House Appropriations met on May 18 to take up SB 1232 (Taylor). A link to the video archive for this hearing can be found here.
This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.
SB 1232 (Taylor) Relating to the management and investment of the permanent school fund, including authorizing the creation of the Texas Permanent School Fund Corporation to manage and invest the fund and limiting the authority of the School Land Board to manage and invest the fund if the corporation is created.
- PSF currently valued at $48.3 billion (largest in country)
- Not seeing the rate of return that it could, partly due to split management strategy
- Bill will create Texas Permanent School Fund Corporation designed to be similar to how TIMCO manages puff fund
- SBOE houses it but will otherwise run independently, providing annual report to GLO and SBOE
- Maintains Constitutional requirements while combining new government corporation
- Expect to see over $100 million in additional funds to the PSF
Kevin Ellis, Texas School Board – On
- Bill is the most significant change in governance of the state’s oldest fund
- 2001 efforts to diversify the portfolio had unintended consequences
- 9-member board of directors would be elected officials
- Made up of 5 SBOE PSF committee members, land commissioner, 2 from governor appointment
- Would translate to $160 million of incremental earnings
- Bill began with discussions between the SBOE and School Land Board
- Walle – What we were doing before?
- Currently limited in what assets the fund can be invested in
- Bringing the fund back together brings it under one fund allocation
- Before it was managed partly by state board of education and partly by school land board, this brings it back together
- Walle – Normally investments are pretty conservative, cannot be too risky with these
- We have experts we work with
- Fine-line walking between being conservative and maximizing returns
- Walle – There is no guarantee we would maximize these funds, is that right?
- You don’t know what the future holds, intent is that the $4 billion that was moved into liquid fund that limits investment avenues
- Will open up better long-term avenues
- Walle – To reiterate who will be on the board, it is 5 SBOE, 1 GLO commissioner, 2 from governor?
- Correct
- VanDeaver – Can you clarify appointment of chief investment officer; does that lie under commissioner of education?
- Currently it does, under new entity will fall under the board
Tom Maynard, State Board of Education – On
- Lots of bill text was drafted in 2013
- In terms of functionality, bill helps
- Maintains PSF’s identity which is recognizable in marketplace
- Does not fully address bond guarantee program, will work together with staff
Todd Williams, School Land Board – On
- Clear benefit of having one board, with one staff, over one fund, with one beneficiary
- Current liquid account (cash drag) generally invested 40% fixed income, 40% investment, the rest in cash; clear benefit in combining these
John Hryhorchuk, Texas 2036 – On
- One of the most significant reforms in years
- Agencies coming together and doing what is best for kids
- Unifying funds ensures investments are efficiently managed and diversified
- Ensures schools will be properly funded for decades
Mike Meyer, TEA – On
- Dominguez – seems like there will be a lot of efficiencies by moving. How much better will schools be?
- Anticipate another 100 million or more going directly into the school finance system
- Dominguez – with current set up, was that done intentionally to create a safety net for spending?
- Can’t speak to 2001 legislature goals
- Intention was to capitalize on investment opportunities without realizing consequences of bifurcated set up
- Dominguez – regardless, what does it mean for rates of risk?
- Dominguez – who will decide on investments?
- The board
- Sherman – could you share internal and external auditing process?
- Internal auditor reports on assets
- Under new corporation board will look at what structure is appropriate
- Also a number of external audits looking at bond guarantee program and other topics
- Sherman – internal looks at CEO team to report back, external looks at other things?
- PSF can also hire external auditor
- Internal auditor reporting to CEO structure is decided by the board
Holland Timmins, CEO PSF – On
- Howard – current state board functioning at a better level than previous boards. What would be different if this legislation passed than what is done now? For someone in your position
- Board would appoint CEO, and they would work with the board to determine the CIO
- Howard – Main difference is that the board would hire the CIO, you would be following the same prudent strategies that you follow now?
- Yes, all standards would be the same, would just combat cash drag that currently exists
- Minjarez – In regard to the new seats, what if a conflict of interest should arise? How would that be handled?
- Standards would be established, if there are conflicts there is a clearly defined process to recuse yourself
SB 1232 left pending