Comment. ATPE expressed concern that proposed §100.1073(a) does not specify whether amendments regarding an alternative bidding procedure may be approved after the original charter is granted. SBOE no longer approves amendments for existing charters, so the rule is unclear about whether these alternative procedures must be included in the original charter or if they may be adopted at a later date. TEC, §12.1053, addresses competitive bidding processes, and requires alternate procedures to be approved by the SBOE. This implies that any alternate competitive bidding procedures must be adopted during the initial application for an original charter rather than being adopted by amending the charter. Any changes to competitive bidding procedures should not be considered "non-substantive" amendments, and the rule should require that procedures for these amendments include the opportunity for parents or guardians and school districts to participate in a hearing on the issue.

Agency Response. The agency disagrees with the comment. Proposed §100.1073(a) does specify whether amendments regarding alternative procedures for purchasing and contracting may be approved after the original charter is granted; it specifies that these alternative procedures must be approved via the amendments process. Proposed §100.1073(a) does not give effect to language that may have been included in an open-enrollment charter before TEC, §12.1053, was adopted, and before the State Board of Education had determined whether the alternative is a sufficient substitute for it. Moreover, it would be unreasonable to require that a charter holder in operation on the effective date of House Bill 6 already have included such language in its open-enrollment charter or forfeit the opportunity afforded by TEC, §12.1053. Such a construction, if placed on the statute, would reduce the Legislature's policy to an illusory one for most charter holders.

TEC, §12.1053 (Applicability of Laws Relating to Public Purchasing and Contracting), provides at subsection (a): "This section applies to an open-enrollment charter school unless the school's charter otherwise describes procedures for purchasing and contracting and the procedures are approved by the State Board of Education." As amended by House Bill 6, TEC, §12.114 (Revision), provides that an open-enrollment charter may be amended only with the approval of the commissioner. Consequently, proposed §100.1073(a) requires that the alternative procedures approved by the State Board of Education are described in the open-enrollment charter.

As proposed, §100.1033(b) and (c) provide that all amendments are "substantive" unless the agency designates a list of amendments that may be approved using the notification procedure set forth in §100.1033(b). Consequently, the mandatory requirements imposed by the rule are contained in §100.1033(c). Section 100.1033(b) merely provides a less-restrictive alternative that may be used at the discretion of the commissioner. Until one or more types of amendment are designated as "non-substantive," §100.1033(c) will be the exclusive means for amending an open-enrollment charter. When one or more types of amendment are designated as "non-substantive," the commissioner will endeavor to select only amendments that have small policy implications. However, should ATPE have specific concerns about the commissioner's future designation of a type of amendment as non-substantive, those concerns may be expressed, and addressed, as the situation arises.

Comment. ACE and HCJJCS questioned if subsection (b) might, in combination with Local Government Code, § 271.023, (Conflict of Laws) mean that charter holder must comply with the provisions of TEC, Chapter 44, Subchapter B, relating to the purchase of goods and services under contract by a school district. Accordingly, the following sentence should be added to subsection (b): "Nothing in this section requires a charter holder to comply with the provisions of Education Code Chapter 44, Subchapter B, except in contracting for the construction, repair, or renovation of a structure, road, highway, or other improvement to real property if the contract required the expenditure of public funds in the amount specified by Local Government Code, §271.024."

Agency Response. The agency disagrees with the comment. Local Government Code, §271.023, provides: "To the extent of any conflict, the provisions of Subchapter B, Chapter 44, Education Code, relating to the purchase of goods and services under contract by a school district prevail over this subchapter." This provision only operates where an entity, such as a school district, is subject both to Local Government Code, Chapter 271, Subchapter B, and to TEC, Chapter 44, Subchapter B. Charter schools are not generally subject to TEC, Chapter 44, Subchapter B. Proposed §100.1073(b) merely restates TEC, §12.1054(b), and does nothing to introduce a conflict with Local Government Code, Chapter 271, Subchapter B.

TEC, §12.1053(b)(1)(B), provides that a charter school is considered to be a "governmental entity" for purposes of Local Government Code, Chapter 271, Subchapter B. TEC, §12.1053(b), provides: "To the extent consistent with this section, a requirement in [Local Government Code, Chapter 271, Subchapter B] that applies to a school district or the board of trustees of a school district applies to an open-enrollment charter school, the governing body of a charter holder, or the governing body of an open-enrollment charter school."

As originally passed by the Texas House of Representatives, SECTION 8 of the engrossed version of HB 6, 77th Legislature (2001 Regular Session), would have amended TEC, §12.104, to add new subsection (L), placing charters under the laws relating to "purchasing and contracting under Subchapter B, Chapter 44," Education Code. At the same time, SECTION 10 of the engrossed version would have added a new TEC, §12.1053, that is substantially similar to TEC, §12.1053(a) and (c), of the bill as finally passed. The presence of the new subsection (L) in SECTION 8 of the engrossed version of HB 6, and its absence from the bill as finally passed, makes clear the intention of the Legislature. Local Government Code, §271.023, cannot be read to make TEC, Chapter 44, Subchapter B, apply to charters.

