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Banks to Bonds:
A Practical Path to Sound School District Investing

Glossary of Investment Terms

10 Key Steps For Managing School District Investments

  1. Comply with state and federal laws.
  2. Establish sound policies.
  3. Adopt administrative procedures and controls.
  4. Know how much you have to invest through cash flow forecasting.
  5. Learn how to manage risk.
  6. Manage bond issuances to maximize interest earned and minimize interest paid.
  7. Develop a strategy for earning the best rates.
  8. Monitor your investments and deposits.
  9. Negotiate depository contracts that maximize returns.
  10. Use the experts when you need them.

Bibliography

Texas State Comptroller Carole Keeton Rylander has eight statutory education-related responsibilities including conducting performance reviews of Texas school districts for efficiency and effectiveness. During these reviews of school districts across the state, the Comptroller’s Texas School Performance Review (TSPR) has identified and recommended thousands of ways for school districts to save money and improve operations.

In 1999, the 76th Texas Legislature charged the Comptroller with providing technical assistance to school districts, singling out investments of public funds as an area that required specific attention. Rider 18 to the General Appropriations Act explained that the Comptroller’s assistance to schools may include advice specific to the investment of public funds, including highlighting best practices of school districts or similar political jurisdictions, investment options available to school districts, the development of investment policies, and the fiscal implications of investment decisions. Rider 15 to the General Appropriations Act authorized the Comptroller to work in conjunction with the Texas Education Agency, Regional Education Service Centers and other educational organizations to provide research materials, educational policy proposals and technical assistance to school districts in order to maximize funding for classroom instruction as well as create a Web site and develop other products to assist school districts to better manage their finances.

To comply with this legislative intent and facilitate technical assistance for school districts based on the Comptroller’s performance reviews, and with the help from a number of experts in the field, the Comptroller’s Office has identified 10 key steps necessary to developing and monitoring an effective investment program.

Public School Investments

Because of the way school districts are funded in Texas, nearly every district has excess funds at certain times of the year that are not needed to pay expenses of the district for days, weeks or even months.

In 1999-2000, Texas school districts received an average of 50.5 percent of their funds from local property taxes and other sources, 46.1 percent from the state and 3.4 percent from federal sources. Under the state’s "share the wealth" school finance plan, the amount of money a district receives from any given source depends on a number of factors including such variables as local property tax values and the number of students participating in various state and federally funded programs.

Property-rich districts, for example, receive the majority of their revenues from local property taxes; consequently most of their revenues arrive early in the calendar year when property taxes are due. Property-poor districts receive most of their revenues from the state, and state monies are distributed at scheduled intervals throughout the year. In both cases, the school districts receive large sums of cash that will be used over time to pay salaries, buy goods and services and pay for other district expenses.

Until the money is needed, wise districts invest this excess cash in accounts or instruments that mature or are available in time to meet their anticipated expenses. The idea is to leave funds fully invested until the money is needed.

IMPORTANT NOTICE: The information in this document is presented solely as technical assistance and as a resource available to school districts. The information does not serve as a substitute for legal advice nor replace the independent judgement of a district's governing body concerning its investments. A district should consult its attorney or other appropriate counsel such as its investment adviser to resolve questions about its investment transactions.