The Texas Education Agency (TEA) adopts amendments to §§109.1001-109.1005, concerning the financial accountability rating system. The amendments are adopted without changes to the proposed text as published in the March 26, 2010, issue of the Texas Register (35 TexReg 2483) and will not be republished. The sections establish provisions that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions for the financial accountability rating system. The adopted amendments 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 adopted amendments 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 that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions 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. House Bill (HB) 3, 81st Texas Legislature, 2009, modified and renumbered the Texas Education Code (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 adopted amendments 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 was added throughout the subchapter to include open-enrollment charter schools. The adopted amendments to 19 TAC Chapter 109, Subchapter AA, are as follows.

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

The adopted amendment to 19 TAC §109.1002, Financial Accountability Ratings, updates the rating system by deleting two non-critical 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 adopted amendment to 19 TAC §109.1002 includes the following changes from current text.

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

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

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

Subsequent subsections were relettered accordingly.

Relettered subsection (g) was 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 was also 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), addresses 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 adopted amendment to 19 TAC §109.1003, Types of Financial Accountability Ratings, incorporates the possibility of additional corrective actions in response to a lowered rating. The existing types of ratings continue to apply during fiscal year 2008-2009, in accordance with the procedures, scores, and classifications established in 19 TAC §109.1002. The adopted amendment also adds the types of ratings for open-enrollment charter schools.

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

The adopted amendment to 19 TAC §109.1005, Reporting, clarifies provisions for publication of public hearing notices.

The adopted amendments 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 adopted amendments have no new locally maintained paperwork requirements.

The TEA determined that 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 began March 26, 2010, and ended April 26, 2010. No public comments were received.

The amendment is adopted under the TEC, §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.