Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), the assistant superintendent for business and finance from Fredericksburg ISD commented that Indicator 5 states the threshold ratio, but does not disclose a notation or symbol to look below to view the threshold ranges in the language of Indicator 5. In addition, the commenter stated that the table that contains the administrative cost threshold ranges is not labeled very well.

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), representatives of Mount Pleasant ISD and Meyer Park Elementary commented that the proposed administrative cost ratio threshold ranges for Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 rating years are being imposed after the budget was prepared and audited Public Education Information and Management (PEIMS) data and other required TEA filings have been made. The commenters stated that it is therefore unreasonable to impose the administrative threshold ranges upon school districts and charter schools. The commenters further stated that school districts and charter schools would have taken the necessary steps to meet the requirements set forth in the newly proposed FIRST rules if they had been aware of the new administrative cost threshold ranges before the 2013-2014 school year began. In addition, one of the commenters stated that the earliest date that the new administrative cost threshold ranges should be made effective is for the 2016-2017 School FIRST and Charter FIRST rating year; this would allow school districts and charter schools enough time to implement changes to meet the administrative cost ratio threshold requirements.

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(1), Figure: 19 TAC §109.1001(f)(2), and Figure: 19 TAC §109.1001(f)(3), a representative with NTP Enterprises, LLC commented that Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 rating years contains an asterisk noting that the object codes 61XX-64XX in fund code 420 are included in the administrative cost ratio calculation and object code 6144 is excluded. The commenter further stated that object code 6144 is not required for reporting purposes for charter schools and asked if object code 6144 was the intended object code to be exempted or should another object code be referenced in the language of Indicator 5.

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), representatives of Dallas ISD, Meyer Park Elementary, and the TCSA commented that the newly proposed administrative cost ratio threshold ranges for Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 rating years have been decreased significantly compared to the administrative cost ratio threshold ranges that are currently in effect for School FIRST and Charter FIRST. The representative of Dallas ISD asked why the administrative cost threshold ranges have been changed. In addition, the commenter recommended that the agency not repeal the administrative cost ratio threshold ranges that were used for the 2013-2014 School FIRST rating year, but retain the administrative cost ratio thresholds used for the 2013-2014 School FIRST rating year and apply the administrative cost ratio threshold ranges used in the 2013-2014 School FIRST rating year to the 2014-2015 School FIRST rating year ratings. Also, TCSA requested that the newly proposed administrative cost ratio scale be revised by excluding the point scale and expenses for OPEB and NPL from the calculation, revising the point scale, and redefining instructional costs to include federal instructional expenses.

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), a representative of Wylie ISD commented that the agency should review the newly proposed administrative cost ratio threshold ranges contained in Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 rating years and consider adding a cost of living adjustment (COLA) to the administrative cost ratio threshold ranges.

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), the assistant superintendent for business and finance from Fredericksburg ISD commented on Indicator 11 by asking why the administrative cost ratio changed so drastically. The commenter further stated that the administrative cost ratio is about half of what it was and that the proposed administrative cost ratios intentionally make it look like schools are spending too much on administrative costs.

Comment: A representative from KIPP Houston suggested that the agency include all federal funds in the administrative cost ratio calculation. The representative further stated that federal funds are a large component of their organization because they focus on special populations such as Title I students and a significant part of function 11 dollars are allocated to federal funds.

Comment: The law firm of Schulman, Lopez, Hoffer & Adelstein commented that using an administrative cost ratio to evaluate financial performance appears to be an attempt to circumvent a statutory prohibition and then cited TEC, §39.082(c), relating to the prohibition of including an indicator about expending at least 65% or any other specified percentage of district operating funds for instructional purposes. The law firm also stated that TEA appears to nonetheless require charter schools to expend a specified amount of funds for instructional purposes by attempting to limit the amount expended on administrative expenses and suggested the indicator be removed. The law firm also suggested that TEA consider ratios for each point level that are realistically attainable given the current operating environment of a typical charter school.

Agency Response: The agency agrees with the comment to add a reference to the administrative cost ratio threshold ranges for the administrative cost ratio indicator and has modified the language by adding an additional sentence. Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 ratings years for districts and charter schools have been modified to include the following language following the indicator: "(See ranges below.)"

The agency disagrees that the newly proposed administrative cost ratios should be postponed until the 2016-2017 rating year. The administrative cost ratios have not been revised since 2006. The agency reviewed and updated the administrative cost ratio computations to reflect current expenditure patterns of districts and charter schools. However, the agency agrees that the originally proposed administrative cost ratios created a more stringent standard than the administrative cost ratios previously in effect; therefore, the agency has modified the newly proposed administrative cost ratio thresholds. While the administrative cost ratio indicator used in prior years provided a maximum of five points, the new indicator provides a maximum of ten points. Districts that met the criteria to generate five points under the previous indicator will now be able to generate eight points for the same performance. Separate thresholds have been established for charter schools in recognition of their unique operating circumstances.

