(Editor's note: In accordance with Texas Government Code, §2002.014, which permits the omission of material which is "cumbersome, expensive, or otherwise inexpedient," the figures in 19 TAC §109.1001 are not included in the print version of the Texas Register. The figures are available in the on-line version of the October 4, 2019, issue of the Texas Register.)

The Texas Education Agency (TEA) adopts an amendment to §109.1001, concerning financial accountability. The amendment is adopted with changes to the proposed text as published in the June 21, 2019 issue of the Texas Register (44 TexReg 3055) and will be republished. The adopted amendment updates financial accountability rating information and rating worksheets for school districts, open-enrollment charter schools, and charter schools operated by public institutions of higher education (IHEs).

REASONED JUSTIFICATION: 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 or 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 2018-2019 rating year and subsequent years by revising the ratings worksheet calculations in §109.1001(e)(4), (e)(5), (f)(4), and (f)(5). The adopted amendment also includes modifications to the rating worksheets in §109.1001(e)(4), (e)(5), (f)(4), (f)(5), (g)(1), and (g)(2) to clarify that financial accountability ratings for a rating year are based on the data from the prior fiscal year. The adopted worksheets, dated June 2019, differ from the current worksheets, dated February 2018, as follows.

Figure: 19 TAC §109.1001(e)(4), School FIRST Worksheet for Rating Years 2017-2018 through 2019-2020

The header in the worksheet is amended to clarify that the rating worksheet is for multiple rating years based on corresponding prior fiscal year end data.

The Determination of School District Rating table is revised to include the word "Achievement" beside the adopted terminology for each rating. The ratings terminology changes to "Superior Achievement," "Above Standard Achievement," and "Meets Standard Achievement."

Indicator 4 is revised to amend the calculation text to allow for Internal Revenue Service (IRS) payments made within 30 days to be considered timely payments.

Indicator 5 is revised to amend the calculation by adding variable G for Other Post Employment Benefit (OPEB). The OPEB liability is added to the calculation to account for required changes in accounting requirements that adversely affect the total net position amount. Due to the implementation of the Governmental Accounting Standards Board (GASB) Statement No. 75 - Accounting and Financial Reporting for OPEB and the effect it has had on the district's Statement of Net Position, the agency has determined that the indicator will not be utilized for the 2018-2019 rating year based on 2018 data and has made note of this on the worksheet at adoption.

Indicator 11 is revised to simplify the calculation for the administrative cost ratio.

Figure: 19 TAC §109.1001(e)(5), School FIRST Worksheet for Rating Year 2020-2021+

The header in the worksheet is amended to clarify that the rating worksheet is for multiple rating years based on corresponding prior fiscal year end data.

Indicator 4 is revised to amend the calculation text to allow for IRS payments made within 30 days to be considered timely payments.

Indicator 5 is revised to amend the calculation by adding variable G for OPEB. The OPEB liability would be added to the calculation to account for required changes in accounting requirements that adversely affect the total net position amount.

Indicator 6 is revised to clarify terminology to match the calculation and to correct the calculation by removing an extra parenthesis.

Indicator 7 is revised to clarify terminology to match the calculation.

Indicator 10 is revised to clarify terminology to match the calculation and to correct the order of operation in the calculation by adding and removing an extra parenthesis.

Indicator 13 is revised to simplify the calculation for the administrative cost ratio.

Indicator 20 is revised to clarify when the requirement for the indicator must be met. In response to public comment, the topic that is required to be discussed is also clarified at adoption.

Figure: 19 TAC §109.1001(f)(4), Charter FIRST Worksheet for Rating Years 2017-2018 through 2019-2020

The headers in the worksheets are amended to clarify that the rating worksheets are for multiple rating years based on corresponding prior fiscal year end data.

Indicator 4 is revised to amend the calculation text to allow for IRS payments made within 30 days to be considered timely payments.

No changes were made to this worksheet since published as proposed.

Figure: 19 TAC §109.1001(f)(5), Charter FIRST Worksheet for Rating Year 2020-2021+

The headers in the worksheets are amended to clarify that the rating worksheets are for multiple rating years based on corresponding prior fiscal year end data.

Indicator 4 is revised to amend the calculation text to allow for IRS payments made within 30 days to be considered timely payments.

Additionally, the agency made necessary corrections and clarifications to calculations for the following indicators on the Charter FIRST Worksheet 2020-2021+ (Figure: 19 TAC §109.1001(f)(5)) at adoption.

Indicator 6 is revised to amend the calculation by changing the terminology for variable A from one year to three years.

Indicator 6 is also revised to clarify the report name the calculation data comes from for variable F.

Indicator 7 is revised to clarify the report name the calculation data comes from for variable D.

Indicator 9 is revised to clarify the report name the calculation data comes from for variable C.

Indicator 10 is revised to amend the text to allow for fund 199 to be included in the calculation.

