SBOE UPDATE: Childrens Textbook Fund Put at Risk?

By Geraldine Tincy" Miller State Board of Education Member for District 12 Texas Insider Report: DALLAS Texas While most folks were taking holidays in July the State Board of Education (SBOE) met to discuss investment opportunities for the Childrens Textbook Fund and Proclamation 2011. The debate about the Childrens Textbook Fund (also known as the Permanent School Fund or PSF) involved a decision whether or not the Board was going to go forward with a proposal to purchase/leaseback facilities to charter schools.   While the idea in theory has merit investing in the success of our schools is certainly a primary purpose of the Boards six of 13 members (including myself) argued that this was not the means by which to do it. We all support charter schools. In fact we vote regularly to approve charter applications for schools that we believe will be excellent alternatives for children in the state. That said every expert on the matter warned the Board that this was not only a risky investment but it could also violate the constitution since the Fund was never intended for investments of this nature.  Article VII section 3 of the Texas Constitution states:

it shall be the duty of the SBOE to set aside a sufficient amount of available funds to provide free textbooks for the use of children attending the public free schools of the state".

Therefore if using the Childrens Textbook Funds in this way proves to be unconstitutional the Board could face litigation. The Constitution also states in Article VII section 5(f):

the State Board of Education may acquire exchange sell supervise manage or retain through procedures and subject to restrictions it establishes and in amounts it considers appropriate any kind of investment… considering the probable income as well as the probable safety of their capital."

In other words the investments must be sound. In response to our disappointment with the Boards vote to approve the proposal my husband Vance (President & CEO of Henry S. Miller Companies) and I wrote an Op-Ed (opinion editorial) that was published in the Austin American-Statesman on Wednesday July 28th. I have included it here to give you a more thorough view of this issue.

SBOE Putting Childrens Textbook Fund at Risk?

Last week a slim majority of the State Board of Education passed a proposal to use the Childrens Textbook Fund to purchase/leaseback real estate facilities to charter schools an unorthodox plan that could affect the future viability of the Fund. 

In spite of discouragement from the Boards fiduciary counsel its investment managers and the Texas Education Agencys Fund staff some members of the Board were determined to use the Fund as a way to boost charter schools in Texas which typically have difficulty securing adequate facilities from which to operate. While certainly an admirable goal putting the Childrens Textbook Fund at risk is not the means by which to do it. 

The Childrens Textbook Fund was established in 1894 to provide free textbooks to Texas public school children. The initial revenue was $2 million from oil and gas interests; now it generates from $700-$800 million a year which the Texas Constitution says must be used to pay for instructional materials" for school children in the state.

Over the years the Board has struggled to protect the Fund from raids from the Legislature which has wanted to use the money to pay for items other than content such as laptops and Kindles.

The financial strength of the Childrens Textbook Fund is also used to back the bonds issued to pay for the construction of publicly owned school buildings through the Bond Guarantee Program. This backing gives the school bonds the equivalent of the highest rating available in the bond market and consequently the Fund has the full faith and credit as well as the School Districts taxing authority as security.  

Some members believe that since the Childrens Textbook Fund is used for this purpose it opens the door for investing in facilities for privately owned charter schools. Not so.

Purchase-leaseback real estate investments of school facilities are specialized developments in residential neighborhoods rented to typically not well-capitalized users.

Additionally funding of usually non-profit charter schools is normally by volunteer and student contributions making this type of investment highly illiquid and unsuitable for the Childrens Textbook Fund.  

For this reason using the Fund to invest in charter schools could hamper its profitability potentially leading to a situation where it cannot cover the costs for its initial purpose. Already the legislature voted last session to allow schools to use the Funds they receive from the Childrens Textbook Fund to purchase Kindles and laptops which rapidly become outdated.

Therefore it is more important than ever that we make well-informed investing decisions to ensure that future public school children have the materials they need to learn. 

One of the primary roles of the State Board of Education is to maintain the success of the Childrens Textbook Fund. The decision to invest Fund money into Charter Schools is a blatant disregard for our fiduciary responsibility to the children of this state.

This is the second time in the past year that the Board has asked for counsel on Fund investment decisions and a slim majority has voted to oppose their suggestions (the first vote occurred in 2009 with the selection of fund managers the Committee on the Childrens Textbook Fund chose the firm that ranked worst in all categories by TEA staff professionals.)

While being in favor of school choice and having long supported charter schools this is an inappropriate use of the Childrens Textbook Fund that could lead to litigation that would be a waste of taxpayer dollars.

The Boards fiduciary counsel strongly urged the Board to seek an opinion from Attorney General Greg Abbott before proceeding with this plan. Lets hope the Board can stick with that decision before committing any money to this risky proposal.

Time will tell what the effects of this decision may mean for the future of the Childrens Textbook Fund. I sincerely hope I am wrong about the possible deterioration of the Fund but I do not foresee a promising outcome. Proclamation 2011 was also a topic of concern. The Board had previously voted to push up the process by one year foregoing a complete science textbook update for the creation of supplemental materials to the old textbooks. Further review of this decision proves to be inefficient and expensive. The money will not be available to pay for supplemental materials in 2011. If we wait a year to take the time to do a complete textbook update the Legislature would have met and the possibility of the funds being available is more secure. This decision is far from being approved but I plan to raise it at the Board meeting in September. I hope that you and your family have had a safe and relaxing summer vacation. Good luck as you embark upon the coming year. Tincy Miller represents Dist. 12 on the Texas State Board of Education (SBOE).  A Member since 1984 she was appointed by Gov. Rick Perry to serve as Chair from 2003-2007.