ATTACHMENT III
Summary of Public Comments and Agency Responses Related to Proposed Amendments to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability Rating System
§109.1002, Financial Accountability Ratings
Comment: Concerning proposed Figure: 19 TAC §109.1002(f), an administrator from Round Rock Independent School District stated that the rating worksheet explanation for Indicator 9 erroneously includes the words "per student" in reference to property taxes collected per penny of tax effort.
Agency Response: The agency agrees and has removed the "per student" reference from the explanation for Indicator 9 in Figure: 19 TAC §109.1002(f). The agency notes that, although the "per student" phrase has been referenced in the worksheet explanation for a number of years, the actual calculation has been performed correctly.
Comment: Concerning proposed Figure: 19 TAC §109.1002(f), the Texas Classroom Teachers Association (TCTA) commented that, for Indicator 16 (student-to-teacher ratio), the rule should clarify that the definition for the term "teacher" is the same as Texas Education Code (TEC), §5.001.
Agency Response: The agency disagrees. TEC, §5.001, defines a classroom teacher as an educator who is employed by a school district and who, not less than an average of four hours each day, teaches in an academic instructional setting or a career and technology instructional setting. The term does not include a teacher's aide or a full-time administrator. In the Financial Integrity Rating System of Texas (FIRST), the number of teachers is calculated from PEIMS Code Table C021 Role-ID as defined in the FIRST software application. More specifically, a teacher is defined as a professional employee who is required to hold a valid teacher certificate or permit in order to perform some type of instruction to students. Permanent substitute teachers are also included in this total. The agency has determined that, for the purposes of financial accountability, the teacher information reflected in PEIMS provides the most accurate reflection of a district's financial obligation.
Comment: Concerning proposed Figure: 19 TAC §109.1002(f) and Figure: 19 TAC §109.1002(g) and the indicators for teacher and staff ratios, the TCTA commented that it applauds the fact that the proposed rating worksheet requires more specificity than past renditions in that it awards points based on specified numerical ranges but noted that the rating system still does not require the district to identify specifics should the district fall outside the low-to-high range. The TCTA stated that the district should be required to identify specific statistics should it fall outside the low-to-high range.
Agency Response: The agency agrees in part and disagrees in part. The agency agrees that the numerical ranges reflected in the ratings worksheet provide for additional specificity in the calculation results. However, the agency disagrees that the rating system report is the appropriate method for disseminating additional district-specific statistics or explanatory information related to the calculation result. When FIRST results are published, each indicator displays the result of a district's calculation. The calculation for this ratio awards points based on specific numerical ranges. Additional explanatory information is not requested from a district at the point of rating assignment. However, the financial management report procedure under TEC, §39.083, requires a district to hold a public meeting to discuss its FIRST results compared to both the state standard and the district's performance for the prior year. Furthermore, if a district fails School FIRST, it is required to submit a corrective action plan to the agency to explain how it will address each indicator contributing to the district's School FIRST failure. The public hearing and corrective action plan processes offer an opportunity for the district to provide more detailed statistics and explanatory information.
Comment: Concerning proposed Figure: 19 TAC §109.1002(f), the TCTA commented that, in regard to Indicator 18 (testing for the general fund balance to fall within 50% and 150% of the optimum fund balance), a measure should be created that would not penalize a district for spending more than 10% of its fund balance on payroll/operating costs if the district has a fund balance in excess of 150% of the optimum level on payroll or other operating costs, making it perhaps appropriate to spend some portion of the fund balance on payroll or other operating costs.
Agency Response: The agency disagrees. Unless a district has a plan to accumulate funds for large capital expenditures, a fund balance far in excess of the optimum may indicate that the district's tax rate is too high or reflect a lack of internal financial planning and monitoring of the district's resources. Furthermore, the agency notes that this is not a critical indicator that results in automatic failure of School FIRST. Therefore, a district could earn fewer than five points on this indicator and still receive an acceptable, or higher, School FIRST rating.
