Constitutional Change on the November Ballot: Permanent School Fund

Proposition 6 on the November 8, 2011, ballot is a state constitutional amendment that would make more funding available for public schools in the short run—at the cost of depositing less money in the Permanent School Fund, the state’s endowment for public education, and earning less investment income in the long run.

The ballot proposition is based on House Joint Resolution 109, by Republican Rep. Rob Orr of Burleson (Senate sponsor:  Steve Ogden, Republican of Bryan).  This proposed constitutional amendment had strong bipartisan support.  With more than a dozen House Democrats as co-authors, it passed by unanimous votes in both the Texas House and Texas Senate in May.

Some $300 million of the amount budgeted for public education in the fiscal 2012-2013 appropriations act was made contingent on passage of this constitutional amendment.  If the amendment fails, legislators sooner or later would have to come up with a way to address a shortfall in the already-draconian education budget for the current biennium.

The nonpartisan research staff of the Texas House Research Organization has prepared an analysis of the pros and cons of Proposition 6 that you will find at this link:

On the pro side, the HRO analysis notes in part:

“At a time when additional state funding for the schools is badly needed, Proposition 6 would allow a larger share of the Permanent School Fund endowment to be distributed to the public schools through the Available School Fund in a prudent manner that would not harm the corpus of the PSF.

“It would allow PSF investment assets to be consolidated to reflect accurately the PSF’s full balance by adding certain assets managed by the School Land Board to the total asset base used to calculate the annual distribution from the PSF to the ASF. It also would grant explicit authority to the School Land Board to distribute directly to the ASF proceeds from state land for spending on public education.

“According to the Legislative Budget Board, the approximate value of the real assets and cash derived from PSF property that would be added to the calculation of the PSF’s market value for determining the amount that could be distributed annually to the ASF for spending on the public schools would be $2.2 billion. At the 4.2 percent distribution rate adopted by the SBOE for the upcoming two-year state budget period, this would mean an extra $75.4 million could be distributed to the public schools through the ASF in both fiscal 2012 and fiscal 2013.

“….By amending the Constitution, Proposition 6 would remove any question about the SLB’s authority to make a direct transfer to the ASF, at the discretion of the SLB and subject to a cap of $300 million per year. This could provide millions of dollars in badly needed revenue for public schools while still preserving the corpus of the PSF.”

On the anti-Proposition 6 side, the HRO analysis says in part:

“By changing how the total assets of the Permanent School Fund (PSF) are calculated for purposes of distributing a portion of the fund to the Available School fund (ASF), Proposition 6 would offer a short-term solution to the budget crisis, but would harm public schools and their endowment in the long run. Adding discretionary real estate investments and cash returns derived from PSF land to the basis used by the SBOE to calculate the proportion of the PSF endowment to be distributed to the public schools annually through the ASF would diminish the corpus of the PSF that could be invested for future returns. This change would allow a short-term gain, but ultimately mean a long-term loss for the schools.

“Authorizing the School Land Board (SLB) to distribute to the ASF up to $300 million each year in revenue derived from PSF land is neither necessary nor appropriate. The SLB already acts in the best interest of the fund by fulfilling its duty to manage PSF land and mineral rights. Funds generated by SLB investments are used for their intended purpose of providing an endowment for public education. Authorizing the SLB to transfer proceeds from PSF land and property directly to the ASF is unnecessary because the SLB already may transfer funds to the PSF, allowing the SBOE to ensure that the invested proceeds benefit the public schools through the annual distributions to the ASF…. It is unwise to spend funds directly that would otherwise be better invested to generate future income.”