Likely IRS Action will Increase PSF Bond Guarantee Program Capacity

The capacity of the Permanant School Fund (PSF) Bond Guarantee Program (BGP) could increase from $117.3 billion to about $218 billion once a likely change in an IRS regulation takes effect.

That is what the State Board of Education (SBOE) said in an announcement (May 11).

The SBOE reported that the IRS has published a “notice of an intent” to lift a regulation that has — since 2009 — artificially capped the capacity of the BGP to guarantee school bonds at $117.3 billion.

From November 2022 through January 2023, the artificial cap resulted in 56 districts having their applications denied to receive BGP bond guarantees totaling $8.4 billion. As of March 17, the PSF had the capacity to guarantee only $5.37 billion in school bonds (article).

Once the IRS cap is lifted, the capacity of the fund to guarantee school bonds will increase — per state law — to five times whatever the “cost” value of the PSF is at any particular time. That would mean, based on the current PSF value, the BGP could guarantee up to $218 billion in school bonds at any one time.

The IRS notice suggests (here) that written comments on the proposed regulatory revision be submitted by July 31, 2023, but adds that comments may be accepted after that date.