WASHINGTON — Three Texas state legislators are urging the Treasury Department and Internal Revenue Service to adopt rules that would permit the Texas Permanent School Fund, for the first time, to guarantee bonds issued for the benefit of open-enrollment charter schools created under state law.

The legislators — Sen. Florence Shapiro, and Reps. Linda Harper Brown and Rob Eissler — made the request after the state legislature enacted a measure they sponsored authorizing the PSF to provide guarantees for such financings.

“Full implementation of Texas law guaranteeing these public schools access to the PSF bond guarantee would have a positive impact on their ability to grow and serve the needs of the current and future public charter school students,” the three wrote in a Nov. 26 letter sent to high-level Treasury and IRS officials.

Open-enrollment public charter schools in Texas currently serve 155,000 students and 101,000 more are on admission waitlists, their letter said.

The Texas Permanent School Fund, which was established in 1858 with a $2 million investment by the state, is the second-largest education endowment in the country, behind Harvard University.

It was established to help finance public schools in Texas. The fund currently guarantees 2,634 bond issues with a par value of $56.3 billion, according to the Texas Education Agency.

Under Texas law, a charter school can be granted to a governmental entity, a public senior college or university, a public junior college, a public technical institute, a public state college, a medical or dental unit or other agency of higher education or a nonprofit corporation with a determination letter from the IRS that is described in Section 501(c)(3) of the Internal Revenue Code.

Currently, the PSF can only guarantee governmental obligation bonds. But charter schools may be nonprofit organizations that can only issue 501(c)(3) bonds, which are private activity bonds.

The letter from the state lawmakers follows one a lawyer for the TEA sent to the officials on Oct. 20, 2011 requesting an amendment to the Treasury Regulation Section 1.148-11(d)(1) to facilitate the access to the PSF to qualifying open-enrollment public charter schools.

The TEA argued that open-enrollment charter schools lack the power of taxation and requested the deletion of the words “with general taxing powers” in the regulations.

The agency believes the amendment will “greatly facilitate the issuance of obligations for the benefit of charter schools and are consistent with sound tax policy,” said the letter, which was written by Gregg Jones, partner with Andrews Kurth LLP.

The TEA also argued that in an unsettled credit environment, with no triple-A rated bond insurers left in the market, a “perpetual trust fund like the PSF can fund provide meaningful interest rate savings for bond issued for the benefit of a charter school.”

The TEA has been waiting for the Treasury and IRS to take action so that it can move forward and implement the legislation.

David Dunn, executive director with Texas Charter Schools Association said once the legislation will literally “save millions in charter debt service costs over the life of the bonds.” ƒá

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