Part 2. TEXAS EDUCATION AGENCY

Chapter 61. SCHOOL DISTRICTS

Subchapter AA. COMMISSIONER'S RULES ON SCHOOL FINANCE

19 TAC §61.1010

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Education Agency or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Education Agency (TEA) proposes the repeal of §61.1010, concerning school finance. The section addresses standards for school district administrative cost ratios. The proposed repeal is necessary due to the repeal of the section's authorizing statute, Texas Education Code (TEC), §42.201.

TEC, §42.201, required the TEA to determine annually administrative cost ratios for school districts, to notify districts of the standards for determining these ratios, to identify districts whose administrative cost ratios exceeded the calculated ratios, and to notify these districts that they must reduce their administrative costs. Statute also required the agency to deduct funds from a district's tier one allotments if the district failed to reduce its administrative costs to the required level. The commissioner exercised rulemaking authority to adopt 19 TAC §61.1010, Standards for School District Administrative Cost Ratios, effective April 20, 1994.

Senate Bill 900, 78th Texas Legislature, Regular Session, 2003, repealed TEC, §42.201, and, therefore, removed the statutory authority for the rule.

The proposed repeal of 19 TAC §61.1010 would implement the statutory change.

Shirley Beaulieu, Associate Commissioner for Finance/Chief Financial Officer, has determined that for the first five-year period the repeal is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed repeal.

Ms. Beaulieu has determined that for each year of the first five years the repeal is in effect the public benefit anticipated as a result of enforcing the repeal would be adherence with statutory changes and removal of obsolete standards from rule. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed repeal.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 repeal 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 Texas Register.

The repeal is proposed under Senate Bill 900, 78th Texas Legislature, Regular Session, 2003, which repealed the section's authorizing statute, Texas Education Code, §42.201.

The repeal implements Senate Bill 900, 78th Texas Legislature, Regular Session, 2003.

§61.1010.Standards for School District Administrative Cost Ratios.

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 January 23, 2008.

TRD-200800310

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

The Texas Education Agency (TEA) proposes the repeal of and new §61.1014, concerning school finance. The section proposed for repeal addresses the determination of Foundation School Program (FSP) gains for additional state aid for school employee benefits. The proposed repeal and new rule would clarify and expand the description given in rule of the methods the TEA uses to determine, for each school district and open-enrollment charter school, eligibility to receive additional state aid to pay contributions under a group health insurance plan.

Through 19 TAC §61.1014, adopted to be effective December 2, 2001, the commissioner exercised rulemaking authority relating to determination of FSP gains. These funds are to be used by eligible school districts and open-enrollment charter schools that participate in a group health insurance plan. The proposed actions would repeal the current provisions in 19 TAC §61.1014, Determination of Foundation School Program Gains, from rule and specify the determination methods in new 19 TAC §61.1014, Additional State Aid for School Employee Benefits.

Current 19 TAC §61.1014, Determination of Foundation School Program Gains, proposed for repeal describes the methods the TEA has used to determine, for each school district and open-enrollment charter school, the amount of gain from modifications to the school finance formulas enacted by the 77th Texas Legislature, 2001. The current rule also states the times at which TEA shall make preliminary and final determinations of gains.

Proposed new 19 TAC §61.1014, Additional State Aid for School Employee Benefits, would clarify and expand the description of the methods the TEA uses to determine the FSP gains, as well as explicitly state the formula elements. The proposed new rule would also continue to set forth that the commissioner will provide reports that illustrate the computation of estimates and make preliminary and final determinations of gains.

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the repeal and new section are in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed repeal and new section.

Ms. Beaulieu has determined that, for each year of the first five years the repeal and new section are in effect, the public benefit anticipated as a result of enforcing the repeal and new section would be the clarification of existing provisions, making them easier to understand for district personnel and the general public. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed repeal and new section.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 repeal and new section 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 Texas Register.

19 TAC §61.1014

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Education Agency or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The repeal is proposed under Texas Education Code, §42.2514, which authorizes the commissioner of education to adopt rules to implement additional state aid for school employee benefits; and Texas Education Code, §42.260, which authorizes the commissioner to adopt rules to implement use of certain funds due to the increase made by House Bill 3343, 77th Texas Legislature, Regular Session, 2001.

The proposed repeal implements Texas Education Code, §42.2514 and §42.260.

§61.1014.Determination of Foundation School Program Gains.

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 January 23, 2008.

TRD-200800311

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

19 TAC §61.1014

The new section is proposed under Texas Education Code, §42.2514, which authorizes the commissioner of education to adopt rules to implement additional state aid for school employee benefits; and Texas Education Code, §42.260, which authorizes the commissioner to adopt rules to implement use of certain funds due to the increase made by House Bill 3343, 77th Texas Legislature, Regular Session, 2001.

The proposed new section implements Texas Education Code, §42.2514 and §42.260.

§61.1014.Additional State Aid for School Employee Benefits.

(a) In accordance with Texas Education Code (TEC), §42.2514, a school district or an open-enrollment charter school may be eligible to receive additional state aid for school employee benefits. These funds are to be used only to pay contributions under a group health insurance plan for school district or open-enrollment charter school employees.

(b) Eligibility for additional state aid for school employee benefits is determined by the extent to which 75% of the gains in the Foundation School Program (FSP) formulas resulting from the passage of House Bill (HB) 3343, 77th Texas Legislature, 2001, exceed the required contribution of school districts and open-enrollment charter schools for group health insurance coverage. The method described in paragraphs (1) - (4) of this subsection is used to determine whether a school district or an open-enrollment charter school is eligible to receive additional state aid for school employee benefits.

(1) The commissioner of education shall determine for each school district and open-enrollment charter school the amount of FSP funds gained by districts as a result of increases to the following school finance formula elements resulting from the passage of HB 3343, 77th Texas Legislature, 2001:

(A) the increase in equalized wealth level defined by TEC, §41.002, from $295,000 per student in weighted average daily attendance (WADA) to $305,000 per WADA; and

(B) the increase in guarantee level defined by TEC, §42.302, from $24.70 per WADA to $27.14 per WADA.

(2) The gain calculated in paragraph (1) of this subsection is multiplied by $ .75.

(3) The required contribution to group health insurance is equal to the product of $900 multiplied by the number of school district or open-enrollment charter school employees that are participating in a group health insurance plan offered by the school district or open-enrollment charter school.

(4) The school district or open-enrollment charter school is entitled to receive additional state aid for school employee benefits if the required contribution calculated in paragraph (3) of this subsection exceeds the amount calculated in paragraph (2) of this subsection. The additional state aid for school employee benefits is equal to the amount by which the amount calculated in paragraph (3) of this subsection exceeds the amount calculated in paragraph (2) of this subsection.

(c) The commissioner shall provide reports for school districts and open-enrollment charter schools that illustrate the computation of the estimates of formula gain.

(d) The commissioner shall make a preliminary determination of gain in late August of the year preceding each applicable school year and shall certify the final gain in March of the year following each applicable school year.

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 January 23, 2008.

TRD-200800312

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

19 TAC §61.1032

The Texas Education Agency (TEA) proposes an amendment to §61.1032, concerning school facilities. The section addresses provisions relating to the instructional facilities allotment (IFA). The proposed amendment would modify the calculation of a district's wealth per student for districts affected by a defense base realignment, based on changes to statutory language, in accordance with Senate Bill 962, 80th Texas Legislature, 2007. The proposed amendment would also incorporate other updates and revisions for the IFA program, such as the addition of new definitions, establishment of procedures and time limits for reporting changes, and explanations of present value savings calculations and the effects of refinancing.

