The Texas Education Agency (TEA) proposes an amendment to §109.1001, concerning the financial accountability rating system. The section establishes provisions that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions for the financial accountability rating system. The proposed amendment would clarify the financial accountability rating indicators used to determine each school district's rating for the 2015-2016 rating year and subsequent years and describe a new "No Rating" category for certain school districts that receive territory from an annexation order under the Texas Education Code (TEC), §13.054, or consolidation under the TEC, Chapter 41, Subchapter H.

Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA, Commissioner's Rules Concerning Financial Accountability, establishes 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 (HB) 3, 81st Texas Legislature, 2009. HB 5, Section 49, 83rd Texas Legislature, Regular Session, 2013, amended the 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.

Section 109.1001 includes 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 rule also specifies the minimum financial accountability rating information that a school district and an open-enrollment charter school is to report to parents and taxpayers in the district.

The proposed amendment would clarify the financial accountability rating indicators used to determine each school district's rating for the 2015-2016 rating year and subsequent years by revising the ratings worksheet calculations in Figure: 19 TAC §109.1001(e)(2) and Figure: 19 TAC §109.1001(e)(3). The proposed worksheets, dated August 2016, would differ from the current worksheets, dated August 2015, as follows.

Indicator 5 would be revised to show the operation of adding variable F for pension expense and net pension liability (NPL) instead of subtracting the variable from the calculation.

Indicators 6, 9, and 10 would be revised to remove the pension expense and NPL variables from the calculation since the amounts for pension expense and NPL are not applicable to the indicator calculations.

Indicator 10 would be revised to add variable E (function code 81 - capital outlay) in order to make the indicator more uniform for all districts.

Both figures, as well as subsection (h), would be modified to include a new category for "No Rating" for the 2016-2017 rating year and subsequent years. The rating would allow a school district that receives territory from an annexation or consolidation order by the commissioner due to closure or action under the TEC, Chapter 41, to not receive a financial accountability rating for two consecutive rating years after the annexation/consolidation with another school district.

The proposed amendment would have no new procedural and reporting implications. The proposed amendment would clarify the worksheet calculations that were implemented beginning with data from fiscal year 2015-2016 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.

The proposed amendment would have no new locally maintained paperwork requirements.

FISCAL NOTE. Shirley Beaulieu, chief financial officer, has determined that for the first five-year period the amendment is in effect there will be no additional costs for state or local government as a result of enforcing or administering the amendment. The proposed amendment would clarify and continue a financial accountability rating system that has been implemented under the requirements of statute since fiscal year 2014-2015 and that is required to continue. The proposed amendment would implement a financial accountability rating system as specified in the TEC, §39.082.

There is no effect on local economy for the first five years that the proposed amendment is in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.

PUBLIC BENEFIT/COST NOTE. Ms. Beaulieu has determined that for each year of the first five years the amendment is in effect the public benefit anticipated as a result of enforcing the amendment will be to ensure that the provisions of the financial accountability rating system align to make the indicators uniform for all school districts and charter schools and would provide a fair and equitable rating for all school districts and charter schools. In addition, the proposed amendment would adequately account for the incorporation of territory due to the actions on another district and not the receiving district. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL BUSINESSSES AND MICROBUSINESSES. 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.

REQUEST FOR PUBLIC COMMENT. The public comment period on the proposal begins June 24, 2016, and ends July 25, 2016. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Rulemaking, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701. Comments may also be submitted electronically to rules@tea.texas.gov. 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 June 24, 2016.

STATUTORY AUTHORITY. The amendment is proposed under the Texas Education Code (TEC), §39.082, which requires the commissioner to develop and implement a financial accountability rating system for school districts and open-enrollment charter schools. The section establishes certain requirements, including procedures, to enable the commissioner and administrators to provide meaningful financial oversight and improvement along with transparency to the public. The section provides additional requirements and rulemaking authority for the commissioner. The amendment is also proposed under the TEC, §39.085, which provides the commissioner rulemaking authority for the implementation and administration of the financial accountability subchapter of the TEC, Chapter 39.

CROSS REFERENCE TO STATUTE. The amendment implements the Texas Education Code, §39.082 and §39.085.