March 6, 2019
Sen. Kirk Watson filed legislation on Wednesday to consolidate the investment assets of the $46.5 billion Permanent School Fund under the State Board of Education in order to generate more money for public education and fix a flawed governance structure.
The Texas Permanent School Fund (PSF) — the largest education endowment in the country — is jointly managed by the State Board of Education and the School Land Board. Their shared mission is to generate revenue for public education in perpetuity and distribute those revenues into Available School Fund to pay for instructional materials and other school funding.
But this dual-management structure has cost the schoolchildren of Texas more than $1.2 billion since 2002, according to the Texas Education Agency.
“If we consolidate the two pieces of the Permanent School Fund into one, we can put more money to work for the benefit of our schoolchildren,” Sen. Watson said. “The Legislature created this flawed structure, and it’s time we fixed it.”
Five Senate Committee chairs have signed on to SB 1659 as joint authors: Sen. Jane Nelson, Sen. Brian Birdwell, Sen. Paul Bettencourt, Sen. Dawn Buckingham and Sen. Bob Hall.
“Let’s get back to the initial purpose of what this is all about, to maximize the money into the Available School Fund,” Sen. Bettencourt said. “That’s what SB 1659’s real focus is as the Legislature is the ultimate fiduciary of all these funds.”
Rep. Ken King filed HB 3467, the House companion to Watson’s bill, on Wednesday.
Prior to 2001, the School Land Board managed the Permanent School Fund’s land and mineral rights and generated revenue for investment by the State Board of Education in the PSF. Since that time, the Legislature has allowed the School Land Board to use the revenues generated from those lands to make its own investments in real estate, infrastructure, energy, minerals and land.
The resulting push into private equity investments has led the School Land Board to amass cash holdings in excess of $4.2 billion — about 40 percent of its total assets. Education Commissioner Mike Morath testified in Senate Finance recently that the net effect of the School Land Board’s large cash holdings was a loss to public education of $200 million per year — every year.
The State Board of Education manages a diversified investment portfolio and makes many of the same kinds of investments as the School Land Board, but it has the cash management tools necessary to put more of the Permanent School Fund assets to work for their intended purpose.
The 10-year comparison of investment returns shows the PSF (SBOE) return of 6.92% significantly beating the SLB return of 4.23% when cash is included. In 7 out of the past 10 years, the SBOE’s annual return has been higher than that of the School Land Board.
In addition, the total distribution from School Land Board has not kept pace with its accumulation of assets. In the last two years, total assets have increased by $2.8 billion ($1.9 billion of which is cash) but the distribution for public education in the 2020-21 biennium actually decreased 17 percent to $655 million.