Through 19 TAC §61.1032, adopted to be effective October 13, 1997, the commissioner exercised rulemaking authority relating to assistance with payment of instructional facility debt. The current provisions include procedural and other requirements that districts applying for and receiving assistance must follow, debt eligibility requirements, limitations on assistance, a description of the data sources used in making assistance determinations, and procedures for payment of assistance.

Senate Bill 962, 80th Texas Legislature, 2007, amended TEC, §46.006, to reduce a district's wealth per student if the district must construct, acquire, or renovate instructional facilities as a result of a military base realignment. In accordance with this change, the proposed amendment to 19 TAC §61.1032 would add new language in subsection (m)(2)(D) to modify the calculation of wealth per student for districts that meet the stipulations set forth in amended TEC, §46.006.

The proposed amendment to 19 TAC §61.1032 would also incorporate the following updates and revisions.

Subsection (a) would be revised to modify the definition of debt service in paragraph (4) and to add new paragraph (6) to define the term "interest rate management agreement."

Subsection (b) would be revised to clarify that a separate application must be completed for each debt issue or lease-purchase agreement proposed for funding.

Subsection (d) would be revised to clarify debt eligibility requirements, including the addition of new language in paragraphs (6) and (7) and new paragraph (8). Paragraph (6) would address refinancing bonded debt. Paragraph (7) would specify reporting requirements that a district must follow when it makes a change to any IFA-supported bonds or IFA-supported lease-purchase agreement. New paragraph (8) would establish a state aid penalty for failure to disclose such a change and explain how IFA eligibility is regained after it has been lost as a result of failing to report a change.

Subsection (d) would also be revised to add new paragraph (9) to address refunding bonds. New paragraph (9)(C) would define present-value savings and requires a district's financial advisor to certify present-value savings. New paragraph (9)(D) would explain that a conversion of the period, mode, or index used to determine the interest rate for eligible debt will not be considered a refunding of the debt. New paragraphs (9)(E) and (9)(F) would explain how the refinancing of debt multiple times may affect its eligibility for IFA aid and cause it to be considered for conversion to Existing Debt Allotment eligibility.

Subsequent paragraphs in subsection (d) would be renumbered and updated accordingly. Changes in the renumbered paragraphs include revisions in new paragraph (10)(B) to remove from IFA eligibility any debt service associated with a lease-purchase agreement that has been refinanced for a term of fewer than eight years. Also, new paragraph (13) would address debt entered into through an interest rate management agreement.

Subsection (f) would be revised to address potential increased IFA support.

Subsection (g) would be revised to clarify how a change in debt service requirements may affect the allotment awarded.

Subsection (h) would be revised by modifying paragraph (6) and adding new paragraph (7). The modification to paragraph (6) would require that adjustments to state assistance for any reason be requested within a three-year time limit. New paragraph (7) would require that a district submit an up-to-date debt service schedule after any financing activity in order for bond issues and lease-purchase agreements and their related debt service payments to remain eligible to receive IFA state assistance.

Subsection (i) would be revised to establish a method for allocation of debt service between eligible and ineligible categories.

Subsection (j) would be revised by modifying paragraph (1) and adding new paragraph (6). The modification to paragraph (1) would explain that requests for payments and/or adjustments submitted to TEA after December 15 will be processed with the payments due for the following fiscal year. New paragraph (6) would require that adjustments to state assistance for any reason be requested within a three-year time limit.

Subsections (k), (l), and (p) would be revised to incorporate technical edits.

Subsection (s) would be revised to clarify supplemental filings for fixed-rate bonds.

Subsection (t) would be revised to require that a district notify the commissioner of IFA-related financing activities by submitting an amended application packet. New paragraph (2) would define the materials that make up a complete amended application packet.

Relating to procedural and reporting implications, the proposed amendment includes the addition of new language in subsection (m)(2)(D), which would incorporate the provisions of Senate Bill 962, 80th Texas Legislature, 2007, and the provisions of amended TEC, §46.006, and require districts that are eligible for a modified calculation of their wealth per student as a result of a military base realignment to provide documentation from the U.S. Department of Defense describing the impact of the base realignment on the local school district. Districts also will be required to disclose interest rate management transactions in their final official statements, though this appears to be a common practice and will not likely result in a change in the way of doing business for most districts.

Also, subsection (b) addresses the requirement for the submission of supplemental information to reflect changes in amounts and conditions related to debt. In conjunction with the proposed rule amendment, the Schedule 4A of the Standard Application System for IFA state aid has been revised to ask a district for several new pieces of information. The schedule now requires a district to list the comptroller's registration number associated with a bond issue or, for amended applications, the registration number associated with the original bond issue and with the refinanced bond issue. It also requires a district to indicate whether the application is the first submitted for a proposed debt issue, provide identifying information for any previous application(s) for the proposed debt issue, and indicate whether the application is an amended application.

Locally maintained paperwork requirements resulting from the proposed amendment to 19 TAC §61.1032 would correspond with and support the stated procedural and reporting implications.

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the amendment is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed amendment.

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 include the requirement to disclose interest rate management agreements which will provide greater transparency in school district transactions. The modification of the calculation of wealth per student for districts affected by military base realignments will help these districts absorb costs associated with the realignments. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 amendment 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 Texas Register.

The amendment is proposed under the Texas Education Code, §46.002, which authorizes the commissioner of education to adopt rules for the administration of Texas Education Code, Chapter 46, Assistance with Instructional Facilities and Payment of Existing Debt, Subchapter A, Instructional Facilities Allotment.

The proposed amendment implements the Texas Education Code, §46.002.

§61.1032.Instructional Facilities Allotment.

(a) Definitions. The following definitions apply to the instructional facilities allotment (IFA) governed by this section:

(1) Instructional facility--real property, an improvement to real property, or a necessary fixture of an improvement to real property that is used predominantly for teaching the curriculum required by Texas Education Code (TEC), §28.002.

(2) Noninstructional facility--a facility that may occasionally be used for instruction, but the predominant use is for purposes other than teaching the curriculum required by TEC, §28.002.

(3) Necessary fixture--equipment necessary to the use of a facility for its intended purposes, but which is permanently attached to the facility , such as lighting and plumbing.

(4) Debt service--as used in this section, debt service shall include regularly scheduled payments of principal and interest that are made between September 1 and August 31 each year on general obligation bonded debt or the underlying bonded debt applicable to [ amount of a payment under ] an eligible lease-purchase agreement as reported in the final official statement (FOS) or in the bond order, if the bonds are privately placed, to the state information depository. Debt service payments that are not reported to the state information depository are not eligible to receive IFA state assistance [ arrangement ].

(5) Allotment--[ represents ] the amount of eligible debt service that can be considered for state aid. The total allotment is made up [ comprised ] of a combination of state aid and local funds. The state share and local share are adjusted annually based on changes in average daily attendance (ADA) , property values, and debt service.

(6) Interest rate management agreement--an agreement that provides for an interest rate transaction, including a swap, basis, forward, option, cap, collar, floor, lock, debt derivative transaction, or hedge transaction, for a transaction similar to those types of transactions, or for a combination of any of those types of transactions, as described in the Texas Government Code, §1231.001.

(b) Application process. A school district must complete a separate [ an ] application requesting funding under the IFA for each debt issue or lease-purchase agreement proposed for funding [ Instructional Facilities Allotment (IFA) ]. The commissioner of education may require supplemental information to be submitted at an appropriate time after the application is filed to reflect changes in amounts and conditions related to the debt. The application shall contain at a minimum the following:

(1) a description of the needs and projects to be funded with the debt issue or other financing, with an estimate of cost of each project and a categorization of projects according to instructional and noninstructional facilities or other uses of funds;

(2) a description of the debt issuance or other financing proposed for funding, including a projected schedule of payments covering the life of the debt;

(3) an estimate of the weighted average maturity of bonded debt; and

(4) drafts of official statements or contracts that fully describe the debt, as soon as available.

