An Audit Report on Certification of the Permanent School Fund's Bond Guarantee Program
April 2005
Report Number 05-032
Overall Conclusion
We certify that as of August 31, 2004, the amount of bonds guaranteed by the Permanent School Fund's (PSF) Bond Guarantee Program (Program) was within the two limits applicable to the Program. One limit, prescribed by Section 45.053(a) of the Texas Education Code, protects the PSF by minimizing the risk of loss to the fund. The other, established by an Internal Revenue Service (IRS) letter ruling, is intended to prevent reductions in federal tax receipts due to bond arbitrage (issuing tax-exempt bonds for the purpose of investing the proceeds at higher rates than the tax-exempt bonds).
In October 2004, the Texas Education Agency (Agency) stopped awarding guarantees for new bond issues because the Program lacked available capacity under the limit set by the IRS in 1991. However, on March 31, 2005, the IRS increased its limit in response to a November 2004 request from the Agency and the Katy Independent School District. The new IRS limit essentially matches the limit set in the Texas Education Code. This action, which was effective immediately, increased the Program's capacity to guarantee bonds by at least $8 billion.
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