Summary of Report 03-032

April 2003

Report Number 03-032

We certify that the amount of bonds guaranteed by the Permanent School Fund's (PSF) Bond Guarantee Program (Program) is within the limit prescribed by Section 45.053(a) of the Texas Education Code. However, the Program is approaching its guarantee capacity limit. The Program's remaining guarantee capacity of $8.0 billion at August 31, 2002 is a decrease of $5.5 billion from August 31, 2001. The Program is saving school district millions of dollars in interest and bond guarantee premium costs annually by enhancing school district bond ratings to the highest possible rating.

We followed-up on three related issues that we provided the Legislative Audit Committee in our report, An Audit Report on Certification of the Permanent School Fund's Bond Guarantee Program (SAO Report No. 02-038, April 2002). The status of corrective action on the issues is:

• PSF has a goal of reporting the amount of accretion on bonds guaranteed by August 31, 2003. The PSF will disclose, but does not intend to include, the amount of accretion in the amount of bonds guaranteed based on industry practice and the absence of a specific legal requirement. We believe the disclosure of bond accretion will be sufficient to resolve this issue.
  
  
• The Texas Education Agency (TEA) coordinated with the Program bond counsel, rating agencies, and legislative representatives regarding raising the Texas Education Code limits. Representative Hochberg introduced legislation to raise the limit to 2.5 times the cost or market value of the PSF, whichever is lower. We believe this increase will resolve the issue and will not endanger the PSF, as explained in our previous report.
  
  
• TEA coordinated with its bond counsel for the Program and requested IRS reevaluate the General Land Office (GLO) deposit reduction factor used in the Program limitation calculation. IRS advised that TEA must apply for a new letter ruling to obtain an IRS determination. TEA is considering waiting until the fall of 2003 to request the letter ruling so that it may combine its request with any other questions that may result from any new school finance initiatives enacted during the current legislative session. TEA also committed to addressing the issue with the Texas Office of State-Federal Relations to ask that office to consider federal legislation to raise or eliminate the federal restriction on the Program.
  

Contact the SAO about this report.

Download the PDF version of this report. (.pdf)

HTML Equivalent (utilizing Adobe's PDF Conversion by Simple Form).