Indicator 12 is revised to clarify the report name the calculation data comes from for variables C, D, and E.

Figure: 19 TAC §109.1001(g)(1) and Figure: 19 TAC §109.1001(g)(2), IHE Charter FIRST Worksheet for Rating Years 2016-2017 through 2019-2020 and IHE Charter FIRST Worksheet for Rating Year 2020-2021+, respectively

The headers in the worksheets are amended to clarify that the rating worksheets are for multiple rating years based on corresponding prior fiscal year end data.

No changes were made to these worksheets since published as proposed.

SUMMARY OF COMMENTS AND AGENCY RESPONSES: The public comment period on the proposal began June 21, 2019, and ended July 22, 2019. Following is a summary of public comment received and agency response.

INDICATORS 6 and 7 - SCHOOL DISTRICTS

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(5), a representative from the Texas Association of School Business Officials (TASBO) commented that the wording and the object code data for Indicators 6 and 7 should be changed to use object codes 6100-6499 or reworded to reference total expenditures less facilities expenditure under function 81.

Agency Response: The agency agrees and has updated the worksheet at adoption to modify Indicators 6 and 7 in Figure: 19 TAC §109.1001(e)(5) to reference total expenditures in the calculation.

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(5), a representative from TASBO recommended that recapture payments be excluded from Indicator 7 since new legislation allows districts to make recapture payments in August.

Agency Response: The agency disagrees that the calculation should exclude recapture payments. Recapture payments are an expense that districts are still required to pay and is included with other expenditures in the denominator of the calculation. The calculation is used to determine if a district's number of days of cash on hand plus cash investments in the general fund is sufficient to cover total expenditures.

INDICATOR 10 - SCHOOL DISTRICTS

2017- 2018 through 2019-2020 Rating Year

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(4), a representative from Fort Bend Independent School District commented that current refundings are required to be recorded in function 71 and that the inclusion of large amounts from current refundings in the denominator produces a much lower ratio for districts with current refundings. The representative recommended excluding the current refundings amounts from the indicators so districts would have a higher debt service coverage ratio and earn maximum points for the indicator.

Agency Response: The agency agrees and will review audited reports submitted by districts for other financing sources to be excluded from the denominator. The comment does not necessitate a change to the indicator.

2020-2021+ Rating Years

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(5), a representative from TASBO commented that due to new legislation, revenue to districts will not be available until after the fall snapshot date and recommended that an automatic appeal for the indicator be allowed if the district adopted timely amendments to their budget as information about changes to revenue became available, even if the amendments came after the fall snapshot date.

Agency Response: The agency disagrees with the automatic appeal recommendation. A process is in place in 19 TAC §109.1001(n), which allows for the district to appeal any adverse issue it identifies in their preliminary rating no later than 30 days after the release of the preliminary ratings.

INDICATOR 20 - SCHOOL DISTRICTS

Comment: Concerning Figure: 19 TAC §109.1001(e)(5) a representative from TASBO commented that the calculation definition for Indicator 20 is confusing due to recent legislative changes and recommended that the indicator requirement be changed to a requirement that districts discuss legislative payment estimates and settle-up with their board.

Agency Response: The agency agrees and has updated the worksheet at adoption to modify the calculation for Indicator 20 in Figure: 19 TAC §109.1001(e)(5) to clarify the definition.

STATUTORY AUTHORITY. The amendment is adopted under Texas Education Code (TEC), §12.104, which subjects open-enrollment charter schools to the prohibitions, restrictions, or requirements relating to public school accountability under TEC, Chapter 39, Subchapters B, C, D, F, G, and J, and TEC, Chapter 39A; TEC, §39.082, which states that the financial performance of a charter school operated by a public institution of higher education under TEC, Chapter 12, Subchapter D or E, shall be evaluated using only the indicators adopted under TEC, §39.082, determined by the commissioner by rule as appropriate to accurately measure the financial performance of such charter schools. The statute also requires the commissioner to develop and implement a financial accountability rating system for public schools and establishes certain minimum requirements for the system, including an appeals process; TEC, §39.083, which requires the commissioner to include in the financial accountability system procedures for public schools to report and receive public comment on an annual financial management report; TEC, §39.085, which requires the commissioner to adopt rules to implement TEC, Chapter 39, Subchapter D, which addresses financial accountability for public schools; and TEC, §39.151, which requires the commissioner to provide a process by which a district or charter school can challenge an agency decision related to academic or financial accountability under TEC, Chapter 39. This process must include a committee to make recommendations to the commissioner. These provisions collectively authorize and require the commissioner to adopt the financial accountability system rules, which implement each requirement of statute applicable to districts and open-enrollment charter schools.

CROSS REFERENCE TO STATUTE. The amendment implements Texas Education Code, §§12.104, 39.082, 39.083, 39.085, and 39.151.