The Texas Education Agency (TEA) adopts new §109.3001 and §109.3003, concerning federal fiscal compliance and reporting. Section 109.3001 is adopted with changes to the proposed text as published in the November 1, 2013, issue of the Texas Register (38 TexReg 7598). Section 109.3003 is adopted without changes to the proposed text as published in the November 1, 2013, issue of the Texas Register (38 TexReg 7598) and will not be republished. The adopted new rules provide guidance for local educational agencies (LEAs) that has been developed in conjunction with federal statutes and guidance from the United States Department of Education (USDE) regarding local maintenance of effort (MOE) and indirect cost rates.

The TEA currently provides guidance for financial accounting for school districts, charter schools, and education service centers through the Financial Accountability System Resource Guide (FASRG), which is adopted by reference as rule in 19 TAC §109.41. The FASRG is currently under review and will undergo significant revision. As a result, updated provisions relating to federal fiscal compliance and reporting will be adopted in 19 TAC Chapter 109, Subchapter CC, instead of the FASRG.

Adopted new 19 TAC Chapter 109, Subchapter CC, aligns TEA guidance for federal fiscal compliance and reporting with current federal statutory authority and USDE guidance for local MOE and indirect cost rates. The adopted new subchapter consists of adopted new 19 TAC §109.3001, Local Maintenance of Effort, and 19 TAC §109.3003, Indirect Cost Rates.

Adopted new 19 TAC §109.3001 adopts in rule Figure: 19 TAC §109.3001(c)(1), which establishes the MOE requirements for a grant under the Individuals with Disabilities Education Act, Part B, and Figure: 19 TAC §109.3001(c)(2), which establishes the MOE requirements for a grant under the No Child Left Behind Act. In response to public comments, the following changes were made at adoption to the handbook adopted as Figure: 19 TAC §109.3001(c)(1).

In the Termination of Obligation section, the definition of an exceptionally costly program was revised to read, "an amount greater than the average per pupil expenditure (as defined in section 9101 of the ESEA) in Texas."

The section concerning School Health and Related Services (SHARS) was removed from Appendix 3: IDEA-B MOE Calculation Methodology. Instructions and examples in Appendix 3 regarding the use of SHARS Medicaid cost share in the MOE calculation were revised to reflect federal guidance.

In addition, the following technical corrections were made at adoption to the handbook adopted as Figure: 19 TAC §109.3001(c)(1).

The LEA MOE Determination Calculation Tool was renamed the LEA MOE Calculation Tool throughout the document for clarity.

The Additional Resources Related to Other IDEA-B Fiscal Compliance Requirements section was modified to include an active link to the CEIS Guidance Handbook.

A description of the amount that an LEA is required to refund if the refund amount exceeds the LEA's IDEA-B maximum entitlement for the fiscal year under determination was clarified in the Consequences of Noncompliance section.

The last paragraph in the Federal Exceptions to the MOE Requirement section was modified to correctly identify where assertion forms will be posted.

The first bullet in the Assumption of Cost by High Cost Fund section was modified for consistency by removing the phrase "net asset code."

Adopted new 19 TAC §109.3003 would adopt in rule Figure: 19 TAC §109.3003(d), which establishes definitions, standards, and procedures used to govern indirect cost rates.

The TEA intends to update 19 TAC §109.3001 and 19 TAC §109.3003 annually as needed to align with subsequent updates, modifications, and amendments to the federal statutory authority and USDE guidance.

The adopted new rules have no procedural or reporting implications beyond those already in place. Entities required to meet MOE requirements must provide certain fiscal and compliance information in order for the TEA to determine compliance with the MOE requirement and subsequent reporting to the USDE. Additionally, entities requesting an indirect cost rate must provide all documentation required by the USDE to support the entity's request and subsequent approval by the TEA of the indirect cost rate. The adopted new rules have no locally maintained paperwork requirements beyond those already in place. Participating LEAs are required to retain all financial and programmatic records specific to the local MOE and indirect cost rate 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 November 1, 2013, and ended December 2, 2013. Following is a summary of the public comments received and corresponding agency responses regarding proposed new 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter CC, Commissioner's Rules Concerning Federal Fiscal Compliance and Reporting.

