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School Finance 101; What do they do with the money?
By Alison Rendon
EDITOR’S NOTE: This is the fourth in a series of articles by Friendswood ISD’s Alison Rendon detailing school finance.
State and federal laws set the rules within which all school districts in the state of Texas are expected to operate when investing public funds. The Public Funds Investment Act, codified at Chapter 2256 of the Texas Government Code provides investment authority to nearly all political subdivisions of the state, including school districts.
The Public Funds Investment Act
The Public Funds Investment Act was first passed in 1987. It was significantly rewritten in 1995, in response to the Texas State Auditor reports on investment losses at Texas institutions and to investment problems in Texas counties elsewhere. In 1997 amendments clarified the 1995 requirements. Additional amendments have since been passed by the Texas Legislature, mostly clarifying and improving public funds investment options. Some of the requirements of the Public Funds Investment Act include investment training for investment officers appointed by the district, written local investment policies that primarily emphasize safety of principal and liquidity and address investment diversification, yield, maturity and the quality and capability of investment management.
District Investment Officers
Every district is required to designate one or more employees as investment officer(s) to be responsible for the investment of its funds consistent with the investment policy adopted by the board of trustees. Each investment officer is required to attend at least ten hours of training every two years in order to be in compliance with the Investment Act. This training must be completed by an independent source that is board approved and must include education in investment controls, security risks, strategy risks, market risks, and diversification of the investment portfolio. Designated investment officers are responsible for making investments with judgment and care, discretion, and intelligence and for managing investment decisions.
Investment Policy
Each school district and board of trustees is responsible for adopting an investment policy. This policy will serve as the guideline investment officers will use when making decisions about how and where to invest district funds. Investment policies are required to be written, emphasize safety of principal and liquidity, and address investment diversification, yield, and maturity. Policies must also include a list of authorized investments that the district may have funds invested in, state the maximum allowable maturity of any individual investment, identify methods to monitor the market price of investments, and state a requirement for settlement of transactions. The board of trustees is required to review the investment policy and strategies not less than annually.
Friendswood Independent School District reviews investment strategies and procedures annually in January. The main goal stated in the adopted FISD investment program is to ensure its safely and maximize financial returns within current market conditions in accordance with this policy. The district has identified that the maximum allowable stated maturity of any individual investments in the general operating fund shall not exceed one year from the time of purchase. The policy also states reports will be made quarterly to the board of trustees regarding the investment of funds and how they are performing. These quarterly investment reports can be found in the Business Services section of the FISD website, www.fisdk12.net.
Authorized Investments
The Public Funds Investment Act focuses on security of principal and, therefore, limits public school districts to the type of funds available for investment purposes. The district policy further narrows this list to include only funds that the school district wishes to invest in. For Friendswood ISD these types of investments are limited to: obligations of, or guaranteed by, governmental entities, certificates of deposit, share certificates, full collateralized repurchase agreements, securities lending program, banker’s acceptances, commercial paper, no-load money market mutual funds, no-load mutual funds, guaranteed investment contracts as an investment vehicle for bond proceeds, public funds investment pools. Currently, the district is invested in investment pools and government securities.
More than 56 percent of FISD dollars are invested in pools. These pools allow for immediate liquidity of assets as well as provide a safe investment for the district. Government securities is where the remaining 44 percent of the district’s dollars are invested. This percentage of dollars is totally comprised of capital project funds. These securities have allowed the district to lock in an interest rate and ladder out the maturity to coincide with when the dollars will be needed to pay for upcoming construction projects. For Friendswood ISD, the rate these funds have been secured at is far out performing the current interest rates in the market. This is allowing the district to fully capitalize on the bond proceed dollars that will be needed to fund renovation and construction projects.
Summary
As you can determine from the information provided above, investments made by public school districts are highly regulated and monitored on many different levels. The employees designated as investment officers have a responsibility to the district and the community to stay up to date on all training and to make sound investment decisions. These decisions are guided by policies that are adopted and enforced by the board of trustees in each school district. In Friendswood ISD our investment goal is to ensure safety and maximize financial returns. Therefore, all investments in the district follow local policies and state and federal laws to ensure the maximum security of funds.