Comment: Concerning proposed §109.1002(g), the Texas Charter Schools Association (TCSA) recommended that application of the rules be postponed for another year to 2011-2012, stating that member schools are entitled to timely advanced notice before the imposition of regulatory standards that will impact the school's accountability rating, accreditation status, and, ultimately, the status of the school's contract with the state. The TCSA further commented that schools already have adopted their budgets and spending patterns for 2010-2011, making compliance with the newly proposed standards potentially more difficult and unnecessarily burdensome.
Agency Response: The agency disagrees. The proposed standards were posted for public comment on October 22, 2010, and have been presented to charter school stakeholders in a number of forums before and since that time. Therefore, a charter holder or charter school has had, and will have, sufficient time to make any necessary budget adjustments for the 2010-2011 fiscal year. Since the School FIRST for Charter Schools indicators are based primarily on standard non-profit financial ratios, a non-profit organization with adequate financial practices could obtain a rating of Standard Achievement or higher when related 2012 ratings are issued.
Comment: Concerning proposed Figure: 19 TAC §109.1002(g), an outside contractor commented that the explanatory statement for Indicator 7 included in the rating worksheet did not accurately reflect the calculation described for Indicator 7.
Agency Response: The agency agrees and has clarified the description for Indicator 7 in Figure: 19 TAC §109.1002(g) to match the actual calculation for Indicator 7.
Comment: Concerning proposed Figure: 19 TAC §109.1002(g), the TCSA commented that, since Indicator 14 sets a standard for each charter school's administrative cost ratio from 0.3614 to 0.1105, it seems to run afoul of the clear legislative mandate in TEC, §39.082(c), which says that the financial accountability rating system cannot include an indicator that requires the expenditure of at least 65 percent of a school's operating funds for instructional purposes. Further, the TCSA stated that the proposed ratios are not consistent with the spirit of the indirect cost allotments applied to federal programs monitored by the agency and should be deleted for these reasons.
Agency Response: The agency disagrees. The administrative cost ratio is a common method of reviewing whether a non-profit organization is primarily involved in activities that further the organization's exempt purposes. A higher administrative cost ratio could indicate that the entity is being operated for the benefit of private interests rather than its public mission. The federal program indirect cost allotments are meant to fund the portion of administrative costs that each federal program incurs. Furthermore, the agency notes that this is not a critical indicator that results in automatic failure of School FIRST. Therefore, a charter could earn fewer than five points on this indicator and still receive an acceptable, or higher, School FIRST rating.
Comment: Concerning proposed Figure: 19 TAC §109.1002(g), the TCSA noted that Indicator 15 asks about the ratio of students to teachers and further noted that the permissible ratio range varies according to the number of students enrolled in the charter school. The TCSA commented that this indicator is very likely aimed at determining a school's ability to finance its personnel costs for teachers but stated that, because charter schools are not required by law to adhere to any specific student-teacher ratio for classroom instruction, this indicator may threaten a charter school's ability to staff and assign teachers in the manner and in a ratio consistent with the school's mission and its efforts at innovation. The TCSA requested that Indicator 15, student-to-teacher ratio, be deleted. The TCSA stated that Indicator 16, which asks about the ratio of students to total staff, should be sufficient for the agency to determine the school's ability to finance its personnel costs.
Agency Response: The agency disagrees. Since the largest expense for most schools is teacher salaries, it is appropriate for the financial accountability system to review whether a charter school is able to finance this substantial obligation. Solely using Indicator 16, which involves a comparison of teachers to total staff, does not permit sufficient evaluation of teacher costs. Furthermore, the agency notes that Indicator 15 is not a critical indicator that results in automatic failure of School FIRST. Therefore, a charter could earn fewer than five points on this indicator and still receive an acceptable, or higher, School FIRST rating.
