Part 2.
TEXAS EDUCATION AGENCY
Chapter 109.
BUDGETING, ACCOUNTING, AND AUDITING
Subchapter AA. COMMISSIONER'S RULES CONCERNING FINANCIAL ACCOUNTABILITY RATING SYSTEM
19 TAC §§109.1002 - 109.1005
The Texas Education Agency (TEA) proposes amendments to §§109.1002
- 109.1005, concerning the financial accountability rating system. The sections
establish provisions relating to the financial accountability rating system,
including the assignment of ratings, types of ratings, criteria, and reporting.
The sections also include the financial accountability rating form entitled
"School FIRST- Rating Worksheet" that explains the indicators that the TEA
will analyze to assign school district financial accountability ratings. The
proposed amendments would update the rating system by specifying new provisions
that would be implemented beginning with fiscal year 2005-2006, including
the addition and enhancement of indicators, along with a new worksheet and
calculations; establishing a change to the types of district ratings based
on a point system; and delineating certain disclosures that must be included
in districts' annual financial management reports. The rule action presented
in this proposal replaces the previous proposal that was published in the
Senate Bill (SB) 875, 76th Texas Legislature, 1999, added TEC, §39.201,
requiring the commissioner of education in consultation with the comptroller
of public accounts to develop proposals for a school district financial accountability
rating system that was to be presented to the legislature no later than December
15, 2000. TEC, §39.201, expired September 1, 2001. Subsequently, SB 218,
77th Texas Legislature, 2001, added TEC, §§39.201-39.204, requiring
the commissioner to adopt rules for the implementation and administration
of the financial accountability rating system prescribed by TEC, Chapter 39,
Subchapter I.
19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter AA,
Commissioner's Rules Concerning Financial Accountability Rating System, adopted
to be effective October 20, 2002, establishes provisions that detail the purpose,
ratings, types of ratings, criteria, reporting, and sanctions for the financial
accountability rating system, in accordance with SB 218, 77th Texas Legislature,
2001. The adopted rules include the financial accountability rating form entitled
"School FIRST- Rating Worksheet" that explains the indicators that the TEA
will analyze to assign school district financial accountability ratings. This
form specifies the minimum financial accountability rating information that
a district is to report to parents and taxpayers in the district.
The rating worksheet, along with accompanying calculation instructions,
was adopted in 19 TAC §109.1002 to be effective October 20, 2002, and
later amended to be effective May 7, 2003. The 2003 amendment to 19 TAC §109.1002
included minor technical edits that crosswalked exhibit numbers referenced
in the "School FIRST- Rating Worksheet," according to the new standard for
the Annual Financial and Compliance Report to be filed by school districts
for fiscal year 2002-2003. This rating worksheet, dated May 2003, establishes
the indicators applicable to school district financial accountability ratings
assigned for fiscal years 2002-2003, 2003-2004 and 2004-2005.
A proposed amendment to 19 TAC §109.1002 published in the August 6,
2004, issue of the Texas Register would have updated the rating system by
adding a new critical indicator and enhancing other existing indicators. The
revised rating system would have been applicable to school district financial
accountability ratings issued beginning in fiscal year 2005-2006. This proposed
amendment was withdrawn and a new proposal was to be brought forward at a
later date that would add more indicators, establish a different scoring process
for many measures, and create new disclosure requirements. The rule actions
presented at this time comprise the new proposal.
The proposed amendments presented in this proposal, developed in consultation
with the state comptroller's office, would update the rating system by specifying
new provisions that would be implemented beginning with fiscal year 2005-2006,
including the addition and enhancement of indicators, along with a new worksheet
and calculations; establishing a change to the types of district ratings based
on a point system; and delineating certain disclosures that must be included
in districts' annual financial management reports. The following amendments
to 19 TAC Chapter 109, Subchapter AA, are proposed.
The new proposed amendment to 19 TAC §109.1002, Financial Accountability
Ratings, would update the rating system by adding two new critical indicators,
adding three noncritical indicators, and enhancing other existing indicators.