Comment. ACE and HCJJCS suggested that this section should be amended to clarify that improvements to real property paid for with public funds are subject to standard depreciation schedules and that the value of any potential state interest in the improvement declines commensurately.

Agency Response. The agency disagrees with the comment. This subject is treated in Section 10.3.3.4, "Depreciation Expense," in the December 2001 version 8.1 of the Financial Accountability System Resource Guide. Section 10.3.3.4 governs the depreciation of property subject to §100.1063(f) of the proposed rules.

The property exhibit required by §100.1063(f) is described in the charter school supplement to the Financial Accountability System Resource Guide, as revised in December 2001. Under section 1.2.4 of the supplement, generally accepted accounting rules for the depreciation of an asset do apply to property acquired with state funds. As a result, the value of the state's interest that must be compensated under §100.1067 (relating to Possession and Control of the Public Property of a Former Charter Holder) diminishes in proportion to the depreciated value of the underlying asset. These provisions govern the way a certified public accountant must record the effects of depreciation on an asset acquired, improved, or maintained with state funds on the audited financial statement submitted by a charter holder.

The available methods for depreciating an asset are covered by generally accepted accounting principles, which are not the subject of these rules. Section 10.3.3.4 of the Resource Guide provides that "any acceptable method determining depreciation may be used." The Resource Guide governs the way a certified public accountant must record the effects of depreciation on an asset acquired, improved, or maintained with state funds.

Division 5. Charter School Governance.

Comment. West Houston Charter School commented that, though some of House Bill 6 appears to be rigid and restrictive, if it is not enforced the charter school system will surely fail. The original innovative bill that created charter schools is also one that would destroy charter schools. Without strict guidelines- particularly addressing conflict of interest, executive boards, and nepotism- individuals will continue to take advantage of the public school financial system through charter schools.

Agency Response. No response required.

Proposed §100.1101. Delegation of Powers and Duties.

Comment. ACE and HCJJCS requested that §100.1101(e) be deleted. House Bill 6 does not define, nor require the commissioner to define, non-delegable powers and duties. As introduced, House Bill 6 did specify non-delegable duties, but these provisions are absent from the bill as finally passed. As finally passed, TEC, §12.111(9), requires the charter holder to specify the powers or duties of the governing body of the school that the governing body may delegate to an officer. TCTA stated that it supports the list of non-delegable powers and duties in proposed §100.1101(e). The proposed subsection is necessary to clarify that the governing body of a charter holder cannot delegate its powers and duties to operate the charter school. There have been incidents in the past in which attempts to avoid responsibility for malfeasance were made by claiming that such acts were performed by someone else to whom the powers and duties were delegated. ATPE also recommended that §100.1101(e) be retained. It is needed to prevent governing bodies from avoiding responsibility for decisions affecting the charter school. Certain duties and powers should be retained by the governing body and should not be performed by any other entity.

Agency Response. The agency agrees, in part, with the comments. Proposed §100.1101(e) has been deleted. In its place, proposed §100.1033(c)(6) has been modified to add subparagraphs (C) and (D) dealing with the commissioner's criteria for approving delegation amendments. The functions previously listed in proposed §100.1101(e)(2), (5), and (6) were made delegable to the chief executive officer and are delineated in adopted §100.1033(c)(6)(D). The remaining functions listed in proposed §100.1101(e), now reflected in adopted §100.1033(c)(6)(C), will require a specific waiver before a delegation amendment is granted. In addition, the function listed in proposed §100.1101(e)(4) has been clarified in adopted §100.1033(c)(6)(C)(iii) to provide that the final authority of the governing body to direct the disposition and safekeeping of public records does not prevent the governing body from delegating the maintenance of public records subject to the final authority of the governing body to direct their disposition and safekeeping.

Comment. TCTA commented that it supports in particular proposed §100.1101(e)(1), regarding an employee's constitutional right to be heard by the highest authority in the employee relationship, the charter holder governing body.

Agency Response. No response required; however, this provision is now addressed in §100.1033(c)(6)(C).

Comment. ACE and HCJJCS suggested that the inclusion of the function listed in §100.1011 (19)(J) in the definition of central administration officer is inconsistent with the non-delegable duties listed in §100.1101(e)(2).

Agency Response. The agency agrees with the comment. Proposed §100.1101(e) has been deleted, and proposed §100.1033(c)(6) has been modified to add subparagraphs (C) and (D) dealing with the commissioner's criteria for approving delegation amendments. The function listed in proposed §100.1011(19)(J) was removed and is now addressed in adopted §100.1033(c)(6)(D).

Comment. ACE and HCJJCS suggested that §100.1101(e)(4) be clarified to provide that the final authority of the governing body to direct the disposition and safekeeping of public records does not prevent the governing body from delegating the daily maintenance of public records subject to the final authority of the governing body to direct their disposition and safekeeping.

Agency Response. The agency agrees with the comment. Proposed §100.1101(e) has been deleted, and proposed §100.1033(c)(6) has been modified to add subparagraphs (C) and (D) dealing with the commissioner's criteria for approving delegation amendments. Adopted §100.1033(c)(6)(C)(iii) will clarify that the final authority of the governing body to direct the disposition and safekeeping of public records does not prevent the governing body from delegating the daily maintenance of public records subject to the final authority of the governing body to direct their disposition and safekeeping.