The agency also disagrees that OPEB and NPL expenses should be excluded from the administrative ratio cost calculation because the agency does not collect the data by function codes that specifically separates OPEB and NPL expenses from the expenses used in the administrative cost calculation. The agency will continue to exclude federal instructional expenses from the administrative cost ratio calculation because federal funds are not used to pay for direct administrative expenses.

The agency intended to exclude object code 6144 from the administrative cost ratio calculation for districts; however, object code 6144 is not applicable to charter schools. The agency agrees that object code 6144 should not be included in the Charter FIRST calculation of the administrative cost ratio. The agency has modified at adoption the language for Charter FIRST for Indicator 5 for the 2014-2015 rating year and Indicator 11 for the 2015-2016 and 2016-2017 rating years. These modifications are reflected in 19 TAC §109.1001(f)(1), Figure 19 TAC §109.1001(f)(2), and Figure: 19 TAC §109.1001(f)(3).

The language is modified at adoption to state: "Was the charter school's administrative cost ratio equal to or less than the threshold ratio? (See ranges below.) (A/B) < Threshold based on CS size, where

A = Sum of amounts for function codes 21 and 41;

B = Sum of amounts for function codes 11, 12, 13, and 31

*Includes object codes 61XX-64XX in fund codes 199 and 420

The agency disagrees that the newly proposed administrative cost ratio threshold ranges should include a COLA as there are no provisions in statute related to funding or financial accountability that reflect such adjustments. However, the agency does understand that the cost of goods and services increases over time, and the agency has modified the administrative cost ratio ranges and modified the thresholds.

The agency disagrees with the comments that using an administrative cost ratio to evaluate financial performance attempts to circumvent TEC, §39.082 (c), and disagrees that the administrative cost ratio indicator be removed from the proposed methodology. The proposed financial accountability rating system does not include an indicator or any other performance measure that directly requires a district or charter school to spend at least 65% or any other specified percentage of district operating funds for instructional purposes nor does it lower the financial management performance rating of a district or charter school for failure to spend at least 65% or any other specified percentage of district operating funds for instructional purposes. The administrative cost ratio is the ratio of administrative costs to instructional costs. The number of points received for the administrative cost ratio indicator is attributable to the percentage or ratio of administrative costs as compared to instructional costs. FIRST does not require a certain percentage of funds to be spent on instructional purposes.

PEIMS TO AFR DATA COMPARISON

(INDICATOR 6 for 2014-2015 Rating Year and INDICATOR 13 for 2015-2016 and 2016-2017 Rating Years)

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), and Figure: 19 TAC §109.1001(e)(3), the assistant superintendent for business and finance from Fredericksburg ISD asked if the 3% of all expenditures meant all funds.

Comment: Representatives from the Texas Classroom Teachers Association (TCTA) noted that the term "aggregate" instead of "absolute" is used in the data quality indicator and suggested that the term "absolute" be substituted for "aggregate" to improve the strength of the indicator.

Agency Response: The agency disagrees with the commenter's recommendation to use the term "aggregate." The agency uses the term absolute to define the calculation for the data quality indicator. The term "absolute" is referenced in the calculation. For districts, "3% of all expenditures" refers to three percent of expenditures in fund code 199. For charter schools, the language refers to all funds. The agency, however, has added clarifying language to Indicator 6 for the 2014-2015 rating year and Indicator 13 for the 2015-2016 and 2016-2017 rating years. This indicator has been modified at adoption to state: "Did the comparison of Public Education Information Management System (PEIMS) data to like information in the district's (or charter school's) AFR result in a total variance of less than 3 percent of all expenditures (or expenses) by function?" This modification was made in Figure: 19 TAC §109.1001(f)(1), Figure: 19 TAC §109.1001(f)(2), and Figure: 19 TAC §109.1001(f)(3) for charter schools and in Figure: 19 TAC §109.1001(e)(1), Figure: 19 TAC §109.1001(e)(2), Figure: 19 TAC §109.1001(e)(3) for school districts.

DAYS OF CASH ON HAND

(INDICATOR 6 for 2015-2016 and 2016-2017 Rating Years)

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(2) and Figure: 19 TAC §109.1001(f)(3), a representative with NTP Enterprises, LLC commented on Indicator 6 by asking if the amortization, known as a non-cash expense, would be subtracted from the charter schools total expenses by subtracting object codes 6524 and 6525 from the charter school's total expenses, since the formula for Indicator 6 subtracts the depreciation expense, Object Code 6449, from the charter school's total expenses. In addition, a representative from Keller ISD stated, "the Days Cash on Hand calculation is used to examine corporate financial statements and has little application in Texas school business."

