The rule action presented in this item will be filed as adopted with the Texas Register under the commissioner's rulemaking authority. This item adopts amendments to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability Rating System. The adopted amendments update the School Financial Integrity Rating System of Texas (School FIRST) by specifying new provisions for implementation beginning with fiscal year 2010-2011, including the deletion of one non-critical school district indicator and the addition of eighteen open-enrollment charter school indicators, along with new rating worksheets and calculations that reflect these changes. The adopted amendments to the rating system better align School FIRST for the two types of entities and clarify certain aspects of the School FIRST calculations. Additionally, the amendments establish a process for lowering a financial accountability rating after initial assignment if determined necessary by the commissioner.

STATUTORY AUTHORITY:

Texas Education Code (TEC), §39.085.

EFFECTIVE DATE:

February 3, 2011.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES:

House Bill (HB) 3, 81st Texas Legislature, 2009, modified and renumbered the TEC, Chapter 39, Subchapter I, Financial Accountability, and established Chapter 39, Subchapter D, Financial Accountability. Rules in 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability Rating System, establish provisions that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions for the financial accountability rating system, in accordance with SB 218, 77th Texas Legislature, 2001, and HB 3. The rules include the financial accountability rating forms that explain the indicators that the Texas Education Agency (TEA) will analyze to assign school district and open-enrollment charter school financial accountability ratings. These forms specify the minimum financial accountability rating information that school districts and open-enrollment charter schools are to report to parents and taxpayers.

The adopted amendments to 19 TAC Chapter 109, Subchapter AA, update the rating system by specifying new provisions to be implemented beginning with fiscal year 2010-2011. The changes to the rating system better align School FIRST for school districts and open-enrollment charter schools and clarify certain aspects of the School FIRST calculations. Specifically, the adopted amendments to 19 TAC Chapter 109, Subchapter AA, are as follows.

The adopted amendment to 19 TAC §109.1002, Financial Accountability Ratings, updates the rating system by adding new subsections (f) and (g) to specify new provisions that will be implemented beginning with fiscal year 2010-2011, including the deletion of one non-critical school district indicator and the addition of 18 open-enrollment charter school indicators, along with new rating worksheets and calculations that reflect these changes. The adopted rating system is applicable to financial accountability ratings assigned beginning with data from fiscal year 2010-2011 (the final ratings that will be issued in summer 2012).

In 19 TAC §109.1002, adopted new subsection (f) establishes the financial accountability rating indicators used to determine a school district rating beginning with fiscal year 2010-2011 by adding a new rating worksheet in Figure: 19 TAC §109.1002(f). The adopted new worksheet includes 21 indicators used to calculate a maximum score of 75 points and differs from the worksheet for previous fiscal years as follows:

Indicator 7, which referred to a school district's academic rating, is deleted as a rating indicator.
Indicators 8 through 22 are renumbered accordingly.
In response to public comment, Indicator 9 was changed at adoption to delete the words "per student" from the explanation referring to property taxes collected in the rating worksheet calculations page. There was no change in the calculation.
Indicator 11 is modified to provide additional examples.
Indicator 21 is adjusted to reflect lower interest rates.

In 19 TAC §109.1002, adopted new subsection (g) establishes the financial accountability rating indicators used to determine an open-enrollment charter school rating beginning with fiscal year 2010-2011 by adding a new rating worksheet in Figure: 19 TAC §109.1002(g). The adopted new worksheet adds 18 indicators for a total of 21 indicators used to calculate a maximum score of 75 points. In response to public comment, Indicator 7 was changed at adoption to clarify the description to match the actual calculation.

To reflect that changes were made to the figures referenced in subsections (f) and (g) since published as proposed, the date "July 2010" was changed to "December 2010." This change reflects the most current version of the financial accountability rating forms.