Comment. An individual suggested that the functions listed in §100.1101(e)(2), (e)(5), and (e)(6) be made delegable to the chief executive officer.

Agency Response. The agency agrees with the comment. Proposed §100.1101(e) has been deleted, and proposed §100.1033(c)(6) has been modified to add subparagraphs (C) and (D) dealing with the commissioner's criteria for approving delegation amendments. In the adopted §100.1033(c)(6)(D), the functions listed in proposed §100.1101(e)(2), (e)(5), and (e)(6) will be made delegable to the chief executive officer.

Proposed §100.1111. Applicability of Nepotism Provisions; Exception for Acceptable Performance.

Comment. ATPE expressed strong support for the nepotism provisions in House Bill 6 and these rules.

Agency Response. No response required.

Comment. ACE and HCJJCS commented that the proposed rules do not define the time frame within which a charter holder must comply with applicable nepotism provisions. A charter holder should not be required to institute required governance reforms until 180 days from the date of the event giving rise to the requirement for reform.

Agency Response. The agency agrees, in part, with the comment. Proposed §100.1111 has been modified to add a new subsection (g) dealing with the time frame within which a charter holder must comply with applicable nepotism provisions after ratings are assigned each year. However, the agency disagrees with the suggestion that a charter holder should not be required to institute required governance reforms until 180 days from the date of the event giving rise to the requirement for reform.

A charter holder is given the data on which its schools' ratings will be based well in advance of the ratings release date each year, and the standards that the agency will apply to these data are published in advance. The Accountability Manual for the coming year's ratings is readily available to the charter holder on the agency's web site. For these reasons, rating appeals may be and frequently are filed well in advance of the release date. Indeed, the objective of the charter holder is typically to appeal the rating before the official ratings release date.

A charter holder may file a ratings appeal as soon as its charter school receives its accountability data each year. The agency makes every effort to resolve ratings appeals before the release date (though resolution is not guaranteed). For the 2002 ratings year, accountability data will be provided in late June, ratings will be released on August 1, and the deadline for appeals is August 14.

When a ratings appeal is received, TEA staff examines the data used to determine a rating under a limited set of circumstances. An appeal is not a data correction opportunity, but must be based upon a data or calculation error attributable to the Texas Education Agency, a regional education service center, or the test contractor for the student assessment program. Problems due to charter holder errors in PEIMS data submissions or on TAAS answer sheets may be considered on a case-by-case basis, but the charter holder should bear in mind that such data reporting errors can result in a suspended rating for data-quality issues. Under proposed §100.1111, a suspended rating for data-quality issues is an event giving rise to the requirement for reform.

If a ratings appeal is based on a data or calculation error attributable to the Texas Education Agency, a regional education service center, or the test contractor for the student assessment program, the charter holder should file the appeal at the time it initially receives the data that are the subject of the appeal. Where possible, the charter holder should seek to resolve the appeal before the August release date.

In all cases, the charter holder must make contingency plans for an event giving rise to the requirement for reform. It is reasonable to expect that a charter holder intending to appeal its accountability data should plan for the contingency that its appeal will be denied. Indeed, given the nature of a nepotism exception based on annual ratings, no charter holder should allow family ties within its organizational and governance structures without carefully planning for the contingency that, in the near future, it may be required to replace certain of those family members. It is the responsibility of the charter holder, not the agency, to take steps now to insure that such an ever-present contingency cannot seriously disrupt its governance or operations.

The agency cannot adopt a rule that would encourage or reward delay in the filing of ratings appeals. Moreover, certain ratings (such as a suspended rating for data quality issues) are not subject to the ratings appeal process, and can be assigned or removed during the school year. Thus, the pendency of a ratings appeal generally should not delay the date on which the charter holder must implement required reforms. However, if an appeal is filed as soon as the basis for the appeal is known- or with the exercise of reasonable diligence should have been discovered- then a delay while the appeal is resolved is reasonable.

Comment. ATPE expressed concern at the prospect that charters could be exempted from the nepotism provisions if TEA does not issue accreditation ratings to charters for any reason. ATPE requested clarifications and/or examples of when the substantive ratings and consecutive ratings would not be in effect and/or assigned.

Agency Response. The agency disagrees with the comment. Proposed §100.1111(d) provides as follows: "For example, if the TEA does not assign accreditation ratings to charter schools for the 2003 school year. . . , then ratings for the 2002 and 2004 school years are consecutive within the meaning of this section." The TAAS test will not be administered in the 2003 school year; instead, the TAKS test will be given. Final decisions have not been announced concerning the 2003 accountability ratings.

Proposed §100.1111(d) would, under no circumstances, result in exempting a charter holder from the nepotism provisions of the proposed rule. If it is triggered in any given year, it merely has the effect of lengthening the period, from three calendar years to four, over which a charter holder's ratings must be examined in order to determine the applicability of the exception provided by §100.1111(e).