The Texas Education Agency (TEA) proposes the repeal of §§109.1001-109.1005 and new §109.1001, 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 repeals and new section would update provisions relating to the Financial Integrity Rating System (FIRST) for school districts and open-enrollment charter schools to align with changes made by House Bill (HB) 5, 83rd Texas Legislature, Regular Session, 2013. School district ratings are referred to as School FIRST, and open-enrollment charter school ratings are referred to as Charter FIRST.

Rules in 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability, Division 1, Financial Accountability Rating System, establish 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, and House Bill 3, 81st Texas Legislature, 2009. The rules, which were initially adopted effective October 20, 2002, and last amended effective October 3, 2013, include the financial accountability rating system and rating worksheets that explain the indicators that the TEA will analyze to assign financial accountability ratings for school districts and open-enrollment charter schools. The rules also specify the minimum financial accountability rating information that a school district and open-enrollment charter is to report to parents and taxpayers in the district.

HB 5, Section 49, 83rd Texas Legislature, Regular Session, 2013, amended the Texas Education Code (TEC), §39.082, requiring that the commissioner of education include in the financial accountability rating system processes for anticipating the future financial solvency of each school district and open-enrollment charter school, including analysis of district and school revenues and expenditures for preceding school years. The TEC, §39.082, also requires the commissioner to adopt rules by which to measure the financial management performance and future financial solvency of a district or an open-enrollment charter school and sets forth specific requirements relating to indicators adopted by the commissioner and the assignment of ratings.

The proposed repeal of 19 TAC §§109.1001-109.1005 and new 19 TAC §109.1001 would repeal rules, removing outdated provisions, and place continuing provisions into a proposed new rule along with new provisions that align with current statute.

Proposed new 19 TAC §109.1001, Financial Accountability Ratings, would include uniform indicators that measure the financial management performance and financial solvency of a district or an open-enrollment charter school. Proposed indicators would be assigned a point value to each indicator that would be used in a scoring matrix. The proposed financial accountability rating system would not include an indicator or any other performance measure that requires a school district to spend at least 65 percent or any other specified percentage of district operating funds for instructional purposes or lowers the financial management performance rating of a school district for failure to spend at least 65 percent or any other specified percentage of district operating funds for instructional purposes.

The proposed financial accountability rating system for each school district or open-enrollment charter school, as applicable, will be assigned a financial accountability rating each rating year. The adopted indicators would be evaluated by the commissioner at least once every three years. Accordingly, proposed new 19 TAC §109.1001 includes rating worksheets that would be used to measure each school district and open-enrollment charter school on its overall performance on the financial measurements, ratios, and other indicators established by the commissioner. The proposed new rule would clarify that financial accountability ratings for a rating year are based on the data for the prior fiscal year. The proposed new rule would also establish a phase-in of rating indicators by proposing separate worksheets for rating years 2014-2015, 2015-2016, and 2016-2017 and subsequent years.

The proposed new rule would include the following provisions that would continue or update established practice. Each district or open-enrollment charter school will receive a preliminary rating before receiving a final rating. A district or open-enrollment charter school may appeal a preliminary rating where the data error was solely attributable to the TEA. Errors by a district or open-enrollment charter school in recording data or submitting data through the TEA data collection and reporting system will not be a valid basis for appealing a preliminary rating. Consideration will be given only to appeals that would result in a change of the preliminary rating. The appeal and additional information to support the appeal must be submitted by a district or open-enrollment charter school to the TEA no later than 30 days after the release of the preliminary ratings. The TEA will issue the final rating no later than 60 days after receiving the appeal. Appeals received 31 days or more after TEA issues a preliminary rating will not be considered. If TEA does not receive an appeal of a preliminary rating, the preliminary rating automatically becomes a final rating 31 days after issuance of the preliminary rating. An external review panel will independently review and submit his or her recommendation to the TEA division responsible for financial accountability after reviewing the appeal and additional supporting information. The preliminary rating may be changed if it is determined that the additional information provided by the school district or open-enrollment charter school supports their appeal. The commissioner will make the final financial accountability ratings decision.

In accordance with the TEC, §39.082(i), the financial accountability rating of each school district and open-enrollment charter school under the proposed financial accountability rating system will be made publicly available by August 8 of each year.

The proposed rule actions would have no new reporting requirements. The updated financial accountability rating system would fulfill the requirements to develop and implement separate financial accountability rating systems. TEA staff will generate school district and open-enrollment charter school financial accountability ratings based on data submitted by school districts and open-enrollment charter schools. The proposed rule actions would have no new locally maintained paperwork requirements.

Lisa Dawn-Fisher, associate commissioner for school finance/chief school finance officer, has determined that for the first five-year period the repeals and new section are in effect there will be no additional costs for state or local government as a result of enforcing or administering the proposed rule actions. The proposed rule actions would implement a financial accountability system as specified in the TEC, §39.082.

Dr. Dawn-Fisher has determined that for each year of the first five years the repeals and new section are in effect the public benefit anticipated as a result of enforcing the rule actions would be inclusion in the financial accountability rating system processes for anticipating the future financial solvency of each school district and open-enrollment charter school, including analysis of district and school revenues and expenditures for preceding school years. There is no anticipated economic cost to persons who are required to comply with the proposed rule actions.

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 May 22, 2015, and ends June 22, 2015. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Rulemaking, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701, (512) 475-1497. Comments may also be submitted electronically to rules@tea.texas.gov or faxed to (512) 463-5337. 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 May 22, 2015.

The repeal is proposed under the Texas Education Code (TEC), §39.082 and §39.085, which authorize the commissioner of education to adopt rules as necessary for the development, implementation, and administration of separate financial accountability rating systems for school districts and open-enrollment charter schools.

The repeal implements the TEC, §39.082 and §39.085.