An Audit Report on Certification of the Permanent School Fund's Bond Guarantee Program for Fiscal Year 2008
June 2009
Report Number 09-040
Overall Conclusion
The State Auditor's Office certifies that, for the fiscal year ended August 31, 2008, the amount of school district bonds guaranteed by the Permanent School Fund's (Fund) Bond Guarantee Program (Program) was within the two limits applicable to the Program. One limit, prescribed by Sections 45.053(a) and (d) of the Texas Education Code, protects the Fund by minimizing the risk of loss to the Fund. The other limit, which was 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).
As of August 31, 2008, the bond guarantee capacity of the Fund was $57.3 billion. The total principal of the debt guaranteed by the Program on 2,596 outstanding bond issues was $49.9 billion. The guarantee saves school districts money by enhancing their bond ratings to the highest possible rating. Without the guarantee of this Program, school districts would need to (1) purchase private bond insurance or (2) pay higher interest rates on the bonds they sell.
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