The revised rating system would be applicable to school district financial
accountability ratings assigned beginning with fiscal year 2005-2006 (the
ratings that will be issued on or about June 2006).
The proposed amendment 19 TAC §109.1002 would include the following
changes: language would be added to subsection (a) to cite the statutory reference;
language would be added to subsection (b) to specify the applicable fiscal
years to which the current rating worksheet, dated May 2003, applies; new
subsection (c) would be added to establish the applicable fiscal years to
which the new rating worksheet, dated May 2005, applies; the new worksheet
and accompanying calculation instructions would be added as a new figure,
19 TAC §109.1002(c); subsection (d) would be renumbered accordingly;
and new subsection (e) would be added to specify the procedures for submitting
a request for the TEA to review a district's preliminary rating.
In addition, the differences between the May 2003 rating worksheet and
the proposed May 2005 version include the following:
Two new critical indicators would be added--total net unrestricted asset
balance in governmental activities and academic rating of the district (exceeds
academically unacceptable).
Three new noncritical indicators would be added addressing fiscal efficiencies
and academic performance--operating expenditures per Weighted Average Daily
Attendance (WADA) in the general fund and the special revenue fund, operating
expenditures per WADA in the general fund, and district's academic rating
(recognized or exemplary).
Several fiscal responsibility indicators would be revised to change the
percent of total tax collection standard from 96% to 98% for a three-year
average, the percent of aggregate variance for data quality measure from 4.0%
to 3.0%, and the standard per-student amount of debt-related expenditures
from $770 if the district's five-year percent change in students was a 2.0%
increase or more or if property taxes collected per penny of tax effort were
more than $100,000 to $250 if the district's five-year percent change in students
was a 7.0% increase or more or if property taxes collected per penny of tax
effort were more than $200,000.
A budgeting indicator would be revised to increase the standard percentage
related to operating expenditures for instruction from 54% to 65%, excluding
certain expenditures from the denominator in the calculation.
A personnel indicator related to the administrative cost ratio would be
revised and a new threshold ratio chart would be added. The ranges for the
ratio of students to total staff would also be revised.
A cash management indicator would be revised to increase the standard for
per-student investment earnings from $15 to $40, excluding debt service and
capital projects funds. The definition of another cash management indicator,
relating to optimum fund balances, would be simplified.
Applicable indicators and references would be renumbered and the date of
the form updated.
New information related to determination of rating and determination of
points would be added. The proposal would establish that district ratings
would be based on a point system and each district would be assigned an "A,"
"B," "C," "Requires Improvement," or "Suspended--Data Quality" rating.
The proposed amendment to 19 TAC §109.1003, Types of Financial Accountability
Ratings, would specify the types of ratings districts may receive beginning
with fiscal year 2005-2006, in accordance with the procedures, scores, and
classifications established in 19 TAC §109.1002.
The proposed amendment to 19 TAC §109.1004, Criteria for Financial
Accountability Ratings, would clarify that changes to criteria for ratings
will be communicated to school districts in accordance with the applicable
effective dates.
The proposed amendment to 19 TAC §109.1005, Reporting, would add requirements
that must be presented in the annual financial management report, including
a copy of the superintendent's current employment contract, transactions involving
the superintendent and board members, gifts that employees and board members
receive from vendors, and five-fiscal year projected summary totals.
The worksheet and calculations that districts use beginning in fiscal year
2005-2006 to report financial accountability information would be modified.
In addition, districts would be required to identify their accreted interest
on their bonds. This information would be included in their GASB 34 data feed
to the TEA.
Tom Canby, managing director for financial audits, has determined that
for the first five-year period the amendments are in effect there will be
no fiscal implications for state or local government as a result of enforcing
or administering the amendments.
Mr. Canby has determined that for each year of the first five years the
amendments are in effect the public benefit anticipated as a result of enforcing
the sections will be an updated rating system. The financial accountability
rating system benefits the public by putting into place a system to ensure
that school districts will be held accountable for the quality of their financial
management practices and achieve improved performance in the management of
their financial resources. There will not be an effect on small businesses.
There is no anticipated economic cost to persons who are required to comply
with the amendments.
