Agency Response. The agency agrees that clarification is needed and has modified Figure: 19 TAC §109.1001(f)(5) to provide the following clarification for Indicator 10 of Charter FIRST for the 2020-2021 rating year. Revenue reported in fund 420 (Foundation School Program and Other State Aid) from revenue object code series 5700 (Revenues from Local and Intermediate Sources) and 5800 (State Program Revenues) will be included in the calculation for Indicator 10.

Comment. A charter school administrator stated that the formula in Indicator 10 is incorrect. The commenter stated that the proposed formula shows [((A-B)/B)+((C-D)/D)+((E-F)/F)]/3 = +/- 10% variance, but that the formula should be [((A-B)/B)+((C-D)/D)+((E-F)/F)]/3 = G +/- 10% variance. The commenter also stated that the phrase "October snapshot" should clearly be defined and that TEA should clarify the data source(s) used in the calculation.

Agency Response. The agency agrees that the equation for Indicator 10 should be modified to include the average variance variable. Also, the agency agrees that "October snapshot" should be clarified and has modified the language in Figure: 19 TAC §109.1001(f)(5) related to the calculation definition to align with TSDS Texas Education Data Standards (TEDS). The equation for Indicator 10 of Charter FIRST for the 2020-2021 rating year, included in Figure: 19 TAC §109.1001(f)(5), has also been modified. Additionally, Figure: 19 TAC §109.1001(f)(5) has been modified to specify the fund(s) or fund type(s) that are covered by the components of this indicator and specify the data source.

Comment. A charter school administrator requested that correctional facility charter schools, residential charter schools, and acute care charter schools be exempt from proposed Indicator 10 because they serve a wide variety of needs for students requiring certain services and cannot accurately predict student enrollment, attendance, or revenues.

Agency Response. The agency disagrees that charter schools that serve students in a correctional facility should be exempted from this indicator and maintains the language as proposed for Figure: 19 TAC §109.1001(f)(5). The purpose of Indicator 10 is to determine if charter schools averaged less than a 10% variance (90-110%) when comparing budgeted revenues to actual revenues for the last three fiscal years. A variance of less than 10% demonstrates the charter school has put thoughtful consideration into managing its finances and knows how much money it can spend.

INDICATOR 11

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5) and Figure: 19 TAC §109.1001(f)(5), TASBO commented that the wording for Indicator 11 and the calculation definition do not specify the categories covered by the components of the indicator, including long-term liabilities and total assets. TASBO also commented that the calculation definition "A-B/C" appears to be in error because the variable C is not defined and does not appear necessary for the calculation.

Agency Response. The agency agrees and has modified Figure: 19 TAC §109.1001(e)(5) and Figure: 19 TAC §109.1001(f)(5) to specify the categories covered by the components used in the calculation, including long-term liabilities and total assets, for Indicator 11 for school districts and open-enrollment charter schools. Figure: 19 TAC §109.1001(e)(5) was also modified to remove variable C from the calculation.

Comment. A school district administrator proposed that the Teacher Retirement System (TRS) pension liability used in the calculation be removed.

Agency Response. The agency agrees and has modified the calculation in Figure: 19 TAC §109.1001(e)(5) to exclude Net Pension Liability from the calculation.

INDICATOR 12 - CHARTER SCHOOLS

Comment. Concerning Figure: 19 TAC §109.1001(f)(5), Indicator 12, a charter school administrator commented that a charter school can only earn 10 out of 10 points if the debt service coverage ratio (DSCR) is above 1.2x; however, the Master Trust technical default is 1.0x and a complete passing covenant is 1.1x or higher. The commenter stated that the FIRST rating should not penalize a school or be stricter on a school than its own bondholder covenants. The commenter suggested that TEA revise the scale for DSCR scores to allow any school with a DSCR greater than 1.1x to receive 10 out of 10 points.

Agency Response. The agency disagrees and has maintained the point scale as proposed for Indicator 12 of Charter FIRST for the 2020-2021 rating year in Figure: 19 TAC §109.1001(f)(5). Historically, a debt service coverage ratio of 1.2, based on the calculation for Indicator 12, has been attained by most charter schools and has been a sufficient measure of cash flow available to pay current debts. Additionally, a debt service coverage ratio of 1.2 will yield the maximum of 10 points, but a debt service coverage ratio of 1.1 will yield 6 out of 10 points and does not indicate a penalty or that the charter school is unable to pay its current debts.

INDICATOR 12 - SCHOOL DISTRICTS

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5), TASBO commented that the wording for Indicator 12 and the calculation definition do not specify the fund(s) or fund type(s) and the data source(s). TASBO also commented that the indicator definition does not refer to a specific property value category.

Agency Response. The agency agrees and has modified Figure: 19 TAC §109.1001(e)(5) to specify the fund type(s) or fund type(s) and data source(s) used in the calculation and clarify the indicator definition to specific property value category.

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5), TASBO commented that the calculation should read ((A/B)*(C))/(D/100) where A=local revenue in the debt service fund (object codes 5700 through 5799, fund 599); B=total revenue in the debt service fund (object codes 5700 through 5999, fund 599); C=long-term liabilities from schedule A-1 in the audit report; and D=current year taxable property value for debt service.