State and federal laws set the rules within which all school districts in the state of Texas are expected to operate when investing public funds. The Public Funds Investment Act, codified at Chapter 2256 of the Texas Government Code provides investment authority to nearly all political subdivisions of the state, including school districts.
The Public Funds Investment Act
The Public Funds Investment Act was first passed in 1987. It was significantly rewritten in 1995, in response to the Texas State Auditor reports on investment losses at Texas institutions and to investment problems in Texas counties elsewhere. In 1997 amendments clarified the 1995 requirements. Additional amendments have since been passed by the Texas Legislature, mostly clarifying and improving public funds investment options. Some of the requirements of the Public Funds Investment Act include investment training for investment officers appointed by the district, written local investment policies that primarily emphasize safety of principal and liquidity and address investment diversification, yield, maturity and the quality and capability of investment management.
District Investment Officers
Every district is required to designate one or more employees as investment officer(s) to be responsible for the investment of its funds consistent with the investment policy adopted by the board of trustees. Each investment officer is required to attend at least ten hours of training every two years in order to be in compliance with the Investment Act. This training must be completed by an independent source that is board approved and must include education in investment controls, security risks, strategy risks, market risks, and diversification of the investment portfolio. Designated investment officers are responsible for making investments with judgment and care, discretion, and intelligence and for managing investment decisions.
Investment Policy
Each school district and board of trustees is responsible for adopting an investment policy. This policy will serve as the guideline investment officers will use when making decisions about how and where to invest district funds. Investment policies are required to be written, emphasize safety of principal and liquidity, and address investment diversification, yield, and maturity. Policies must also include a list of authorized investments that the district may have funds invested in, state the maximum allowable maturity of any individual investment, identify methods to monitor the market price of investments, and state a requirement for settlement of transactions. The board of trustees is required to review the investment policy and strategies not less than annually.
Friendswood Independent School District reviews investment strategies and procedures annually in January. The main goal stated in the adopted FISD investment program is to ensure its safely and maximize financial returns within current market conditions in accordance with this policy. The district has identified that the maximum allowable stated maturity of any individual investments in the general operating fund shall not exceed one year from the time of purchase. The policy also states reports will be made quarterly to the board of trustees regarding the investment of funds and how they are performing. These quarterly investment reports can be found in the Business Services section of the FISD website, www.fisdk12.net.
Authorized Investments
The Public Funds Investment Act focuses on security of principal and, therefore, limits public school districts to the type of funds available for investment purposes. The district policy further narrows this list to include only funds that the school district wishes to invest in. For Friendswood ISD these types of investments are limited to: obligations of, or guaranteed by, governmental entities, certificates of deposit, share certificates, full collateralized repurchase agreements, securities lending program, banker’s acceptances, commercial paper, no-load money market mutual funds, no-load mutual funds, guaranteed investment contracts as an investment vehicle for bond proceeds, public funds investment pools. Currently, the district is invested in investment pools and government securities.
More than 56 percent of FISD dollars are invested in pools. These pools allow for immediate liquidity of assets as well as provide a safe investment for the district. Government securities is where the remaining 44 percent of the district’s dollars are invested. This percentage of dollars is totally comprised of capital project funds. These securities have allowed the district to lock in an interest rate and ladder out the maturity to coincide with when the dollars will be needed to pay for upcoming construction projects. For Friendswood ISD, the rate these funds have been secured at is far out performing the current interest rates in the market. This is allowing the district to fully capitalize on the bond proceed dollars that will be needed to fund renovation and construction projects.
Summary
As you can determine from the information provided above, investments made by public school districts are highly regulated and monitored on many different levels. The employees designated as investment officers have a responsibility to the district and the community to stay up to date on all training and to make sound investment decisions. These decisions are guided by policies that are adopted and enforced by the board of trustees in each school district. In Friendswood ISD our investment goal is to ensure safety and maximize financial returns. Therefore, all investments in the district follow local policies and state and federal laws to ensure the maximum security of funds.
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