The adopted amendment to 19 TAC §109.1002 also reletters existing subsections (f) and (g). Additionally, relettered subsection (i), formerly subsection (g), clarifies that the financial accountability rating for a particular year will always be based on audited data from the previous fiscal year and establishes the rating to be assigned to an entity that fails to submit its annual financial and compliance report on a timely basis.

The adopted amendment to 19 TAC §109.1003, Types of Financial Accountability Ratings, updates language to align the types of ratings assigned to charter schools and traditional school districts and provides for the lowering of a financial accountability rating based on findings of an investigation. Additionally, subsection (c) is added to specify when ratings are in effect and the circumstances under which a rating may be revised after initial assignment.

The adopted amendment to 19 TAC §109.1004, Criteria for Financial Accountability Ratings, clarifies the criteria for open-enrollment charter school financial indicators. Specifically, adopted new subsection (b) clarifies issues related to indicators and requirements that apply at the charter holder and/or charter school level.

The adopted amendment to 19 TAC §109.1005, Reporting, clarifies the timing of certain required comparisons that must be included in the annual financial management report and states that the annual financial management report prepared by a school district or open-enrollment charter school must also include other written documentation of employment for a superintendent where no contract exists. In response to public comment, subsection (b)(2)(A) was revised at adoption to clarify that the purpose of this section of the report is to provide details on all compensation and benefits paid to a superintendent. Subsection (b)(2)(B) was also revised at adoption to add clarifying language to include payments made on behalf of the superintendent and trustees. Additionally, new subsection (b)(2)(F) adds to the annual financial management report a summary schedule of the data submitted using the electronic-based program developed under the financial solvency provisions of the TEC, §39.0822. Revisions to subsection (c) further clarify the publication requirements for open-enrollment charter schools related to the public hearing notice required for the annual financial management report hearing.

In addition, 19 TAC Chapter 109, Subchapter AA, has been renamed and organized to include the addition of rules relating to financial accountability. The subchapter title has changed from "Commissioner's Rules Concerning Financial Accountability Rating System" to "Commissioner's Rules Concerning Financial Accountability." School FIRST rules are organized under new Division 1, Financial Accountability Rating System.

FISCAL IMPACT:

The TEA has determined that there are no additional costs to persons or entities required to comply with the rule actions. The rule actions modify and continue a financial accountability system that has been implemented under the requirements of statute since 2001-2002 and that is required to continue. The rule actions assign no additional fiscal burden beyond what already is imposed by law.

In addition, there is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

PUBLIC AND STUDENT BENEFIT:

The financial accountability rating system benefits the public by having in place a system to ensure that school districts and open-enrollment charter schools will be held accountable for the quality of their financial management practices and achieve improved performance in the management of their financial resources. Reporting increases data available to the public and promotes transparency. The adopted amendments update this system.

PROCEDURAL AND REPORTING IMPLICATIONS:

The adopted amendments update the worksheet and calculations used beginning in fiscal year 2010-2011 to report school district and open-enrollment charter school financial accountability information. TEA staff will continue to generate school district and open-enrollment charter school financial accountability ratings based on data submitted by school districts and open-enrollment charter schools. TEC, §39.082, specifically requires open-enrollment charter schools to follow the same reporting requirements related to the financial accountability rating system that school districts have followed for several years. The adopted amendments also require a school district and open-enrollment charter school to include in its annual financial management report a summary schedule of data submitted to support the financial solvency provisions of the TEC, §39.0822.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS:

The adopted amendments have no new locally maintained paperwork requirements.

PUBLIC COMMENTS:

The public comment period on the proposal began October 22, 2010, and ended November 22, 2010. Attachment III reflects a summary of public comments received and corresponding agency responses regarding the proposed amendments to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability Rating System.

ALTERNATIVES:

None.

OTHER COMMENTS AND RELATED ISSUES:

None.

Staff Members Responsible:

Laura Taylor, Associate Commissioner, Accreditation
Rita Chase, Director, Financial Audits

For additional information, email rules@tea.state.tx.us.

Page last modified on 8/30/2011.