which typically have difficulty securing adequate facilities from which to operate. Though it’s certainly an admirable goal, putting the Permanent School Fund at risk is not the means by which to do it.
The Permanent School Fund was established in 1854 to provide free textbooks to Texas public schoolchildren. The initial revenue was $2 million from oil and gas interests; now it generates $700 million to $800 million a year, which the Texas Constitution says must be used to pay for “instructional materials” for schoolchildren in the state. Over the years, the board has struggled to protect the fund from raids from the Legislature, which has wanted to use the money to pay for items other than content, such as laptops and Kindles.
One of the primary roles of the State Board of Education is to maintain the success of the Permanent School Fund. The decision to invest PSF money into charter schools is a blatant disregard for our fiduciary responsibility to the children of this state.
The financial strength of the fund also is used to back the bonds issued to pay for the construction of publicly owned school buildings through the Bond Guarantee Program. This backing gives the school bonds the equivalent of the highest rating available in the bond market, and consequently the PSF has the full faith and credit, as well as the school district’s taxing authority as security.
Some members believe that since the Permanent School Fund is used for this purpose, it opens the door for investing in facilities for privately owned charter schools. Not so. Purchase/leaseback real estate investments of school facilities are specialized developments in residential neighborhoods rented to typically not well-capitalized users. Additionally, funding of usually nonprofit charter schools is normally by volunteer and student contributions, making this type of investment highly unsuitable for the school fund. For this reason, using the fund to invest in charter schools could hamper its profitability, potentially leading to a situation where it cannot cover the costs for its initial purpose.
The Legislature voted last session to allow schools to use the funds they receive from the Permanent School Fund to buy Kindles and laptops, which rapidly become outdated. Therefore, it is more important than ever that we make well-informed investing decisions to ensure that future public schoolchildren have the materials they need to learn.
One of the primary roles of the State Board of Education is to maintain the success of the Permanent School Fund. The decision to invest PSF money into charter schools is a blatant disregard for our fiduciary responsibility to the children of this state. This is the second time in the past year that the board has asked for counsel on Permanent School Fund investment decisions, and a slim majority has voted to oppose their suggestions. (The first vote occurred in 2009 with the selection of fund managers. The Committee on the Permanent School Fund chose the firm that ranked worst in all categories by TEA staff professionals.)
We are in favor of school choice and have long supported charter schools, but this is an inappropriate use of the school fund that could lead to litigation that would be a waste of taxpayer dollars.
The board’s fiduciary counsel strongly urged the board to seek an opinion from Attorney General Greg Abbott before proceeding with this plan. Let’s hope the board can stick with that decision before committing any money to this risky proposal.