(c) District eligibility. All school districts legally authorized to enter into eligible debt arrangements as defined in subsection (d) of this section are eligible to apply for an IFA.

(d) Debt eligibility. In order to be eligible for state funding under this section, a debt service requirement must meet all of the criteria of this subsection.

(1) The debt service must be an obligation of a [ the ] school district that [ which ] is entered into pursuant to the issuance of bonded debt under TEC, Chapter 45, Subchapter A; an obligation for refunding bonds as defined in TEC, §46.007; or an obligation under a lease-purchase agreement [ arrangement ] authorized by Local Government Code, §271.004.

(2) Application for funding of bonded debt service must be received at the Texas Education Agency (TEA) before [ prior to ] the date on which a district or its representatives price the bonds [ passage of an order by the school district board of trustees authorizing the bond issuance ] .

(3) Application for funding of lease-purchase payments must be received at the TEA before [ prior to ] the passage of an order by the school district board of trustees authorizing the lease-purchase agreement [ arrangement ].

(4) Eligible bonded debt must have a weighted average maturity of at least eight years. The term of a lease-purchase agreement must be for at least eight years. For purposes of this section, a weighted average maturity shall be calculated by dividing bond years by the issue price, where "bond years" is defined as the product of the dollar amount of bonds divided by 1,000 and the number of years from the dated date to the stated maturity, and "issue price" is defined as the par value of the issue plus accrued interest, less original issue discount or plus premium.

(5) Funds raised by the district through the issuance of bonded debt must be used for an instructional facility purpose as defined by TEC, §46.001. The facility acquired by entering into a lease-purchase agreement must be an instructional facility as defined by TEC, §46.001.

(6) If the bonded debt is for a refinancing [ refunding ] or a combination of refinancing [ refunding ] and new debt, the refinanced [ refunding ] portion must meet the same eligibility criteria with respect to dates of first debt service as a new issue as defined by TEC, §46.003(d)(1). The method used for the allocation of debt service between qualified and nonqualified projects and between eligible and ineligible debt will be applied to the debt service schedule resulting from a refinancing of IFA-supported debt.

(7) An amended application packet is required for any IFA-supported bonds or IFA-supported lease-purchase agreement that has undergone changes, including, but not limited to, refinancing, restatement, or any other transaction that materially affects the terms of the bonds or the terms of the lease-purchase agreement, including transactions that materially affect the terms of the underlying bonds. Amended application packets must be submitted to the TEA no later than 180 days following the date on which the transaction was approved by the attorney general, if the transaction required approval by the attorney general. If approval by the attorney general was not required, the amended application packet is due within 180 days of the date that the school board approved the transaction. [ eligible refunding bonds, regardless of whether a complete or partial refunding is accomplished. Refunding bonds must also meet the following three criteria as defined by TEC, §46.007: ]

[ (A) Refunding bonds may not be called for redemption earlier than the earliest call date of the bonds being refunded.]

[ (B) Refunding bonds must not have a maturity date later than the final maturity date of the bonds being refunded.]

[ (C) The refunding of bonds must result in a present value savings, which is determined by computing the net present value of the difference between each scheduled payment on the original bonds and each scheduled payment on the refunding bonds. Present value savings shall be computed at the true interest cost of the refunding bonds.]

(8) Failure to submit the amended application packet to the TEA division responsible for state funding within the 180-day period defined in paragraph (7) of this subsection will result in the suspension of IFA state aid payments for the applicable IFA allotment award. This suspension has the following effects.

(A) Debt service payments associated with the applicable IFA allotment will be disqualified for IFA state aid upon expiration of the 180-day period defined in paragraph (7) of this subsection. Debt service payments made after the 180-day period expires will not earn IFA state aid.

(B) IFA state aid associated with the applicable allotment will resume on the date the amended application packet, including any required supporting documentation, is received. The IFA state aid will be based on eligible debt service payments scheduled on or after the date the amended application packet is received.

(C) Current and future IFA state aid payments may be adjusted to reflect the disqualified debt service payments. If no IFA state aid is due in a fiscal year that is affected by such an adjustment, a district will be notified about the disqualified amount and will be required to remit that amount to the TEA no later than 30 days after notification.

(D) Unless otherwise requested, payments of IFA state aid based on the updated eligible debt service reported in the completed amended application packet shall be made with the payments due for the following fiscal year in accordance with TEC, §46.009(d).

(9) Refunding bonds must also meet the following criteria, the first three of which are defined by TEC, §46.007.

(A) Refunding bonds may not be called for redemption earlier than the earliest call date of the bonds being refunded.

(B) Refunding bonds must not have a final maturity date later than the last day of the last fiscal year applicable to the final maturity date of the bonds being refunded.

(C) The refinancing of bonds must result in a present value savings, which is determined by computing the net present value of the difference between each scheduled payment on the original bonds, or on the most recently approved debt service schedule, if the bonds have been previously modified, and each scheduled payment on the newly revised debt applicable to the modified bonds.

(i) Present value savings for fixed rate bonds shall be computed at the true interest cost of the refinanced bonds.

(ii) In a refinancing of variable rate bonds with fixed rate bonds, present value savings will be calculated based on:

(I) an assumed interest rate for the variable rate bonds equal to the Municipal Market Data index (or other comparable index) of "AAA" general obligation tax-exempt bonds for the month in which the bonds were originally issued; and

(II) the rate, if any, used to determine the amount deposited into a mandatory and irrevocable fund for the sole purpose of defeasing the bonds in a variable rate mode.

(iii) In a refinancing of fixed rate bonds with variable rate bonds, present value savings will be calculated based on an assumed interest rate for the variable rate bonds equal to the ten-year average of the Municipal Market Data index (or other comparable index) of "AAA" general obligation tax-exempt bonds bearing interest in a variable rate mode comparable to the variable rate mode in which the refinanced bonds will be issued.

(iv) The financial advisor to a district must certify the projected net present value savings for refinancing described in clause (ii) and (iii)of this subparagraph based on the parameters prescribed therein. The district's financial advisor to the refinancing transaction must sign and date the certification. The district must submit the certification to the TEA division responsible for state funding no later than 180 days after the date the refunding bonds were approved for sale by the attorney general if refunding bonds are issued. If refunding bonds are not issued, the district must submit the certification no later than 180 days after the refinancing transaction is approved by the school district board of trustees. The district must submit the certification in a format prescribed by the commissioner.

(D) A conversion of the period, mode, or index used to determine the interest rate for eligible debt in accordance with the order authorizing the issuance or delivery of such eligible debt shall not be considered a refunding of eligible debt, and a district shall be eligible for state funding assistance based on the new debt service schedule contingent upon receipt of the required amended application packet as defined in paragraph (7) of this subsection.

(E) Effective January 1, 2008, a district may refinance IFA-supported debt up to two times after the issuance of the original IFA-supported debt. Upon the third refinancing transaction, the TEA will evaluate the IFA-supported debt for conversion to the Existing Debt Allotment (EDA) program. Determination of eligibility for conversion will be based on the district's remaining capacity in the EDA program and the district's other IFA-supported debt. The TEA will notify the district of the results of this evaluation within 180 days of receiving notification of the third refinancing transaction involving an IFA-supported debt.

