DALLAS - The deepening recession is putting Texas schools and universities in a tighter squeeze as investment losses have sharply reduced two funds used to guarantee bond issues.

The Permanent School Fund, which backs bond issues for public school districts, has seen its value plunge 30% from $25.1 billion a year ago to $17.5 billion today, according to a presentation to the State Board of Education.

The past year's losses essentially wiped out gains of the past decade, according to financial consultants.

The PSF also provides money for the Available School Fund for annual distributions to the school districts. The decline means that the amount available for distribution will drop from $1.4 billion this year to $1.15 billion in the 2009-10 fiscal year budget, officials said.

Total state education funding for the current budget year is $34.5 billion, so the decline in available distributions is statistically a minor amount. But for districts dealing with growing enrollment and still recovering from soaring expenses, any hit is painful.

The board considered distributing nothing from the fund in order to preserve its value, but board chairman Don McLeroy said that would countermand the mission of providing money to balance per-pupil spending in the state.

The board approved a 2.5% distribution at its Wednesday meeting. That outlay will provide $913 million for textbooks, with little remaining for other uses, officials said.

The board had previously set a range of distributing between 3.1% and 4% of the fund's average market value. At those levels, the amount available for education would have been $1.4 billion to $1.85 billion.

The reduction in the total value of the fund could affect the PSF's ability to back increasing levels of school debt. The PSF is already near its capacity and is seeking Internal Revenue Service permission to increase its debt ratios. In 2005, the IRS increased the fund's guarantee limit to roughly $46.2 billion from $34.1 billion.

Last year, state school districts sold more than $10 billion of bonds, most backed by the PSF. A similar amount was approved in May and November elections, but the PSF had just $371.7 million in remaining capacity available to back upcoming bond sales.

"Reaching capacity in recent years has not hindered the fund's AAA credit fundamentals, but it has recently posed challenges for school districts forced to seek private bond insurance to achieve the AAA enhanced rating," Standard & Poor's noted in a report last spring.

Meanwhile, the Permanent University Fund, which backs bonds for the University of Texas and Texas A&M systems, has seen its value fall 25%, according to state officials.

The PUF, which is operated by the University of Texas Board of Regents, provides money for the Available University Fund that is distributed to the colleges and universities in the two systems annually.

Earlier this month, the regents shifted plans to sell production from oil and gas properties on the state lands that make up the PUF because of declining energy prices.

PUF royalties from oil and gas leases on 2.1 million acres of West Texas land are invested in funds managed by UT's financial services company, University of Texas Investment Management Co.

For the public K-12 schools, money is tight, in part, because of tax relief measures passed by the Texas Legislature in 2006 and last year. To increase funding beyond a certain level, districts have to call special elections, which three cash-strapped districts near Houston are doing this week.

One of them, North Forest Independent School District, could be shut down by state Education Commissioner Robert Scott if he decides it is not financially viable.

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