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Who should be managing the Permanent School Fund?

It’s a good question, and I’m not sure what the best answer to it is.

Lawmakers are proposing a wide range of fixes for the state’s public school endowment, which has lost out on billions in growth during the past decade while paying out less to schoolchildren.

One bipartisan bill backed by high-powered legislators would restore the State Board of Education’s control over nearly all of the investments for the $44 billion Texas Permanent School Fund, reverting to the way it was before a 2001 law change.

Another would allow the School Land Board, which now controls about $10 billion of the endowment, to double the amount it can send annually directly to schools — up to $600 million. Yet another would take most of the money away from the feuding boards and create a new nine-member governing body appointed by the governor to decide how the endowment invests and distributes its dollars.

[…]

A key point in the debate is which governing body should have the authority to retain and invest the state’s oil and gas royalty revenue from leases on state land. Until 2001, the land board collected the money and sent it passively along to the education board to invest. But a law passed that year allowed the land board to retain the money and invest it.

A series of law changes and constitutional amendments since has changed the way money is sent to schools. The education board was tasked with setting a distribution rate based on a complex formula that, in part, depends on how much money it receives from the land board. Lawmakers also authorized the land board to send up to $300 million per year directly to schools, instead of to the education board, but it has no requirement to do so.

The changes created a serious governance issue, said Sen. Kirk Watson, an Austin Democrat who has introduced a bill that would return the royalty revenue to the education board to invest. That bill has the backing of five Republican Senate committee chairs. Republican Rep. Ken King has filed identical legislation in the House.

It also is supported by the education board’s chairwoman, Donna Bahorich, who said it aims to “permanently and efficiently fix the decision-making structure that affects the performance, distributions and expenses. Consolidation of the two pieces of the Permanent School Fund into one decision-making structure would be for the benefit of putting more money to work for the school children.”

See here and here for some background, and here for the Chron’s “Broken Trust” series, which uncovered a lot of these problems. The Land Board has had the worse performance, but the SBOE’s management isn’t perfect, and it was just ten years ago that there were proposals to take PSF management away from the SBOE. At some level, I don’t care who manages the PSF. What I do care about is ensuring accountability and maximizing returns. What are the best practices – what do other institutions that manage similar endowments do, for example – and what are the gaps that need to be addressed? That’s what I want us to focus on.

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