(F) Debt that has been refinanced three or more times before January 1, 2008, will be evaluated for possible conversion and districts will be notified of the results of that evaluation no later than January 1, 2009. This subparagraph expires January 1, 2009.

(10) [ (8) ] Certain other refinanced debt may be eligible for the funding under this subsection.

(A) When a district issues a general obligation bond to acquire a facility that is the subject of an existing lease-purchase agreement [ arrangement ] of the district or refinances an existing lease-purchase agreement with another lease-purchase agreement , the transaction is considered a refinancing of the lease-purchase agreement [ lease purchase ] for purposes of continued participation in the IFA program. Any transactions affecting the lease-purchase agreement, including those that affect the underlying bonds, are subject to the amendment requirements and eligibility criteria specified in paragraphs (7) - (9) of this subsection, including the restrictions related to early redemption and extension of maturity dates, and the requirement for the refinancing transactions to produce present value savings.

(B) A lease-purchase agreement [ If a lease purchase ] in the IFA program that is refinanced with a general obligation bond or another lease-purchase agreement at a present value savings and without extension of the original term of the lease-purchase agreement[ , the debt ] shall remain part of the IFA program. Any transaction that reduces the term of the lease-purchase agreement to less than eight years will result in the disqualification of IFA state aid on debt service that is associated with the lease-purchase agreement, beginning with the date that the transaction is approved by the school district board of trustees.

(C) Any portion of a bond issue that refinances a portion of a lease-purchase agreement [ arrangement ] that was originally ineligible for IFA funding shall remain ineligible. Ineligible debt includes [ is ] refunded bonds that fail to meet the criteria under TEC, §46.007, and/or bonds used for purposes not meeting the definition of qualified projects as described in TEC, §46.001 and §46.002.

(D) Any portion of a bond issue that refinances a portion of an original lease-purchase agreement [ arrangement ] that was eligible for IFA consideration but exceeded the IFA limit shall not be eligible for consideration in future funding cycles.

(E) General obligation bonded debt that is used to refinance a lease-purchase agreement [ If a lease purchase ] that is not in the IFA program [ is refinanced with a general obligation bonded debt, the bonded debt ] shall gain eligibility for the IFA by the terms of that program. Any interest and sinking [ Interest and Sinking ] (I&S) fund tax effort associated with the bonded debt payments may be counted for purposes of computing the IFA. For the refinancing to [ To ] be considered for IFA funding, a [ the ] district must submit an application [ shall be required to apply ] to the program that identifies the refinancing as a new debt before the refinancing of the lease-purchase agreement .

(F) If any portion of a maturity of an IFA [ bonded ] debt is refinanced [ refunded ] at a present value cost or with an extension of the term beyond the fiscal year in which the final maturity occurs in the original debt service schedule, the entire amount of annual debt service associated with that maturity [ , that portion of the debt ] shall be removed from eligibility for further IFA state aid [ tax effort equalization ].

(G) Debt that is refinanced in a manner that disqualifies it for eligibility for funding within the IFA program shall be treated as new bonded debt at the time of issuance for the purpose of EDA funding consideration [ pursuant to the Existing Debt Allotment (EDA) ].

(11) [ (9) ] In addition to I&S fund taxes collected in the current school year, other district funds budgeted for the payment of bonds may be eligible for the IFA program for the purpose of meeting local share requirements pursuant to Texas Education Code, Chapter 46.

(A) Funds budgeted by a district for payment of eligible bonds may include I&S fund taxes collected in the 1999-2000 school year or a later school year in excess of the amount necessary to pay the district's local share of debt service on bonds in that year, provided that the taxes were not used to generate other state aid.

(B) Funds budgeted by a district for payment of eligible bonds may include maintenance and operations [ Maintenance and Operations ] (M&O) taxes collected in the 1999-2000 school year or a later school year that are in excess of amounts used to generate other state aid.

(C) The commissioner will provide each district with information about what tax collections were not equalized by state assistance in the preceding school year and worksheets to enable districts to calculate tax collections that will not receive state assistance in a current school year.

(D) The [ Districts must inform the ] commissioner of education will determine the amount of excess collections [ amounts ], if any, to be applied to the IFA local share requirement [ , if such contributions are derived from current or preceding year tax collections not equalized by state assistance ].

(12) [ (10) ] If a district issues debt that requires the deposit of payments into a mandatory I&S fund or debt service reserve fund, the deposits will be considered debt payments for the purpose of the IFA if the district's bond covenant calls for the deposit of payments into a mandatory and irrevocable fund for the sole purpose of defeasing the bonds or if the final statement stipulates the requirements of the I&S fund and the bond covenant.

(13) If a district enters into an interest rate management agreement related to debt that is supported by IFA funds, the district shall provide a schedule or schedules demonstrating the anticipated effect of the interest rate management agreement on the debt service for the related bonds within 180 days of entering the interest rate management agreement, subject to the provisions of paragraph (8) of this subsection.

(14) [ (11) ] I&S fund taxes collected during a school year will be attributed first to satisfy the local share requirement of debts eligible for EDA state aid for that school year [ debts ], second to satisfy the local share requirements of any [ IFA ] debts eligible for IFA state aid for that school year , and third [ lastly ] to excess taxes that may raise the limit for the EDA program in a subsequent biennium if collected in the second year of a state fiscal biennium.

(15) [ (12) ] When the TEA considers an [ considering ] application for IFA funding, the TEA shall remove from consideration under the IFA program any [ a ] debt that [ which ] meets the eligibility requirements of the EDA program unless a district's existing debt tax rate exceeds the limit [ will be removed from consideration under the IFA program to the extent that the debt may be funded by the EDA up to the limits that apply ] for that program described in TEC, §46.034, during the year in which the IFA application is evaluated [ biennium in which EDA funding would first be available ].

(e) Biennial limitation on access to allotment. The cumulative amount of new debt service for which a district may receive approvals for funding within a biennium shall be the greater of $100,000 per year or $250 per student in average daily attendance per year. A district may submit multiple applications for approval during the same biennium. Timely application before executing the bond order for bonds or authorizing the order for a lease-purchase agreement must be made to ensure eligibility of the debt for program participation. The calculation of the limitation on assistance shall be based on the highest annual amount of debt service that occurs within the state fiscal biennium in which payment of state assistance begins.

(f) Additional applications. For previously awarded debt, increases in a district's debt allotment to pay for increases in debt service payment requirements in subsequent biennia must receive approval through one or more additional application(s). The portion of any increase in eligible, qualified debt service that may be funded in subsequent biennia is the amount that exceeds any previously awarded and approved allotments, within the biennial limitation on funding as calculated at the time of approval of the additional applications. If additional IFA state aid is approved, the allotment limit will be amended to reflect the increased IFA support for the applicable debt issuance.

(g) Finality of award. Awards of assistance under TEC, Chapter 46, will be made based on the information available to TEA at the deadline for receipt of applications for that application cycle. Changes in the terms of the issuance of debt, either in the length of the payment schedule or the applicable interest rate, that occur after the time of the award of assistance will not result in an increase in the debt service considered for award. [ Any reduction in debt service requirements resulting from changes in the terms of issuance of debt shall result in a reduction in the amount of the award of assistance. ]

(1) Any reduction in debt service requirements resulting from changes in the terms of issuance of debt shall result in a reduction in the amount of the award of assistance. Such a reduction in debt service requirements may result in an adjustment to the allotment awarded for the last application on the prioritization list to receive funding during an application cycle, if that application was not fully funded because of a lack of sufficient appropriations. In no case will changes to debt service amounts result in the awarding of additional IFA allotments for other eligible applications that were not funded during that application cycle because of a lack of sufficient appropriations.

