The Texas Education Agency (TEA) proposes amendments to §§109.1001-109.1005, concerning the financial accountability rating system. The sections establish provisions that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions for the financial accountability rating system. The proposed amendments would update the rating system by specifying new provisions that will be implemented beginning with ratings based on data from fiscal year 2008-2009, including a new worksheet and calculations. The proposed amendments would also incorporate open-enrollment charter schools into the School FIRST system.

Through 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability Rating System, the commissioner of education established provisions for the financial accountability rating system, in accordance with Senate Bill 218, 77th Texas Legislature, 2001. The rules include the financial accountability rating form entitled "School FIRST - Rating Worksheet" that explains the indicators that the TEA will analyze to assign school district financial accountability ratings. This form specifies the minimum financial accountability rating information that a district is to report to parents and taxpayers in the district. HB 3, 81st Texas Legislature, 2009, modified and renumbered the TEC, §§39.201-39.205, relating to financial accountability for school districts. Changes required by HB 3 include the addition of open-enrollment charter schools to the financial accountability rating system.

The amendments presented in this proposal would update the rating system by specifying new provisions that will be implemented beginning with ratings based on data from fiscal year 2008-2009, including the deletion and enhancement of indicators and a new worksheet and calculations. Language would be added throughout the subchapter to include open-enrollment charter schools. The proposed amendments to 19 TAC Chapter 109, Subchapter AA, are as follows.

The proposed amendment to 19 TAC §109.1001, Purpose of Financial Accountability Rating System, would update the rating system by adding open-enrollment charter schools into the School FIRST system.

The proposed amendment to 19 TAC §109.1002, Financial Accountability Ratings, would update the rating system by deleting two noncritical indicators and enhancing other existing indicators. The revised rating system will be applicable to school district and open-enrollment charter school financial accountability ratings assigned, beginning with ratings based on data from fiscal year 2008-2009 (the ratings that will be issued in summer 2010). Specifically, the proposed amendment to 19 TAC §109.1002 would include the following changes from current text.

Language would be added to subsection (c) to specify the applicable fiscal years to which the previous rating worksheet, dated August 2006, applies.

New subsection (d) would be added to establish the applicable fiscal years to which the new rating worksheet, dated March 2010, applies. The new worksheet and accompanying calculation instructions would be added as new Figure: 19 TAC §109.1002(d).

New subsection (e) would be added to establish the rating worksheet for charter schools, dated March 2010. The new charter school rating worksheet would be added as new Figure: 19 TAC §109.1002(e).

Subsequent subsections would be relettered accordingly.

Relettered subsection (g) would be modified to reference open-enrollment charter schools, to use the term "appeal" instead of "request for review," and to delete language regarding the 65% expenditure standard. The subsection would also be modified to reflect the fact that charter school shared service arrangement reporting requirements are different than those established for traditional districts.

The following changes from the previously adopted School FIRST rating worksheet are reflected in the new School FIRST rating worksheet, Figure: 19 TAC §109.1002(d).

For indicator 10, the threshold for each point was adjusted to reflect the actual results reported for fiscal year 2008. Indicator 10 relates to per-student debt service.

The points awarded for a cash management indicator, renumbered to Indicator 22, were increased to 5 points in order to accommodate the realignment of total points awarded for indicators due to the deletion of indicators 13 and 14 related to the 65% expenditure requirement. The threshold for each point was also adjusted to reflect the actual results reported for fiscal year 2008, also allowing for decreased investment opportunities in 2009. Indicator 22 relates to per-student investment earnings, excluding debt service and capital projects funds.

As reflected in the new School FIRST rating worksheet, information related to the determination of financial accountability ratings and the applicable number of points was modified due to the reduction of the number of indicators. Also, the date of the form was updated from August 2006 to March 2010.

The new School FIRST rating worksheet for open-enrollment charter schools, reflected in Figure: 19 TAC §109.1002(e), would address receipt of the annual financial audit report, indication of assets greater than or equal to 80% of liabilities, and determination of the independent auditor's report.

The proposed amendment to 19 TAC §109.1003, Types of Financial Accountability Ratings, would incorporate the possibility of additional corrective actions in response to a lowered rating. The existing types of ratings would continue to apply during fiscal year 2008-2009, in accordance with the procedures, scores, and classifications established in 19 TAC §109.1002. The proposed amendment would also add the types of ratings for open-enrollment charter schools.

The proposed amendment to 19 TAC §109.1004, Criteria for Financial Accountability Ratings, would add open-enrollment charter schools into the School FIRST system.

The proposed amendment to 19 TAC §109.1005, Reporting, would clarify provisions for publication of public hearing notices.

The proposed amendments would update and add worksheets and calculations used beginning with fiscal year 2008-2009 data 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. Open-enrollment charter schools will now be required to report financial accountability results and annual financial management reports to the parents and the public of the charter school. The proposed amendments would have no new locally maintained paperwork requirements.

Laura Taylor, associate commissioner for accreditation, has determined that for the first five-year period the proposed amendments are in effect there will be no additional costs for state or local government as a result of enforcing or administering the amendments.

Ms. Taylor has determined that for each year of the first five years the amendments are in effect the public benefit anticipated as a result of enforcing the rule action will be updates to the financial accountability rating system. This 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. There is no anticipated economic cost to persons who are required to comply with the proposed amendments.

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.

The public comment period on the proposal begins March 26, 2010, and ends April 26, 2010. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701, (512) 475-1497. Comments may also be submitted electronically to rules@tea.state.tx.us or faxed to (512) 463-0028. A request for a public hearing on the proposal submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register on March 26, 2010.

The amendments are proposed under the Texas Education Code, §39.085, as renumbered by House Bill 3, 81st Texas Legislature, 2009, which requires the commissioner of education to adopt rules as necessary for the implementation and administration of financial accountability rating systems for school districts and open-enrollment charter schools.

The amendments implement the TEC, §§39.081-39.085, as renumbered by House Bill 3, 81st Texas Legislature, 2009.