Judges: GREG ABBOTT, Attorney General of Texas
Filed Date: 8/9/2011
Status: Precedential
Modified Date: 7/6/2016
The Honorable Barbara Cargill Chair, State Board of Education
1701 North Congress Avenue Austin, Texas 78701-1494
Re: Permissible investments of the permanent school fund (RQ-0941-GA)
Dear Ms. Cargill:
Your predecessor asked three questions about the legal authority of the State Board of Education (the "Board") to invest permanent school fund ("PSF") capital in a manner intended to give direct aid to "charter schools in acquiring instructional facilities."1 The request letter explained that "[t]he Board has established a special asset class for charter schools facilities investment with its own proposed benchmark for returns. . . ." Request Letter at 2. "Possible investments . . . include direct acquisition of real estate or real estate mortgages and bonds issued by the non-profit corporations that hold state charters." Id. For example, the PSF could buy or build "facilities and then lease them to charter schools." Id.
These questions concern Texas Constitution article
in managing the assets of the [PSF], the [Board] 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, including investments in the Texas growth fund created by Article XVI, Section 70, of this constitution, that persons of ordinary prudence, discretion, and intelligence, exercising the judgment and care under the circumstances then prevailing, acquire or retain for their own account in the management of their affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital.
TEX. CONST, art.
consistent with the "prudent person" standard adopted in Article
VII , Section5 (f) of the Texas Constitution, determine the asset classes in which it will invest with the sole purpose of maximizing the future value of the PSF, or may the Board also consider benefits to a state policy in making an investment as outlined above which may not have an expected return as high as the expected return of the likely highest returning class of assets within the PSF?
Request Letter at 4. No provision of article VII, section 5(f) contains language that authorizes the Board to consider a potential investment's general benefits other than the sound financial management of PSF assets when it makes investment decisions.See TEX. CONST, art.
Neither our legal review nor the legal briefing submitted to this office has uncovered legal authority that would authorize the Board to make PSF investment decisions for any other purpose or to consider any other nonfinancial factor. See
TEX. EDUC. CODE ANN. §§
The second question is whether the Board may "restrict investment within [an asset] class to a group of entities in furtherance of a state policy." Request Letter at 4. We have not found a provision of the Texas Constitution or Education Code that authorizes the Board to restrict PSF investments to asset classes that would further any public policy other than the sound financial management of PSF assets. See generally TEX. CONST, art.
The third question is "whether the Board has any greater authority to select an asset class . . . if the purpose of that decision is to benefit an educational entity or education policy within Texas." Request Letter at 5. The Board's authority is strictly limited to the powers that the Texas Constitution and Education Code grant to it. TEX. EDUC. CODE ANN. §
Accordingly, we conclude that Texas law would authorize the Board to make investments that directly help charter schools acquire instructional facilities, but only if persons of ordinary prudence, discretion, and intelligence do so for their own account, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. TEX. CONST, art.
The text of articleVII , section5 (f) of the Texas Constitution, provides that the State Board of Education may make any investment that persons of ordinary prudence, discretion, and intelligence make in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. The text of article VII, section 5(f) does not authorize the Board to make investments in regard to any other objective or to consider any other kind of factor in managing permanent school fund assets.
Very truly yours,
GREG ABBOTT Attorney General of Texas
DANIEL T. HODGE First Assistant Attorney General
DAVID J. SCHENCK Deputy Attorney General for Legal Counsel
JASON BOATRIGHT Chair, Opinion Committee
Jason Boatright Assistant Attorney General, Opinion Committee