What’s wrong with the Permanent School Fund?

For starters, it should have more money in it.

It was a grand promise, one our forefathers made 165 years ago to all Texas children, to theirs and ours and those not yet born.

With $2 million and the state’s most abundant and precious resource — its land — they created the Texas Permanent School Fund to forever support public education. It was called a “sacred trust.”

That trust, dedicated to K-12 schools, is now valued at $44 billion, bigger than even Harvard University’s endowment.

It is also broken.

The Permanent School Fund has failed to match the performance of peer endowments, missing out on as much as $12 billion in growth and amassing a risky asset allocation, a yearlong Houston Chronicle investigation reveals.

Outside fund managers have charged the endowment at least a billion dollars in fees during the past decade, records show. Some of them have had professional or personal relationships with Texas School Land Board members, who govern a portion of the fund.

And, critically, the fund is sending less money to schools than it did decades ago, in real dollars. The amount dropped to an average of $986 million annually over the past decade from an average of $1.14 billion in the previous 20 years, in inflation-adjusted dollars. Last year, the fund distributed only 2.8 percent of its value — roughly half the share paid out by many endowments.

That decline, coupled with a 2 million increase in the number of students over 30 years, has slashed the fund’s per-student distribution.

Per student, the fund has paid an average of $207 annually over the past decade compared with $322, adjusted for inflation, over the prior two decades, a drop of more than one-third.

According to the Congressional Research Service, between 1998 and 2017, the average payout from higher education endowments has ranged between 4.2 percent and 5.1 percent. If the Texas fund paid out 5 percent of a four-year average market value, as many endowments try to, Texas schools would have received $720 million more in 2018.

That’s the opening of part one of a promised four-part series. Here’s part two, in which we find that however the fund is doing, the fund managers are doing great.

Since the land board started investing with outside fund managers on behalf of the state’s K-12 endowment in 2006, it has committed or invested nearly $3.7 billion with companies run by friends, business associates or campaign donors.

Those donors together have given more than $1.4 million since 2006 to board members or elected officials with the power to appoint them, a Houston Chronicle investigation reveals.

And they’ve since charged the fund more than $218 million in fees, records show.

While the fees climbed during the past decade, the amount of money the $44 billion Texas Permanent School Fund sends to schools has declined, in real dollars, compared with the two decades prior.

Rep. Donna Howard, a Democrat from Austin, said it’s time to reassess how the school fund is managed.

“Without the right oversight, the PSF is ripe for conflicts of interest,” she said. “We have a responsibility for due diligence here.”

Read the rest, and come back for parts three and four. A better-managed PSF would not solve school finance by itself, but it sure would help. Seems like this is a prime opportunity for some high-profile legislation to improve how this works.

Related Posts:

This entry was posted in Budget ballyhoo and tagged , , , , , , , , . Bookmark the permalink.

One Response to What’s wrong with the Permanent School Fund?

  1. David Fagan says:

    This is an example of what moving public employees from a group pension plan to a privately managed defined contribution plan will look like. At one point the managers will compete for the accounts, then it well be more expensive for the employees and more risk, leading managers to take advantage of the situation at some point.

Comments are closed.