The Texas Education Agency (TEA) adopts an amendment to §109.1001, concerning financial accountability ratings. The amendment is adopted without changes to the proposed text as published in the January 20, 2017 issue of the Texas Register (42 TexReg 200) and will not be republished. The adopted amendment clarifies the financial accountability rating indicators used to determine each school district's and open-enrollment charter school's rating for the 2016-2017 rating year.

REASONED JUSTIFICATION. Chapter 109, Subchapter AA, 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 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 school 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 adopted amendment clarifies the financial accountability rating indicators used to determine each school district's rating for the 2016-2017 rating year and subsequent years by revising the ratings worksheet calculations in Figure: 19 TAC §109.1001(e)(3). The adopted worksheet, dated December 2016, differs from the current worksheet, dated August 2015, as follows.

The Determination of School District Rating table was revised to disclose the point range applicable for each rating for the 2016-2017 School FIRST rating year. The ranges are A = Superior, 90 through 100; B = Above Standard, 80 through 89; C = Meets Standard, 60 through 79; and F = Substandard Achievement, 0 through 59.

Indicator 5 was revised to amend variable F by removing pension expense from the calculation since the amount is not applicable to the indicator calculation.

Indicator 5 was also revised by removing the phrases net asset and net assets and replacing them with the phrase net position.

Indicator 10 was revised by amending variables A, B, and C to specify that the governmental fund that the data is derived from is the General Fund and Debt Service Fund.

Indicator 10 was also revised by adding the word "Ending" to variable D to disclose that the Debt Service Fund ending fund balance will be used in the calculation.

Finally, Indicator 10 was revised by amending variable E to specify that the governmental fund that the data is derived from is the General Fund.

SUMMARY OF COMMENTS AND AGENCY RESPONSES. The public comment period on the proposal began January 20, 2017, and ended February 21, 2017. Following is a summary of public comments received and corresponding agency responses.

Comment: A representative from a financial services firm requested that Indicator 5 be revised "to exclude an increase in negative net assets that results solely from an increase in bonds payable liability resulting from a bond refinancing when that refunding generates annual and present value savings or from accounting treatment for a loss due to extinguishment of debt."

Agency Response: The agency disagrees and maintains language as published as proposed. Indicator 5 requires a school district or charter school to have a total unrestricted net position or net assets balance greater than zero to pass this indicator. A positive total unrestricted net position balance or net asset balance does not always demonstrate that there is equity on the balance sheet; however, one of the things it does demonstrate is that the school district or charter school received more revenues than it expended. Increases or decreases in unrestricted net position or net assets allow the agency to determine how a school district or charter school is performing financially and assess the overall financial health of the school district or charter school.

Comment: A school district administrator recommended either keeping the language in Indicator 8 the same and changing the calculation or keeping the calculation the same and changing the language for the indicator.

Agency Response: The agency disagrees and has determined that the indicator meets the intended goal. However, the agency appreciates the commenter's response and will consider the recommended changes during the next evaluation of the existing School FIRST indicators.

STATUTORY AUTHORITY. The amendment is adopted 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, establishes certain requirements, including procedures, to enable the commissioner and administrators to provide meaningful financial oversight and improvement along with transparency to the public, and provides additional requirements and rulemaking authority for the commissioner; and 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.