(2) Refinancing of the bonds or lease-purchase agreements that receive IFA state aid may result in amendments to the allotment for the original IFA-supported debt issuance and may result in the designation of allotment amounts to be associated with the new debt issuances that include refundings of the original IFA-supported debt issuance.

(h) Data sources.

(1) For purposes of determining the limitation on assistance and prioritization, the projected ADA [ average daily attendance ] as adopted by the legislature for appropriations purposes shall be used.

(2) For purposes of prioritization, the final property values certified by the comptroller of public accounts [ Comptroller of Public Accounts ] for the tax year preceding the year in which assistance is to begin shall be used. If final property values are unavailable, the most recent projection of property values shall be used.

(3) For purposes of both the calculation of the limitation on assistance and prioritization, the commissioner may consider, before [ prior to ] the deadline for receipt of applications for that application cycle, adjustments to data values determined to be erroneous.

(4) For purposes of prioritization, enrollment increases over the previous five years shall be determined using Public Education Information Management System (PEIMS) submission data available at the time of application.

(5) For purposes of prioritization, outstanding debt is defined as voter-approved bonded debt or lease-purchase debt outstanding at the time of the application deadline.

(6) All final calculations of assistance earned shall be based on property values as certified by the comptroller [ Comptroller ] for the preceding school year, and the final ADA [ average daily attendance ] for the current school year. A district must request any adjustment to state assistance based on changes in the final ADA, property values, or debt service or based on any other reason no later than three years following August 31 of the state fiscal year for which the adjustment is sought.

(7) For the TEA to determine eligible debt service applicable to eligible bonded debt or the underlying bonds of an eligible lease-purchase agreement, the debt service schedule a district submits on the application must reflect the debt service schedule the district reported in the FOS or, if no FOS is prepared, in the final bond order or other official document describing the relevant financing activity, including a final debt service schedule. Failure to submit the required amended application packet to the TEA following any refinancing transaction as required by subsection (d)(7) of this section will result in the disqualification of debt service as prescribed in subsection (d)(8) of this section. IFA state aid for debt service payments that are later determined to be disqualified may be recovered through the reduction of future IFA state aid payments for the affected debt issuance.

(i) Allocation of debt service between qualified and nonqualified projects. Debt service shall be allocated between [ among ] qualified and nonqualified purposes and between [ among ] eligible and ineligible categories of debt. The method used for allocation between [ among ] qualified and nonqualified purposes shall be on the basis of pro rata value of the instructional facility versus the noninstructional purposes over the life of the debt service[ , unless a different basis is indicated in the bond order ]. The method of allocation of debt service between eligible and ineligible categories shall be on the basis of the pro rata value of the refinanced portion of the bond issue versus the new money portion of the bond issue. [ must be the same method selected for approval by the Attorney General. ] The method used for the allocation of debt service between qualified and nonqualified projects and between eligible and ineligible debt will be applied to the debt service schedule for the original bond issuance and for the revised debt service schedule that results from the refinancing of IFA-eligible bonds. This allocation method will also be applied to determine the eligible and qualified portions of the debt service on the bonds that are issued to refinance IFA-supported debt. Total IFA-eligible debt service for refinanced bonds is determined by the following method.

(1) The amount of remaining debt service on the original IFA-funded debt service must be reflected in the revised debt service schedule reported in the FOS, or (if no FOS is prepared) in a schedule submitted to the TEA, for that bond issue. The amount of IFA-related debt service for this bond series will be determined using the same pro rata allocation that was used to allocate the debt service for the original IFA allotment award as described in this subsection.

(2) The portion of the IFA-eligible debt service on the bond issue that refunds the IFA-supported debt is determined by:

(A) multiplying the debt service on the refunding bonds by the ratio that results from dividing the principal of refunding bonds by the total issue amount to determine the amount of IFA-related debt service associated with the refunding bonds; and

(B) then allocating the IFA-related debt service associated with the refunding bonds using the same pro rata allocation that was used to allocate the debt service for the original IFA allotment award as described in this subsection.

(3) The total amount of qualified, eligible IFA-related debt service is determined by the sum of IFA-related debt service as determined in paragraphs (1) and (2) of this subsection.

(j) Payments and deposits.

(1) Payment of state assistance shall be made as soon as practicable after September 1 of each year. No payments shall be made until the execution of the bond order or the authorization of the lease-purchase agreement, whichever is applicable, has occurred. Requests for payments and/or adjustments submitted to the TEA after December 15 shall be processed with the payments due for the following fiscal year in accordance with TEC, §46.009(d). Debt service for IFA-supported debt that is subject to the provisions of subsection (d)(7) of this section because of a refinancing or other transaction as described in subsection (d) of this section is not eligible for IFA state aid until a complete amended application packet has been submitted to the TEA, subject to the provisions of subsection (d)(8) of this section.

(2) Funds received from the state for bonded debt must be deposited to the I&S [ interest and sinking ] fund of the school district and must be considered in setting the tax rate necessary to service the debt.

(3) Funds received from the state for lease-purchase agreements must be deposited to the general fund of the district and used for lease-purchase payments.

(4) A final determination of state assistance for a school year will be made using final attendance data and property value information as may be affected by TEC, §42.257. Additional amounts owed to districts shall be paid along with assistance in the subsequent school year, and any reductions in payments shall be subtracted from payments in the subsequent school year.

(5) As an alternative method of adjustment of payments, the commissioner may increase or decrease allocations of state aid under TEC, Chapter 42, to reflect appropriate increases or decreases in assistance under TEC, Chapter 46.

(6) Adjustments to state assistance based on changes in the final counts of ADA, changes to a district's property value, changes in the debt service schedule, or changes for any other reason must be requested no later than three years following the close of the school year for which the adjustment is sought. Changes to the debt service schedule will be subject to the provisions of subsection (d)(8) of this section, including the disqualification of debt service associated with a refinancing transaction as described in subsection (d)(7) of this section, if deadlines for reporting the refinancing transaction have not been met.

(k) Approval of attorney general [ Attorney General ] required. All bond issues and all lease-purchase agreements [ arrangements ] must receive approval from the attorney general [ Attorney General ] before a deposit of state funds will be made in the accounts of the school district.

(l) Deadlines.

(1) The commissioner of education shall conduct an annual application cycle with a deadline of June 15 or the next working day after June 15 every year based on the availability of appropriations for the purpose of awarding new allotments. If no funding is available, the commissioner shall cancel the June 15 deadline. [ The commissioner may conduct more than one application cycle to allocate funding appropriated for a fiscal year. ]

[ (2) If funds are still available after conducting the June 15 annual cycle, the commissioner shall announce the TEA's intention to have an additional application cycle no less than 90 days prior to the application deadline.]

(2) [ (3) ] The commissioner shall establish the relevant limit on the date of first debt service payment from property taxes for eligible bonded debt that will be considered for funding in the announced application cycle.

(3) [ (4) ] An application received after the deadline shall be considered a valid application for the subsequent period unless withdrawn by the submitting district before the end of the subsequent period.

(4) [ (5) ] If the [ execution of the ] bond order or the [ authorizing of a ] lease-purchase agreement has not been approved by the attorney general [ taken place ] within 180 days of the deadline for the current application cycle, the TEA shall consider the application withdrawn.

(5) [ (6) ] The school district may not submit an application for bonded debt before [ prior to ] the successful passage of an authorizing proposition. The election to authorize the debt must be held before [ prior to ] the close of the application cycle. An application for a lease-purchase agreement may not be submitted before [ prior to ] the end of the 60-day waiting period in which voters may petition for a referendum, or until the results of the referendum, if called, approve the agreement.