Comments on the proposal may be submitted to Cristina De La Fuente-Valadez,
Policy Coordination Division, 1701 North Congress Avenue, Austin, Texas 78701,
(512) 475-1497. Comments may also be submitted electronically to
rules@tea.state.tx.us
or faxed to (512) 463-0028. All requests for
a public hearing on the proposed amendments submitted under the Administrative
Procedure Act must be received by the commissioner of education not more than
15 calendar days after notice of the proposal has been published in the
The amendments are proposed under Texas Education Code, §39.204,
which authorizes the commissioner of education to adopt rules as necessary
for the implementation and administration of a financial accountability rating
system.
The amendments implement the TEC, §§39.201-39.204.
§109.1002.Financial Accountability Ratings.
(a)
In accordance with Texas Education Code (TEC), Chapter
39, Subchapter I, each
[
(b)
For fiscal years 2002-2003, 2003-2004, and 2004-2005,
each
[
Figure: 19 TAC §109.1002(b) (No change.)
(c)
Beginning with fiscal year 2005-2006,
the financial accountability rating of a school district is based on its overall
performance on certain financial measurements, ratios, and other indicators
established by the commissioner of education in the financial accountability
rating form provided in this subsection entitled "School FIRST- Rating Worksheet,"
dated May 2005.
Figure: 19 TAC §109.1002(c) (.pdf)
(d)
[
(e)
The TEA will issue a preliminary financial
accountability rating to a school district within 150 days of the district's
complete financial data being made available to the TEA staff.
(1)
The issuance of the preliminary rating will not be delayed
if a district fails to meet the statutory deadline for submitting the annual
financial and compliance report.
(2)
A district may submit a written request that the TEA review
a preliminary rating if the preliminary rating was based on a data error solely
attributable to the TEA's review of the data for any of the indicators.
(A)
The TEA office responsible for school finance and fiscal
analysis must receive the request for review no later than 30 days after the
TEA's release of the preliminary rating, and the request must include substantial
evidence that supports the district's position.
(B)
Requests for review received 31 days or more after the
TEA issues a preliminary rating will not be considered.
(C)
Errors by a district in recording data or submitting data
through the TEA data collection and reporting system do not constitute a valid
basis for requesting a review of a preliminary rating.
(D)
If the TEA receives a request to review a preliminary
rating, a final rating will be issued to the school district no later than
45 days after the district's request for review has been received by the TEA.
(E)
If the TEA does not receive a request to review a preliminary
rating, the preliminary rating automatically becomes a final rating on the
31st day after issuance of the preliminary rating.
(F)
A final rating issued by the TEA pursuant to this section
may not be appealed under the TEC, §7.057, or any other law or rule.
§109.1003.Types of Financial Accountability Ratings.
(a)
For fiscal years 2002-2003, 2003-2004,
and 2004-2005, the
[
(1)
Superior Achievement. In accordance with the procedures
established in §109.1002 of this title (relating to Financial Accountability
Ratings), a district shall be classified as Superior Achievement if it scores
within the applicable range established by the commissioner of education for
Superior Achievement.
(2)
Above Standard Achievement. In accordance with the procedures
established in §109.1002
of this title
, a district shall be
classified as Above Standard Achievement if it scores within the applicable
range established by the commissioner of education for Above Standard Achievement.
(3)
Standard Achievement. In accordance with the procedures
established in §109.1002
of this title
, a district shall be
classified as Standard Achievement if it scores within the applicable range
established by the commissioner of education for Standard Achievement.
(4)
Substandard Achievement. In accordance with the procedures
established in §109.1002
of this title
, a district shall be
classified as Substandard Achievement if the district responds negatively
to specified indicators or if the district scores within the applicable range
established by the commissioner of education for Substandard Achievement.
The commissioner of education may apply sanctions to a district that is assigned
a Substandard Achievement rating.
(5)
Suspended--Data Quality. If serious data quality issues
are disclosed by the commissioner of education, a Suspended--Data Quality
rating shall be assigned to the school district. The Suspended--Data Quality
rating will be assigned until the district successfully resolves the data
quality issues. The commissioner of education may apply sanctions to a district
that is assigned a Suspended--Data Quality rating.