Comment: Concerning proposed §109.1002(i)(2)(C), which states that, "Errors by a district or open-enrollment charter school in recording data or submitting data through the TEA data collection and reporting system do not constitute a valid basis for appealing a preliminary rating," the TCSA commented that, for the sake of ensuring accurate financial data from charter schools, the agency should delete this rule or revise it to permit schools to correct their data if a bona fide data recording or submission error is discovered.
Agency Response: The agency disagrees. The majority of the data used in the FIRST rating system is produced in PEIMS, which has strict reporting deadlines and does not allow for additional submissions after the final deadline. Furthermore, superintendents are required to submit the electronic "Superintendent's Statement of Approval of Summary Report and Error Listing" (SAF) certifying the accuracy and authenticity of the data submitted for each PEIMS data collection. An open-enrollment charter school must have strong internal control procedures in place to ensure the accuracy of financial reports and to identify errors and omissions before submitting reports and data to the TEA.
§109.1003, Types of Financial Accountability Ratings
Comment: Concerning proposed §109.1003(a), the TCSA commented that it supports the addition of ratings for "Superior Achievement" and "Above Standard Achievement" to create the opportunity for open-enrollment charter schools with that level of achievement to be recognized. The TCSA further commented that the change creates parity in the rating system between open-enrollment charter schools and traditional school districts.
Agency Response: The agency agrees.
Comment: Concerning proposed §109.1003(b), the TCSA recommended that the commissioner add language stating that a financial accountability rating may be lowered based on the findings of an investigation conducted under TEC, Chapter 39, "but only if the ultimate findings of the investigation implicate a measurement, ratio, or other indicator set out in the ratings worksheet referenced under §109.1002(g)." The TCSA stated that this change was suggested so that the agency does not overreach its authority by assigning an accountability rating based on financial or non-financial information that has not previously been identified and published through measurements, ratios, and other indicators set out in the ratings worksheet.
Agency Response: The agency disagrees. It is appropriate for the agency to lower a financial accountability rating based on the findings of an investigation conducted under TEC, Chapter 39, as reasonably necessary to achieve the purposes of TEC, §39.051 and §39.052. If an investigation reveals material financial problems, and the rating issued is not reflective of the true financial position of the district, in accordance with the statute, it is appropriate for the commissioner to lower the district's financial accountability rating in response to the findings of the investigation. Furthermore, in accordance with 19 TAC §97.1031 and §97.1033, a district will have the opportunity to respond to preliminary investigative findings before a final report is issued or a financial accountability rating is impacted. A school then has the opportunity to appeal a financial accountability rating in accordance with the appeal process outlined in §109.1002.
§109.1005, Reporting
Comment: Concerning proposed §109.1005(b)(2)(A) and the financial management report to be prepared under this section, the TCSA commented that it is unclear what kind of documentation might suffice for "other written documentation of employment where no contract exists" with the school superintendent and urged that the rules be more explicit about what documents might be sufficient for this purpose.
Agency Response: The agency disagrees that it is necessary or appropriate for the rule to contain an explicit list of documents. The annual financial management report is required to disclose all compensation and benefits for a superintendent. Due to the various arrangements for superintendent compensation in a charter school, it would not be practical to provide a detailed list of methods of documentation. However, in response to the comment, clarifying language has been added to §109.1005(b)(2)(A) to describe the purpose of reporting the information.
Comment: Concerning proposed §109.1005(b)(2)(B), an individual commented that additional instructions to schools should be given so that it is clear that total expenditures for the superintendent and trustees should be reported in the financial management report, including items paid on behalf of the superintendent or the trustees directly by the school and not just direct reimbursements.
Agency Response: The agency agrees. The language directing schools to report all reimbursements regardless of the manner of payment appears on the sample spreadsheet provided on the agency website but not within the rules. Therefore, the agency has added clarifying language to §109.1005(b)(2)(B) to add a reference to expenditures paid on behalf of a superintendent or board member.
For additional information, email rules@tea.state.tx.us.