(m) Prioritization and notice of award. Upon close of the application cycle, all eligible applications shall be ranked in order of property wealth per student in ADA [ average daily attendance ]. State assistance will be awarded beginning with the district with the lowest property wealth and continue until all available funds have been used [ utilized ] . Each district shall be notified of the amount of assistance awarded and its position in the rank order for the application cycle. A district's wealth per student may be reduced if any or all of the following criteria are met.

(1) A district's wealth per student is first reduced by 10% if the district does not have any outstanding debt at the time the district applies for assistance.

(2) A district's wealth per student is next reduced if a district has had substantial student enrollment growth in the preceding five-year period. For this purpose, the district's wealth per student is reduced:

(A) by 5.0%, if the district has an enrollment growth rate in that period that is 10% or more but less than 15%;

(B) by 10%, if the district has an enrollment growth rate in that period that is 15% or more but less than 30%; [ or ]

(C) by 15%, if the district has an enrollment growth rate in that period that is 30% or more ; or [ . ]

(D) by 25%, if the district demonstrates, in a manner prescribed by the commissioner, that the district must construct, acquire, renovate, or improve one or more instructional facilities to serve the children of military personnel transferred to a military installation in or near the district under the Defense Base Closure and Realignment Act of 1990 (10 USC §2687). To qualify for this reduction, the district must include in its application for IFA funding one or more project descriptions for facilities that will serve the children of military personnel who are transferred to the military installation in or near the district. This subparagraph expires September 1, 2012.

(3) If a district has submitted an application with eligible debt and has not previously received any assistance due to a lack of appropriated funds, its property wealth for prioritization shall be reduced by 10% for each biennium in which assistance was not provided. The reduction is calculated after reductions for outstanding debt and enrollment are completed, if applicable. This reduction in property wealth for prioritization purposes is only effective if the district actually entered the proposed debt without state assistance before [ prior to ] the deadline for a subsequent cycle for which funds are available.

(n) Bond taxes. A school district that receives state assistance must levy and collect sufficient eligible taxes to meet its local share of the debt service requirement for which state assistance is granted. Failure to levy and collect sufficient eligible taxes shall result in pro rata reduction of state assistance. The requirement to levy and collect eligible taxes specified in this subsection may be waived at the discretion of the commissioner for a school district that must maintain local maintenance tax effort in order to continue receiving federal impact aid.

(o) Exclusion from taxes. The taxes collected for bonded debt service for which funding under TEC, Chapter 46, is granted shall be excluded from the tax collections used to determine the amount of state aid under TEC, Chapter 42. For a district operating with a waiver as described in subsection (n) of this section, the amount of the local share of the allotment shall be subtracted from the total tax collections used to determine state aid under TEC, Chapter 42.

(p) Calculation of bond tax rate (BTR) for lease-purchase agreements [ arrangements ]. The value of BTR in the formula for state assistance for a lease-purchase agreement [ arrangement ] shall be calculated based on the lease-purchase payment requirement, not to exceed the relevant limitations described in this section. The lease-purchase payment shall be divided by the guaranteed level (FYL), then by ADA [ average daily attendance (ADA) ], and then by 100. The value of BTR shall be subtracted from the value of district tax rate (DTR) as computed in TEC, §42.302, before [ prior to ] limitation imposed by TEC, §42.303.

(q) Continued treatment of taxes and lease-purchase payments. Taxes associated with bonded debt may not be considered for state aid under TEC, Chapter 42. Bonded debt service or lease-purchase payments that were excluded from consideration for state assistance due to prioritization or due to the limitation on assistance may be considered for state assistance in subsequent biennia through additional applications. A modified application may be provided for previously rejected debt service or lease-purchase payments.

(r) Variable rate bonds. Variable rate bonds are eligible for state assistance under the IFA. For purposes of calculating the biennial limitation on access to the allotment, the payment requirement for a variable rate bond shall be valued at the minimum amount a district must budget for payment of interest cost and the scheduled minimum mandatory redemption amount, if applicable. For purposes of calculating state assistance under TEC, Chapter 46, the lesser of the actual payment or the limitation on the allotment shall be used. A district may exercise its ability to make payments in amounts in excess of the minimum, but the excess amount shall not be used in determining the value of BTR or in the calculation of state assistance under TEC, Chapter 46, in that year.

(s) Fixed-rate bonds. Computation for fixed-rate bonds shall be based on published debt service schedules as contained in the FOS or, for a private placement, in a supplemental filing with the TEA [ official statement ]. Prepayment of a bond, either through an early call provision or some other mechanism, shall not increase the state's obligation or the computed state aid pursuant to the IFA. To the extent that prepayments reduce future debt service requirements, the computation of state aid shall also be appropriately adjusted.

(t) Reports required. The commissioner shall require such information and reports as are necessary to assure compliance with applicable laws. [ The commissioner shall require immediate notification by the district of relevant financing activities such as refunding or refinancing of bond issues, renegotiation of lease-purchase terms, change in use of bond proceeds, or other actions taken by the district that might affect state funding requirements. ]

(1) The commissioner shall require immediate notification by a district of relevant financing activities as described in subsection (d)(7) of this section. Failure by a district to make such notification will result in the disqualification of debt service from IFA state aid as described in subsection (d)(8) of this section. A district is also required to report changes in use of bond proceeds or other actions taken by the district that might affect state funding requirements by submitting a complete amended application packet. Failure to submit the amended application packet will result in the suspension of IFA state aid payments for the applicable IFA allotment award, as described in subsection (d)(8) of this section.

(2) A complete amended application packet, as prescribed by the commissioner, includes:

(A) the appropriate schedules needed to identify the original IFA allotment award or the most recently approved revised allotment award including the assigned document control number and changes to the title of the debt issuance, the authorization to issue the debt, and other relevant terms;

(B) the appropriate schedules needed to describe changes in the use of the bond proceeds, if applicable;

(C) the appropriate schedules needed to describe changes in debt service schedules to demonstrate present value savings;

(D) a copy of the FOS, or, if an FOS is not available, the final bond order or other official document describing the relevant financing activity, including a final debt service schedule; and

(E) a copy of the letter from the attorney general approving the transaction, if the transaction required approval by the attorney general.

(3) Receipt of the complete amended application packet is required before debt service payments on the relevant debt issuances will be qualified for IFA state aid.

(4) Upon evaluation of the complete amended application packet, the TEA may request additional supporting documentation.

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 January 23, 2008.

TRD-200800313

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

19 TAC §61.1035

The Texas Education Agency (TEA) proposes an amendment to §61.1035, concerning school facilities. The section addresses provisions relating to the Existing Debt Allotment (EDA). The proposed amendment would modify eligibility for the EDA based on changes to statutory language, in accordance with Senate Bill 962, 80th Texas Legislature, 2007, and House Bill 1922, 80th Texas Legislature, 2007. The proposed amendment would also incorporate other revisions to the EDA program, such as requiring the reporting of bond issues and related debt service payments and the disclosing of transactions that affect EDA eligible bonds, explaining the effect of interest rate management agreements, establishing requirements for refinanced bonds, and modifying the time limit for amending data used for calculations.

Through 19 TAC §61.1035, adopted to be effective December 12, 1999, the commissioner exercised rulemaking authority relating to assistance with payment of existing debt. The current provisions include the establishment of eligibility; definition of qualifying debt service; and explanations of limits on assistance, data and payment cycles, deposits and uses of funds, and refinancing of eligible debt.