(b)
Beginning with fiscal year 2005-2006,
the types of ratings districts may receive are as follows.
(1)
Rating of "A." In accordance with the procedures established
in §109.1002 of this title, a district shall be classified as "A" if
it scores within the applicable range established by the commissioner of education
for a rating of "A."
(2)
Rating of "B." In accordance with the procedures established
in §109.1002 of this title, a district shall be classified as "B" if
it scores within the applicable range established by the commissioner of education
for a rating of "B."
(3)
Rating of "C." In accordance with the procedures established
in §109.1002 of this title, a district shall be classified "C" if it
scores within the applicable range established by the commissioner of education
for a rating of "C."
(4)
Requires Improvement. In accordance with the procedures
established in §109.1002 of this title, a district shall be classified
as Requires Improvement if the district responds negatively to specified indicators
or if the district scores within the applicable range established by the commissioner
of education for Requires Improvement. The commissioner of education may apply
sanctions to a district that is assigned a Requires Improvement rating.
(5)
Suspended--Data Quality. If serious data quality issues
are disclosed by the commissioner of education, a Suspended--Data Quality
rating shall be assigned to the school district. The Suspended--Data Quality
rating will be assigned until the district successfully resolves the data
quality issues. The commissioner of education may apply sanctions to a district
that is assigned a Suspended--Data Quality rating.
§109.1004.Criteria for Financial Accountability Ratings.
The criteria for financial accountability ratings will be based upon
indicators established by the commissioner of education and reflected in §109.1002
of this title (relating to Financial Accountability Ratings), in accordance
with requirements in state law and after consultation with the comptroller
of public accounts. The commissioner of education shall evaluate the rating
system annually and may modify the system in order to improve the effectiveness
of the rating system. Changes to criteria for ratings
and their effective
dates
will be communicated to school districts [
§109.1005.Reporting.
(a)
Each school district is required to report information
and financial accountability ratings to parents and taxpayers by implementing
the following reporting procedures.
(1)
Each school district is required to prepare and distribute
an annual financial management report in accordance with subsection (b) of
this section.
(2)
The public must be provided an opportunity to comment
on the report at a public hearing in accordance with subsection (c) of this
section.
(b)
The annual financial management report prepared by the
school district must include:
(1)
a description of the district's financial management performance
based on a comparison, provided by the Texas Education Agency (TEA), of the
district's performance on the indicators established by the commissioner of
education and reflected in §109.1002 of this title (relating to Financial
Accountability Ratings). The report will contain information that discloses:
(A)
state-established standards; [
(B)
the district's previous performance on the indicators;
and
(C)
the district's financial management performance
under each indicator for the current and previous years' financial accountability
ratings;
(2)
any descriptive information required by the commissioner
of education
, including:
[
(A)
a copy of the superintendent's current
employment contract. The school district may publish the superintendent's
employment contract on the school district's Internet site in lieu of publication
in the annual financial management report;
(B)
a summary schedule for the fiscal year
(twelve-month period) of total reimbursements received by the superintendent
and each board member, including transactions resulting from use of the school
district's credit card(s) to cover expenses incurred by the superintendent
and each board member. The summary schedule shall separately report reimbursements
for meals, lodging, transportation, motor fuel, and other items (the summary
schedule of total reimbursements is not to include reimbursements for supplies
and materials that were purchased for the operation of the school district);
(C)
a summary schedule for the fiscal year
of the dollar amount of compensation and/or fees received by the superintendent
from another school district or any other outside entity in exchange for professional
consulting and/or other personal services. The schedule shall separately report
the amount received from each entity;
(D)
a summary schedule for the fiscal year
of the total dollar amount by employee and board member of gifts that had
an economic value of $50 or more in the aggregate in the fiscal year. This
reporting requirement only applies to gifts received by the school district's
employee(s) and board members (and their immediate family as described by
Government Code, Chapter 573, Subchapter B, as a person related to another
person within the first degree by consanguinity or affinity) from an outside
entity that received payments from the school district in the prior two fiscal
years, and gifts from competing vendors that were not awarded contracts in
the prior two fiscal years. This reporting requirement does not apply to reimbursement
of travel-related expenses by an outside entity when the purpose of the travel
is to investigate or explore matters directly related to the duties of a board
member or employee, or matters related to attendance at education-related
conferences and seminars whose primary purpose is to provide continuing education
(this exclusion does not apply to trips for entertainment- related purposes
or pleasure trips). This reporting requirement excludes an individual gift
or a series of gifts from a single outside entity that had an aggregate economic
value of less than $50 per employee or board member;
(E)
a summary schedule for the fiscal year
of the dollar amount by board member for the aggregate amount of business
transactions with the school district. This reporting requirement is not to
duplicate the items disclosed in the summary schedule of reimbursements received
by board members; and
(F)
the five-fiscal year projected summary
totals for revenues, expenditures, and fund balances for the General Fund;
and
(3)
any other information the board of trustees of the district
determines to be useful.