Agency Response. The agency agrees and has modified Figure: 19 TAC §109.1001(e)(5) to accurately calculate the debt per property value ratio. The modified calculation is ((A/B)*(C))/(D/100).

Comment. An education service center employee commented that since quite a few school districts use Tax Ratification Election pennies for Interest & Sinking bond payment purposes, TEA should allow the inclusion of object code 7915 and exclude compensating absences.

Agency Response. The agency disagrees and has determined that object code 7915 will not be included and compensating absences will be excluded in the calculation. The agency does not have reliable data and a way to consistently extract the data to uniformly apply the inclusions and exclusion to all school districts.

Comment. A school district administrator proposed that the TRS pension liability used in the calculation be removed.

Agency Response. The agency agrees and has modified the calculation in Figure: 19 TAC §109.1001(e)(5) to exclude Net Pension Liability from the calculation.

INDICATOR 14

Comment. A school district administrator commented that the calculation for Indicator 14 does not consider fast growth, small school districts that enroll a disproportionate number of special education students. The commenter stated that based on a three-year lookback, this could cause a misrepresentation of data.

Agency Response. The agency disagrees. Indicator 14 is a two-part indicator that is based on a decline in student-to-staff ratio of 15% or no decrease in enrollment three years prior to the year under review. The indicator captures enrollment for school districts and open-enrollment charter schools of all sizes. The data used for this indicator is represented by data that is reported to TEA in the fall TSDS PEIMS submission. The indicator captures student enrollment compared to staff and the ratio as student enrollment and/or number of staff increases or decreases. A school district or charter school does not have to continually show a decline in students to get zero points for this indicator. If students decrease/increase and staff decrease/increase proportionately or the ratio does not change, the school district or charter school will pass this indicator.

INDICATOR 15

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5), a school district administrator commented that Indicator 15 does not measure financial management and is erroneous if used in evaluating the financial management of school districts.

Agency Response. The agency disagrees that Indicator 15 is erroneous in evaluating the financial management practices of school districts and maintains the language as proposed for Figure: 19 TAC §109.1001(e)(5), Indicator 15. Biennial pupil projections and the ADA of each school district have a significant impact on the funding that each school district receives. Submitting accurate pupil projections allows TEA to properly calculate funding and issue payments to each school district so that each school district can create an accurate budget to pay for budgeted expenditures. Indicator 15 compares large variances between the projected ADA and the actual ADA of some school districts that have been observed over the past years by the agency. Also, TEA has observed that many school districts rely on pupil projections that have been created by TEA for each school district instead of submitting pupil projections for their school district.

INDICATOR 16 - CHARTER SCHOOLS

Comment. A charter school administrator requested that correctional facility charter schools, residential charter schools, and acute care charter schools be exempt from proposed Indicator 16 because they serve a wide variety of needs for students needing certain services and cannot accurately predict student enrollment, attendance, or revenues.

Agency Response. The agency disagrees that charter schools that serve students in a correctional facility should be exempted from this indicator and maintains the language as proposed for Figure: 19 TAC §109.1001(f)(5), Indicator 16. The purpose of Indicator 16 is to determine if charter schools are estimating their ADA reasonably. Inaccurate ADA projections would prevent charter schools from creating accurate budgets and could lead to cash flow problems and possibly financial insolvency.

Comment. TCSA requested that TEA identify whether ADA estimates for Indicator 16 come from the charter school's estimate or TEA's estimate.

Agency Response. The agency agrees that clarification is needed concerning which ADA estimates are used in the calculation for Indicator 16. The estimates for ADA come from the estimates submitted by the charter school to TEA in the summer prior to the start of a school year. Figure: 19 TAC §109.1001(f)(5), Indicator 16, has been modified to identify the ADA estimates used in the calculation.

Comment. TCSA requested that TEA exempt charter schools operating at residential treatment centers (RTCs) or juvenile correctional facilities from Indicator 16 due to a highly mobile student population that could cause the ADA to vary significantly.

Agency Response. The agency disagrees that charter schools that serve students in RTCs or juvenile correctional facilities be exempted from this indicator. The purpose of Indicator 16 is to determine if charter schools are estimating their ADA reasonably. Inaccurate ADA projections can prevent charter schools from creating accurate budgets and could lead to cash flow problems and possibly financial insolvency.

INDICATOR 19

Comment. A school district administrator commented that TEA would need to supplement Indicator 19 by publishing an exhaustive list of reports or information TEA will be looking for to satisfy this indicator.

Agency Response. The agency disagrees and maintains language as published and proposed. TEA will provide a list of reports and/or information on its website in the future; however, the list will not be exhaustive. TEA encourages LEAs to request clarification of postings from TEA if necessary.

INDICATOR 20 - SCHOOL DISTRICTS

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5), a school district administrator commented that the calculation definition for Indicator 20 is too vague and requested clarification of TEA's terminology used in the calculation definition.

Agency Response. The agency agrees and has clarified the calculation definition for Indicator 20 in Figure: 19 TAC §109.1001(e)(5).