House Bill 1922, 80th Texas Legislature, 2007, amended TEC, §46.033 and §46.034, relating to assistance with payment of existing debt, by updating the reference to eligibility date of bonds from 2004-2005 to 2006-2007. Senate Bill 962, 80th Texas Legislature, 2007, amended TEC, §46.034, to restrict certain limitations on assistance if a district is affected by a military base realignment. The proposed amendment to 19 TAC §61.1035 includes revisions that would incorporate these statutory changes as well as other updates and revisions, as follows.

Subsection (a) would be revised in paragraph (1) to specify that payment on bonds must have been made on or before August 31, 2007, to meet eligibility criteria. Paragraph (1) would also be revised to add language requiring that final official statements or bond orders be reported to the state information depository in order for bond issues and their related debt service payments to be eligible to receive EDA state assistance. Technical corrections to terms would also be made in subsection (a).

Subsection (b) would be revised by adding new paragraphs (3) - (5). New paragraph (3) would require a district to disclose any changes in the financing of EDA-supported debt. New paragraph (4) would establish a state aid penalty for failure to disclose such changes and explain how EDA eligibility is regained after it has been lost as a result of failing to report changes. New paragraph (5) would require a district to disclose interest rate management agreement transactions and their associated credit risk ratings in the final official statement related to the bond transaction. It would also establish a state aid penalty for failure to disclose the interest rate management agreement. Additional technical corrections to terms and numbering would also be made in subsection (b).

Subsection (c) would be revised to modify the calculation of the existing debt tax rate (EDTR) for a district affected by a military base realignment.

Subsection (d) would be revised by adding new paragraph (2) to explain that requests for payments or adjustments that are submitted to TEA after December 15 will be processed with the payments due for the following fiscal year. The subsequent paragraph would be renumbered accordingly. Renumbered paragraph (3)(B) would change the date by which districts must remit amounts they were overpaid to be no later than 30 days after the date they were notified of the overpayment. Renumbered paragraph (3)(C) would require that adjustments to state assistance for any reason be requested within a three-year time limit.

Subsection (f) would be revised by modifying paragraph (1) to clarify the definition of refinanced debt. New paragraph (2) would be added to describe penalties for failure to report required information on refinancings. Subsequent paragraphs would be renumbered accordingly.

New subsection (g) would be added to require that a district notify the commissioner of EDA-related financing activities by submitting an EDA correction form packet. New subsection (g) would also define the materials that make up a complete EDA correction form packet.

Relating to procedural and reporting implications, districts will be required to disclose interest rate management agreement transactions in their final official statements, though this appears to be a common practice and will not likely result in a change in the way of doing business for most districts. The proposed amendment includes the addition of new language which requires districts that are eligible for a modified calculation of their EDTR as a result of a military base realignment to provide documentation from the U.S. Department of Defense describing the impact of the base realignment on the local school district.

Locally maintained paperwork requirements resulting from the proposed amendment to 19 TAC §61.1035 would correspond with and support the stated procedural and reporting implications.

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the proposed amendment is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed amendment.

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 proposed amendment would be the expansion of the eligibility of bonds for state assistance through the EDA, resulting in lower local tax rates needed to retire school district debt. The requirements to disclose interest rate management agreements and other financing activities would provide greater transparency in school district transactions. The modification of the calculation of the EDTR for districts affected by military base realignments would help these districts absorb costs associated with the realignments. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 amendment 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 Texas Register.

The amendment is proposed under the Texas Education Code, §46.031, which authorizes the commissioner of education to adopt rules for the administration of Texas Education Code, Chapter 46, Assistance with Instructional Facilities and Payment of Existing Debt, Subchapter B, Assistance with Payment of Existing Debt; and Texas Education Code, §46.061, which authorizes the commissioner to by rule provide for the payment of state assistance under Texas Education Code, Chapter 46, to refinance school district debt.

The proposed amendment implements the Texas Education Code, §46.031 and §46.061.

§61.1035.Assistance with Payment of Existing Debt.

(a) Eligibility. Certain restrictions apply to debt and to school districts eligible for the existing debt allotment (EDA).

(1) Debt eligible for the EDA is an existing obligation of a school district made through the issuance of a bond for instructional or non-instructional purposes pursuant to Texas Education Code (TEC), Chapter 45, Subchapter A, or through the refunding of bonds as defined in TEC, §46.007. The district must have made a payment on the bonds on or before August 31, 2007 [ 2003 ]. Lease-purchase agreements [ arrangements ] authorized by Local Government Code, §271.004, are not eligible. Payments demonstrating eligibility for the EDA must appear on the debt service schedule contained in the final official statement (FOS) or bond order. The debt service schedule contained in the FOS (or in the bond order, if the bonds are privately placed) and filed with the state information depository will be used to determine eligible bond payments. To the extent that neither the FOS nor the bond order is filed with the state information depository, such documents shall be filed with the Texas Education Agency (TEA). Bond issues and their related debt service payments that are not reported to the state information depository or the TEA, as applicable, are not eligible to receive EDA state assistance.

(2) Eligible debt does not include any portion of an existing obligation that has been approved for financial assistance with the Instructional Facilities Allotment (IFA) as defined in §61.1032 of this title (relating to Instructional Facilities Allotment), in accordance with TEC, Chapter 46.

(3) Eligible bond payments include regularly scheduled principal and interest payments that are made between September 1 and August 31 each year.

(4) Certain other refinanced debt may be eligible for funding under this subsection.

(A) A lease purchase refinanced [ refunded ] with a general obligation bond shall be eligible for consideration for the EDA in future years based on the date of payment on the new bond and the limits on tax rates that apply.

(B) Any portion of a bond issue that refinances a portion of an original lease-purchase agreement [ arrangement ] that was eligible for IFA consideration but exceeded the IFA limit shall be eligible for consideration in future years pursuant to this subsection based on the date of first payment on the new bond and the limits on tax rates that apply.

(C) If a lease purchase that is not funded in the IFA program is refinanced with a general obligation bonded debt, the bonded debt shall gain eligibility for the EDA by the terms of the EDA program. Any interest and sinking [ Interest and Sinking ] (I&S) fund tax effort associated with the bonded debt payments may be counted for purposes of computing the EDA. Qualification pursuant to this subsection shall be according to the terms of the program, including the date of first payment on the bond and the relevant tax rate limitation.

(D) Debt that is refinanced in a manner that disqualifies it for eligibility for funding within the IFA program shall be treated as new bonded debt at the time of issuance for the purpose of funding consideration pursuant to the EDA.

(b) Qualifying debt service. Certain district revenues may qualify to meet the local share requirement of the EDA when computing state assistance amounts.

(1) I&S fund taxes collected in the current school year may qualify toward meeting the local share requirement of the EDA. In addition, other district funds budgeted for the payment of bonds may qualify to meet the EDA local share requirements.

(A) Funds budgeted by a district for payment of eligible bonds may include I&S fund taxes collected in the 1999-2000 school year or later school year in excess of the amount necessary to pay the district's local share of debt service on bonds in that year, provided that the taxes were not used to generate other state aid.

(B) Funds budgeted by a district for payment of eligible bonds may include maintenance and operations [ Maintenance and Operations ] (M&O) taxes collected in the current or previous school year that are in excess of amounts used to generate other state aid.

(C) The commissioner of education will provide each district with information about what tax collections were not equalized by state assistance in the preceding school year and worksheets to enable districts to calculate tax collections that will not receive state assistance in a current school year.

(D) The commissioner of education will determine the amount of excess collections, if any, to be applied to the EDA local share requirement.

