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Permanent School Fund
November 20, 2009
Investment firm ousted over SBOE gift dislosures
The real estate investment firm entangled in a dispute with State Board of Education members Rick Agosto and Rene Nunez over gift disclosures got the heave-ho from the board on Friday.
AEW Capital Management LP had qualified as one of the 68 firms that could be tapped for making future real estate investments for the $22 billion Permanent School Fund.
But on Friday, the board plucked AEW from the list and approved only 67 eligible firms.
“As a public fund, we needed someone who could be a little bit more accurate,” said Board Member David Bradley, chairman of the Permanent School Fund committee.
“At a minimum, it was sloppy,” Bradley said. “At the worst, it was intentional.”
Disclosure forms submitted as part of AEW’s application indicated the firm had given gifts to Agosto and Nunez gifts, including football tickets, golf games and meals. Agosto and Nunez disputed that they had received the gifts; AEW subsequently amended its gift report.
Several board members abstained from the AEW vote, including Geraldine Miller. Her family’s company, Henry S. Miller Realty Services LLC, has a direct business relationship with AEW, according to a document submitted to the Texas Education Agency.
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November 18, 2009
SBOE eyes new placement agent rule
The State Board of Education is considering a new disclosure rule for investment managers that use outside marketers, known as placement agents, to win Permanent School Fund business.
Several high-profile scandals at public pension funds across the country have highlighted the potentially problematic role of placement agents. In those cases, the agents have been politically connected individuals that provided access to decision-makers.
The proposal discussed Wednesday would require the investment managers to report if they have used placement agent and how much the placement agent is paid. The board will then have to accept that arrangement.
Gary Lawson, the board’s fiduciary counsel, said the proposed rule is a middle-ground between banning the use of placement agents and doing nothing.
“It is cumbersome but it is dealing with a new reality that there has been criticism of third-party marketers,” Lawson said.
The board will vote in January on the new rule, which is part of a larger review of the board’s ethics policies.
Board Chairwoman Gail Lowe, R-Lampasas, said: “We’re in an environment where I believe these rules about placement agents are necessary.”
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November 11, 2009
Gates backing charter school financing
The Bill and Melinda Gates Foundation has stepped in to aid some high-performing Houston charter schools to finance new facilities.
Last week, I wrote about an idea being kicked around at State Board of Education to invest a small portion of the Permanent School Fund in either financing or building charter school facilities.
Looks like the private sector might be beating the PSF to the punch.
The Gates Foundation announced today that it would provide $30 million to help Houston charter schools secure $300 million in financing for facilities.
The first beneficiary is KIPP Houston, which recently issued $67 million in bonds. The Gates Foundation contributed $10 million to a $20 million bond guaranty that helped the charter school land more favorable lending terms.
According to the news release, this is the first time a private foundation has backed charter school facility bonds at this scale.
A Wall Street Journal article explains that there is some accounting benefit to the move for the foundation.
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July 22, 2009
Perry asks feds to raise bond guarantee limit
Gov. Rick Perry is once again making a plea to the U.S. Treasury Department to raise a cap that limits how much debt the state’s Permanent School Fund can back for local school districts.
Twice, Perry’s call to the Bush administration fell on deaf ears. But the hope is the Obama administration might be more willing to listen.
School districts are able to use the value of the Permanent School Fund to back bonds used to pay for new facilities and that lowers to the cost of borrowing. The state estimates that the program saves districts $100 million.
State law sets the bonding capacity at five times the value of the fund, now about $19 billion. But the federal limit is half that much.
By lifting the cap, Perry writes, “you would be helping improve Texas school facilities and protect Texas taxpayers against unnecessary costs and potential tax increases.”
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April 27, 2009
Squeaker of a vote on School Fund constitutional amendment
Texas voters could soon have a say in who manages the investment of the state’s $22 billion Permanent School Fund that is dedicated to public education.
See more: http://www.statesman.com/postcards
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March 24, 2009
UPDATED: Who should watch over School Fund?
The Permanent School Fund has been a sacred trust held for the schoolchildren of Texas since 1854 when the Legislature created it with a $2 million down payment.
But who should be responsible for that trust?
Since the fund’s inception, the State Board of Education has had fiduciary responsibility for the fund, now valued at $16.5 billion.
That could change under a bill introduced by State Rep. Donna Howard, D-Austin, up for consideration by the House Public Education Committee today.
The bill puts oversight authority of the Permanent School Fund with an appointed council of finance professionals with the ability to hire and fire the fund manager. The appointments would come from state leaders, the State Board and the General Land Office.
Howard said the objective is to increase accountability and transparency in the management of the fund and eliminate a “dysfunctional” management structure. The fund manager reports to the Education Commissioner, not the State Board.
“In the wake of the worst financial collapse since the Great Depression, Texans are focused on the financial integrity of their most important public funds,” Howard said. “My proposal will help secure this critical endowment so that it can continue to grow and generate the revenue we need to prepare the next generation of Texas students.”
State Board of Education Chairman Don McLeroy said the answer to the dysfunction problem is simple and does not involve taking the responsibility out of the hands of elected officials. Give the board authority over the fund personnel, a change that board members have repeatedly requested.
“Why would they give it to a new group? Why not give it us?” McLeroy said.
Unlike people connected to the Legislature, the State Board has nothing to do with the state’s education budget. So the board members’ priority is to protect the fund for future schoolchildren, not use it for today’s school expenses.
“We have to be fiduciaries for future legislatures,” McLeroy said. And the board members are “hawks” of the fund, he added.
Howard said the State Board would likely retain the authority to decide how much of the fund can made available for the public education budget.
Under normal circumstances, the fund spins off money for the state’s public education budget. The take was $1.4 billion for the current budget but will likely be zero in the upcoming budget because these are abnormal economic circumstances and the fund’s value has fallen below a key value threshold.
The ultimate decision-makers on this issue would be the Texas voters, if the bill survives the Legislature, since a constitutional amendment would be required.
UPDATE: The members of the State Board of Education are not of one mind on this issue.
Board Member Geraldine Miller, R-Dallas, said the fund’s investments have become increasingly more complicated in recent years such that change in the fund’s management might be needed.
“We have reached a point in the history of this fund that we might want to consider this,” Miller said in testimony before the committee.
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