INDICATOR 20 - CHARTER SCHOOLS

Comment. Concerning proposed Figure: 19 TAC §109.1001(f)(5), TCSA suggested that Indicator 20 be amended to include a specific effective date. Additionally, TCSA requested that TEA create a guidance document of required postings at the start of each academic year.

Agency Response. The agency agrees that Indicator 20 should be amended and has modified Figure: 19 TAC §109.1001(f)(5) to include an effective date as a measure for the indicator. The language for Indicator 20 has been modified to read, "Did the charter school post the required financial information on its website in accordance with Government Code, Local Government Code, Texas Education Code, Texas Administrative Code, and other statutes, laws, and rules that were in effect at the charter school's fiscal year end?" In addition, the TEA may provide a reference document of required postings on the TEA website at a later date.

Comment. Concerning proposed Figure: 19 TAC §109.1001(f)(5), a charter school administrator stated that the indicator does not measure financial competency and suggested that TEA revise the indicator to follow the statutory intent for FIRST.

Agency Response. The agency disagrees that the indicator does not measure financial competency and should be revised. Timely posting of statutorily required information that informs the public of the financial health of an LEA demonstrates in part the intent of FIRST. In response to another comment, Figure: 19 TAC §109.1001(f)(5) was modified to include an effective date of fiscal year end as a measure for the indicator.

INDICATOR 21 - SCHOOL DISTRICTS

Comment. Concerning proposed Figure: 19 TAC §109.1001(e)(5), TASBO commented that Indicator 21 is unnecessary and is being enforced by the Texas Bond Review Board and the Texas Attorney General's Office, which will not approve capital appreciation bonds (CABs) for sale unless the district can demonstrate it is in compliance with the provision in Texas Government Code, §1201.0245(g). TASBO also commented that testing the provision at time of issuance is more appropriate than testing annually because an annual test may prohibit some districts from paying off bonds that are not CABs to remain in compliance with the FIRST rule. The commenter stated that this could result in the unnecessary payment of additional interest.

Agency Response. The agency agrees and has modified Figure: 19 TAC §109.1001(e)(5) to exclude Indicator 21 from the 2020-2021 FIRST indicators.

INDICATOR 21 - CHARTER SCHOOLS

Comment. Concerning proposed Figure: 19 TAC §109.1001(f)(5), TCSA commented that Indicator 21 does not provide any information about how the indicator will be measured and asked that TEA consider certain factors such as students under the conservatorship of the Department of Family and Protective Services (DFPS) remaining in the charter school even though they are outside of the geographic boundaries or students placed in a nearby RTC that is outside the charter school's geographic boundaries.

Agency Response. The agency agrees in part that certain factors should be considered for Indicator 21 such as students under the conservatorship of the DFPS remaining in the charter school even though they are outside of the geographic boundaries or students placed in a nearby RTC that is outside the charter school's geographic boundaries. The agency provides the following clarification for the calculation definition for Indicator 21. The calculation definition for Indicator 21 will use the approved geographic boundary information from the TEA Charter School Division and compare it with data the charter school reports in the TSDS PEIMS summer submission. If the comparison does not agree and results in a loss of points for the charter school, the charter school may appeal TEA's decision under 19 TAC §109.1001(n). The calculation definition in Figure: 19 TAC §109.1001(f)(5) for Indicator 21 has been modified to identify the source of the indicator.

Comment. Concerning proposed Figure: 19 TAC §109.1001(f)(5), a charter school administrator requested clarification of the source data used for Indicator 21 and how TEA will address common occurrences and events that may adversely affect the charter school.

Agency Response. The agency provides the following clarification for the calculation definition for Indicator 21. The calculation definition for Indicator 21 will use the approved geographic boundary information from the TEA Charter School Division and compare it with data the charter school reports in the TSDS PEIMS summer submission. If the comparison does not agree and results in a loss of points for the charter school, the charter school may appeal TEA's decision under 19 TAC §109.1001(n). The calculation definition in Figure: 19 TAC §109.1001(f)(5) for Indicator 21 has been modified to identify the source of the indicator.

OTHER

Comment. The Texas Classroom Teachers Association (TCTA) commented that it supported the addition of the new solvency indicators, financial competency indicators, new point ceiling indicators, and new language to 19 TAC §109.1001(k). TCTA asked if the addition of the indicators would result in different and meaningful FIRST ratings. TCTA also recommended that TEA consider adding an indicator regarding whether school board members discussed employee compensation, by category of employee, in open session at a board meeting during budget deliberations since employee salaries are such a significant percentage of school district expenditures.

Agency Response. The agency agrees with the addition of new solvency indicators, financial competency indicators, and point ceiling indicators and maintains that the new indicators are aligned with TEC, §39.082(a)(2)(B), which enables the commissioner to provide meaningful financial oversight and improvement of district finances. The agency disagrees with adding an indicator regarding school board members discussing employee compensation at this time because TEA has an indicator that measures whether the ratio of student to total staff has decreased over a period of three years. The existing indicator enables the commissioner to provide meaningful financial oversight and improvement of district finances. However, TEA may consider the recommendation during the next evaluation of the indicators.