Money and Politics at the Texas SBOE, Part I

Earlier this year the Texas House voted overwhelmingly to shift authority over the Permanent School Fund (PSF) from the State Board of Education to a panel of financial experts. Senate Republican leaders, however, let the measure die without even a hearing. Now they may have good reason to regret that decision.

On Sunday the Dallas Morning News and the Austin American-Statesman ran separate stories about ethics concerns surrounding the state board’s management of the PSF. The $20.5 billion fund is the second largest educational endowment in the country. That money funds the purchase of textbooks and other school supplies and guarantees bonds issued by local school districts.

There is more to the story than what was reported on Sunday by the Morning News and Statesman. But first, here’s a summary of what we saw as some key points in the two stories:

–  The stories detail ethics concerns regarding recent board votes to hire a new general investment consultant, Massachusetts-based New England Pension Consultants (NEPC), to help board members manage the PSF.

– Some state board members say they were not told that several members of PSF’s executive staff expressed concerns about potential ethics violations by board members involved with the decision to hire NEPC.

– NEPC’s primary champion on the state board was Rick Agosto, D-San Antonio, who works as a marketer for institutional investment firms in his private business. According to the Morning News and the American-Statesman, Mr. Agosto had prior business contacts with NEPC and was seeking the firm’s help in getting investment business for one of his clients.

– NEPC won the PSF contract from the state board despite submitting the highest bid and receiving the lowest ranking from the PSF’s professional staff. The firm’s first bid, $1.045 million per year, was more than twice the bid of each of its competitors, $430,000 and $448,251. NEPC subsequently lowered its bid to $580,000 per year, but even that figure was still the high bid by a substantial margin.

– Mr. Agosto suggested to the American-Statesman that questions about his relationship with NEPC were politically motivated. Some board members, he alleged, “like to use things like this … and create controversy, and they even have certain staff members on their side.” From the American-Statesman story:

“There is total mistrust between the staff and the board,” Agosto said. He lamented that (Texas Education Commissioner Robert) Scott, not the board, has the authority to hire or fire the investment staff.

That could change.

At the most recent Permanent School Fund meeting, the committee asked that a management study be conducted to look at adopting a structure similar to that of the University of Texas Investment Management Co., a private nonprofit corporation that oversees several higher education funds.

Such a change would put the staffing decisions solely in the hands of the State Board of Education.

So now some board members want even more authority over the Permanent School Fund. Specifically, they want the board to oversee the jobs of the finance professionals who help run the PSF for Texas taxpayers.

But there’s even more to this story that went unreported by the Dallas Morning News and the American-Statesman. TFN Insider digs deeper into this shady situation in Part II.