(c)
The board of trustees of each school district shall hold
a public hearing on the annual financial management report within two months
after receipt of a final financial accountability rating (including a final
rating of Suspended--Data Quality). The public hearing is to be held at a
location in the district's facilities. The board shall give notice of the
hearing to owners of real property in the district and to parents of district
students. In addition to other notice required by law, notice of the hearing
must be provided:
(1)
to a newspaper of general circulation in the district
once a week for two weeks prior to holding the public meeting, providing the
time and place where the hearing is to be held. The first notice in the newspaper
may not be more than 30 days prior to or less than 14 days prior to the public
meeting. If there is not a newspaper published in the county in which the
district's central administration office is located, then the notice is to
be published in the county nearest the county seat of the county in which
the district's central administration office is located; and
(2)
through electronic mail to media serving the district.
(d)
At the hearing, the annual financial management report
shall be disseminated to the district's parents and taxpayers that are in
attendance.
(e)
The annual financial management report is to be retained
in the district for at least a three-year period after the public hearing
and will be made available to parents and taxpayers upon request.
(f)
For fiscal years 2002-2003, 2003-2004, and 2004-2005,
a
[
(g)
Beginning in fiscal year 2005-2006, school
districts that receive a rating of Requires Improvement or Suspended--Data
Quality must file a corrective action plan with the TEA. The corrective action
plan, which is to be prepared in accordance with instructions from the commissioner
of education, is to be filed within one month after the district's public
hearing. The commissioner of education may require certain information in
the corrective action plan to address the factor(s) that may have contributed
to a district's rating of Requires Improvement or Suspended--Data Quality.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on May 2, 2005.
TRD-200501765
Cristina De La Fuente-Valadez
Director, Policy Coordination
Texas Education Agency
Earliest possible date of adoption: June 12, 2005
For further information, please call: (512) 475-1497
Each
] school district must be assigned
a financial accountability rating by the Texas Education Agency (TEA). The
specific procedures for determining financial accountability ratings will
be established annually by the commissioner of education and communicated
to all school districts.
The
] financial accountability rating of a school district
is based on its overall performance on certain financial measurements, ratios,
and other indicators established by the commissioner of education in the financial
accountability rating form provided in this subsection entitled "School FIRST-
Rating Worksheet
," dated May 2003
. [
"
]
(c)
] A financial accountability
rating by a voluntary association is a local option of the district, but it
does not substitute for a financial accountability rating by the TEA.
The
] types of ratings districts may receive
are as follows.
no later than May
of each calendar year and will apply to the ratings issued in the first calendar
year that follows the modification of any of these indicators
].
and
]
; and
]
A
] corrective action plan is to be filed with the TEA
by each school district that received a rating of Substandard Achievement
or Suspended--Data Quality. The corrective action plan, which is to be prepared
in accordance with instructions from the commissioner of education, is to
be filed within one month after the district's public hearing. The commissioner
of education may require certain information in the corrective action plan
to address the factor(s) that may have contributed to a district's rating
of Substandard Achievement or Suspended--Data Quality.