Senator Eliot Shapleigh - El Paso, Texas

Turmoil in world financial markets has taken a bite out of one source of money for Texas' public schools.

The contribution from the Permanent School Fund, a constitutionally dedicated endowment for public education created in 1854 , will decrease to $1.15 billion in the next state budget from $1.4 billion in the current budget.

The fund, which is one of the largest educational endowments in the country, has dropped in value from $25.1 billion last fall to $17.5 billion now.

That 30 percent loss has erased many of the returns of the past 10 years at the same time as the student population continues to grow.

The practical effect of having $300 million less is relatively small; total state education funding for the 2008-09 budget was $34.5 billion .

But the symbolic effect is much greater. The precipitous drop in the market value of the fund forced the State Board of Education for the first time to choose between the fund's two guiding principles: protecting the fund assets for the state's future students and providing for today's.

Those two fund objectives "are at war with each other," said financial consultant James Voytko , president and chief operating officer of R.V. Kuhns & Associates Inc.

Given the fund's condition, the consultants told the board, distributing nothing for the 2010-11 budget would be appropriate to protect the assets. But such a move would run counter to the goal of providing a stable amount of spending per student over time.

Board Chairman Don McLeroy said the compromise of sending some money — though less than expected — is the right thing to do.

"We have to pay something. It's not fair to the current students," McLeroy said.

October was one of the worst months on the books for investors, and the fund's decline mirrors that of other endowments.

The value of the Permanent University Fund, by comparison, has fallen 25 percent in the past year. Its distribution, which goes to campuses in the University of Texas and Texas A&M University systems, will be set next spring.

Before each legislative session, the State Board of Education determines how much of the Permanent School Fund to make available for education in the next two-year budget. That amount is based on the average market value of the fund over the past four years and cannot exceed 6 percent.

This summer, the board had set a range of distributing between 3.1 and 4 percent 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 board approved a 2.5 percent distribution on Wednesday, which will cover the $913 million cost of textbooks — the main purpose of the fund — but leave little for other educational purposes.

The core of the Permanent School Fund is the proceeds from the sale and rental of some state land and the minerals rights on those lands.