The Texas Permanent School Fund Bond Guarantee Program, closed since March, will re-open in early 2010 and will once again back the bonds issued to pay for school construction. This will save Texas school districts millions of dollars in interest costs.

 

The Internal Revenue Service informed the Texas Education Agency (TEA) that it will update its regulation to allow bonds to be guaranteed up to 500 percent of the cost value of the Permanent School Fund as of this week.

 

The Permanent School Fund currently has a cost value of roughly $23 billion, which includes assets managed by State Board of Education and TEA, as well as the General Land Office. To date, the fund was able to back bonds up to 250 percent of the lower of its cost or value. Today’s action and legislation enacted by the Texas Legislature in 2007 will permit the State Board of Education to increase the capacity by up to 100 percent, contingent on the PSF maintaining a AAA rating.

 

The IRS ruling is the result of years of discussions and negotiations. Commissioner Scott and Sen. Florence Shapiro have been working on this issue for some time to bring need funding relief. Sen. Shapiro’s SB 389, passed in the 80th Session, and SB 1255, passed in the 81st Session, increased the multiplier which paved the way for the IRS ruling. Without her efforts, the IRS did not have the basis to make the ruling.

 

This has been a significant focus for Commissioner Scott since before he was named commissioner. On the day of the announcement of his nomination by Gov. Perry, he was traveling to Washington to meet with members of the Texas Congressional delegation and representatives of the IRS to garner support for the increase to the percentage of the cost value for the bond guarantees.

 

With today’s ruling, the agency expects to re-open the program as soon as possible, which means TEA could be evaluating applications from school districts for bond guarantees as early as late January.

 

To permit the guarantee of school bonds by the Bond Guarantee Program, TEA must reopen the application process for Texas school districts.

 

When the PSF backs a school district bond it gives the bonds the equivalent of the highest rating available, AAA. The higher the bond rating, the better the interest rate a district receives when it sells its bonds. A lower interest rate can save districts millions of dollars.

 

Since its inception in 1983, the Bond Guarantee Program has backed more than $83 billion in bonds.