Comment: An individual, a representative from the Haskell-Knox Shared Service Arrangement (SSA), a representative from Region 13 Education Service Center (ESC), and the Texas Council of Administrators of Special Education, Inc. (TCASE) questioned the proposed threshold of $35,000 or greater per student in the termination-of-obligation exception as this could serve as a penalty to small districts who already use that amount in the exception for assumption of cost by high cost fund. The TCASE suggested removal or reduction of the threshold. The representative from Haskell-Knox SSA requested clarification regarding the exceptionally costly program calculation.

Agency Response: The agency agrees and provides the following clarification. Federal exception (c) termination of an exceptionally costly program/obligation to a particular student (34 CFR §300.204(c)) is applicable to students who leave the local educational agency (LEA), while the federal exception (e) assumption of cost by a high cost fund (34 CFR §300.204(e)) is applicable to students who remain with the LEA. Maintenance of effort (MOE) is based solely upon state and local expenditures and does not include federal funding.

The agency agrees that the proposed $35,000 threshold is high and has revised the definition of an exceptionally costly program found on page 5 of the handbook adopted as Figure: 19 TAC §109.3001(c)(1) at adoption to read, "an amount greater than the average per pupil expenditure (as defined in section 9101 of the ESEA) in Texas."

Comment: A representative from Lockhart Independent School District (ISD) suggested that the removal of program intent code (PIC) 99 formula-allocation should apply to all compliance requirements and not solely to special education.

Agency Response: The agency disagrees. Regarding federal compliance requirements, PIC 99 formula-allocation is specifically relevant only to an LEA's MOE for a grant under the Individuals with Disabilities Education Act, Part B (IDEA-B) as this requirement is focused on special education and related services. Other federal compliance requirements apply more broadly and include all program intent codes. Regarding state compliance requirements, the proposed change would be outside the scope of the proposed rule action.

Comment: The TCASE stated that the threshold calculation tool and calendar currently in use does not allow districts to take full advantage of opportunities in calculating exceptional costs and does not allow for a full year of service. The TCASE recommended modifications to the calculation tool.

Agency Response: This comment is outside the scope of the proposed rule action. Adopted new 19 TAC Chapter 109, Subchapter CC, does not include a tool for calculating federal exception (c) termination of an exceptionally costly program/obligation to a particular student (34 CFR §300.204(c)).

Comment: The TCASE recommended that the exceptionally costly program calculation be modified for shared service arrangements.

Agency Response: The agency disagrees. Federal regulations do not provide for modification of the requirements of federal exception (c) termination of an exceptionally costly program/obligation to a particular student (34 CFR §300.204(c)).

Comment: The TCASE expressed appreciation of the agency's efforts to provide flow charts and examples in guidance documents.

Agency Response: The agency appreciates this comment.

Comment: The United States Department of Education (USDE) provided clarification regarding the use of School Health and Related Services (SHARS) Medicaid cost share in the MOE calculation. LEAs must include the local (or state and local) funds expended for the education for children with disabilities in their calculation of LEA MOE even if those funds also meet a Medicaid cost share requirement.

Agency Response: The agency has made revisions to the handbook adopted as Figure: 19 TAC §109.3001(c)(1) at adoption to conform to this federal guidance.

The new sections are adopted under the Texas Education Code (TEC), §7.021(b)(1), which authorizes the agency to administer and monitor compliance with education programs required by federal or state law, including federal funding and state funding for those programs; and TEC, §7.031(a), which allows the agency to seek, accept, and distribute grants awarded by the federal government or any other public or private entity for the benefit of public education, subject to the limitations or conditions imposed by the terms of the grants or by other law.

The new sections implement the TEC, §7.021(b)(1) and §7.031(a).