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(2) and Figure: 19 TAC §109.1001(f)(3), representatives from Texans for Quality Public Charter Schools urged TEA to consider allowing pending receivables from the state and federal governments to count toward cash on hand because they feel that the timing of their annual cash on hand calculation for purposes of Charter FIRST will not line up with the timing of some payments from the Foundation School Program (FSP).

Comment: A representative of KIPP Houston asked the agency to allow the accounts receivable balances associated with federal and state receivable in the days of cash on hand measure because charter schools cannot control when they will receive cash from TEA.

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(3), a representative with NTP Enterprises, LLC commented that the equation for Indicator 6 for the 2016-2017 rating year does not disclose a variable of "E"; however, there is a description for the variable "E" disclosed in the language of Indicator 6.

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(2) and Figure: 19 TAC §109.1001(f)(3), a representative with the TCSA commented that the TEA should exclude operating expenses for shared services arrangements (SSA) that are recorded by charter schools that act as the fiscal agent for the SSA.

Comment: The law firm of Schulman, Lopez, Hoffer & Adelstein commented that the thresholds established for days of cash on hand and current investments by TEA may not be realistically attainable for charter schools and suggested that the agency consider a more realistic and attainable goal. The law firm suggested a range from 10 points for greater than or equal to 45 days of cash on hand to zero points for less than 20 days of cash on hand for charter schools.

Comment: A representative of the Excel Academy Charter School commented that the charter holder for Excel Academy is the Harris County Juvenile Board, which is a governmental entity. The commenter stated that as a governmental entity, the annual financial audit report for the Juvenile Board's Excel Academy uses the governmental reporting model of the Governmental Accounting Standards Board (GASB) statement 45 that requires the board to report an expense and a liability for Other Post-Employment Benefits (OPEB) in the government-wide financial statements. The commenter explained that to receive an unmodified opinion in the presentation of its financial statements, Excel Academy must report an OPEB liability and expense in the government-wide financial statements as the GASB requires. The commenter went on to state that, on the contrary, Texas independent school districts do not report an OPEB liability or OPEB expense. The commenter stated that since pension expense, net pension liability (NPL), OPEB expense, and OPEB liability are similarly prepared estimates and GASB mandated, the OPEB liability and NPL should both be excluded from a school's long-term liabilities in the government-wide financial statements with regard to Indicators 5 and 8. Additionally, the OPEB expense should be excluded from a school's expenses in the government-wide financial statements with regard to Indicators 6 and 9. The commenter recommended revising proposed Indicators 6 and 9 to exclude OPEB expense and revising proposed Indicators 5 and 8 to exclude any OPEB liability and NPL.

Agency Response: The agency disagrees that amortization should be excluded from the calculation of the days of cash on hand. The agency has determined that amortization will not be excluded from the total expenses because the agency does not have reliable data and a way to consistently pull the data so that the exclusion of amortization is applied uniformly to all districts and charter schools. In addition, the agency disagrees that the days of cash on hand calculation is only applicable to the corporate arena. This measure is routinely used by ratings firms and the banking industry when assessing the financial solvency and stability of an organization. The days of cash on hand formula allows the agency to determine with a reasonable degree of certainty that the district or charter school is maintaining sufficient cash on hand to pay the district's or charter school's short-term expenditures or expenses as they come due. The agency has decided to modify the equation for Indicator 6 by excluding OPEB and pension expenses from the equation. The language for Indicator 6 has been modified at adoption as reflected in Figure: 19 TAC §109.1001(e)(2), Figure: 19 TAC §109.1001(e)(3), Figure: 19 TAC §109.1001(f)(2), and Figure: 19 TAC §109.1001(f)(3).

The agency disagrees that pending receivables from the state of Texas and other federal governmental agencies should be included in the calculation of the days of cash on hand. The Charter FIRST and School FIRST ratings use audited data from the AFR, PEIMS, and other required TEA reports that charter schools and districts must submit to TEA. Including pending receivables in the calculation may not yield an accurate Charter FIRST or School FIRST rating because the amount that is pending to be paid by the state of Texas and other federal governments may be increased, decreased, or not paid at all. To ensure that the agency is using reliable and audited data, the agency has determined that pending receivables will not be included in the days of cash on hand calculation and will not make that suggested change to Indicator 6, Figure: 19 TAC §109.1001(e)(2), Figure: 19 TAC §109.1001(e)(3), Figure: 19 TAC §109.1001(f)(2), and Figure: 19 TAC §109.1001(f)(3).

The agency appreciates the commenter's suggested days of cash on hand point scale for charter schools, but the agency decided that the proposed point scale will remain. The agency has determined that 60 days of cash on hand for the maximum number of points on this indicator is a reasonable target.