(2) If a district issues debt that requires the deposit of payments into a mandatory I&S fund or debt service reserve fund, the deposits will be considered debt payments for the purpose of the EDA if the district's bond covenant calls for the deposit of payments into a mandatory and irrevocable fund for the sole purpose of defeasing the bonds or if the FOS [ final statement ] stipulates the requirements of the I&S fund and the bond covenant.

(3) An EDA correction form packet is required for any EDA-supported bonds that have undergone changes, including, but not limited to, refinancing, restatement, or any other transaction that materially affects the terms of the bonds, including transactions that materially affect the terms of the underlying bonds. An EDA correction form packet must be submitted to the TEA no later than 180 days following the date on which the transaction was approved by the attorney general, if the transaction required approval by the attorney general. If approval by the attorney general was not required, the EDA correction form packet is due within 180 days of the date that the school board approved the transaction.

(4) Failure to submit the EDA correction form packet to the TEA division responsible for state funding within the 180-day period defined in paragraph (3) of this subsection will result in the suspension of EDA state aid payments for the applicable EDA allotment award. This suspension has the following effects.

(A) Debt service payments associated with the applicable EDA allotment will be disqualified for EDA state aid upon expiration of the 180-day period defined in paragraph (3) of this subsection. Debt service payments made after the 180-day period expires will not earn EDA state aid.

(B) Eligibility for EDA state aid associated with the applicable allotment will resume on the date the EDA correction form packet, including any required supporting documentation, is received. The EDA state aid will be based on eligible debt service payments scheduled on or after the date the EDA correction form packet is received.

(C) Current and future EDA state aid payments may be adjusted to reflect the disqualified debt service payments. If no EDA state aid is due in a fiscal year that is affected by such an adjustment, a district will be notified about the disqualified amount and will be required to remit that amount to the TEA no later than 30 days after notification.

(D) Unless otherwise requested, payments of EDA state aid based on the updated eligible debt service reported in the completed EDA correction form packet shall be made with the payments due for the following fiscal year in accordance with TEC, §46.035.

(5) If a district enters into an interest rate management agreement related to debt that is supported by EDA funds, the district shall provide a schedule or schedules demonstrating the anticipated effect of the interest rate management agreement on the debt service for the related bonds. If a district enters into an interest rate management agreement, the amount of debt service eligible for EDA funding shall be determined as follows.

(A) If an interest rate management agreement is executed concurrently with a public offering or private placement of bonds related thereto, the debt service eligible for EDA funding will be equal to the amount of debt service reflected in the debt service schedule contained in the FOS, in the private placement memorandum, or (if no FOS or private placement memorandum is prepared) in supplemental schedule(s) filed with the TEA.

(B) If an interest rate management agreement is not executed concurrently with a public offering or private placement of bonds related thereto, the debt service eligible for EDA funding will be equal to the amount of debt service reflected in schedules to be provided by the district to the TEA as required by paragraph (3) of this subsection.

(C) Failure to identify the interest rate management agreement transaction to the commissioner within 180 days of its execution, by submitting an EDA correction form packet, may disqualify the debt service on the related bonds from the EDA state assistance as described in paragraph (4) of this subsection. Such debt service will remain ineligible unless the information described in this paragraph is provided to the TEA division responsible for state funding. The commissioner may require that EDA funding paid to a district for such ineligible debt service be refunded by the district.

(D) For purposes of this section, "interest rate management agreement" means an agreement that provides for an interest rate transaction, including a swap, basis, forward, option, cap, collar, floor, lock, debt derivative transaction, or hedge transaction; for a transaction similar to those types of transactions; or for a combination of any of those types of transactions, as described in the Texas Government Code, §1231.001.

(6) [ (3) ] I&S fund taxes collected during a school year will be attributed first to satisfy the local share requirement of debts eligible for EDA state aid for that school year, second to satisfy the local share requirements of any IFA debts for that school year, and third [ lastly ] to excess taxes that may raise the limit for the EDA program in a subsequent biennium if collected in the second year of a state fiscal biennium.

(7) [ (4) ] Computation of state aid in the EDA program for a variable rate bond shall be based on the minimum payment requirement. A district may receive such state aid for payment on a variable rate bond in excess of the minimum payment requirement as long as the additional amount meets certain conditions.

(A) The payment is necessary to meet the computed interest costs for the year.

(B) The amount shall not exceed the applicable limit for debt established pursuant to TEC, §46.034(b).

(C) The district shall notify the commissioner of education of its intent prior to the adoption of the district's tax rate for debt service for the applicable year.

(8) [ (5) ] A district may exercise its ability to make payments in excess of the minimum payment required but the excess amount shall not be used in determining the limit on the existing debt tax rate (EDTR) or in the calculation of state assistance in that year.

(9) [ (6) ] Computation for fixed-rate bonds shall be based on published debt service schedules as contained in the FOS or in schedules filed with the TEA for a private placement or other transaction in which no FOS is prepared [ official statement ]. Prepayment of a bond, either through an early call provision or some other mechanism, shall not increase the state's obligation or the computed state aid pursuant to the EDA. To the extent that prepayments reduce future debt service requirements, the computation of state aid shall also be appropriately adjusted.

(c) Limits on assistance. The amount of state assistance is limited by the lesser of a calculated EDTR for eligible debt or an appropriated debt tax limit.

(1) The calculated EDTR is a rate determined with the debt limit resulting from the lesser of calculations specified in subparagraphs (A) or (B) of this paragraph , except as specified in paragraph (2) of this subsection .

(A) EDTR may be calculated as the I&S fund taxes collected for eligible bonds for the last fiscal year of the preceding state fiscal biennium divided by the property value used for state funding purposes in that year, then multiplied by 100.

(B) EDTR may be calculated as the current year debt service payment on eligible bonds divided by the product of the current year average daily attendance (ADA) multiplied by $35, and then divided by $100.

(2) If the district demonstrates, in a manner prescribed by the commissioner, that the district must construct, acquire, renovate, or improve one or more instructional facilities to serve the children of military personnel transferred to a military installation in or near the district under the Defense Base Closure and Realignment Act of 1990 (10 USC §2687), the EDTR may be calculated using the method specified in paragraph (1)(B) of this subsection.

(3) [ (2) ] The EDTR used in the funding formula cannot exceed the appropriated limit ($.29).

(4) [ (3) ] For purposes of computing EDTR, tax collections or payment amounts associated with bonded debt in the IFA program shall be excluded from the calculation.

(d) Data and payment cycles. The necessary data elements to calculate state assistance for existing debt and the associated payment cycle are determined by the commissioner of education.

(1) An initial, preliminary payment of state assistance will be made as soon as practicable after September 1 of each year. This payment will be based on an estimate of ADA; the taxable value of property certified by the comptroller of public accounts [ Comptroller of Public Accounts ] for the preceding school year as determined in accordance with Government Code, Chapter 403, Subchapter M; and the amount of taxes budgeted to be collected for payment of eligible bonds. Districts will supply information about budgeted taxes in July on a data collection survey.

(2) Requests for payments and or adjustments submitted to the TEA after December 15 shall be processed with the payments due for the following fiscal year in accordance with TEC, §46.035.

(3) [ (2) ] A final determination of assistance for a school year will be made at the close of business for the current school year when final counts of ADA and collection amounts for eligible debt are available. This determination will also take into account, if applicable, a reduced property value that reflects either a rapid decline pursuant to TEC, §42.2521, or a grade level adjustment pursuant to TEC, §42.106.

(A) Any additional amounts owed will be paid as soon as practicable after the final determination is made.

(B) Any overpayment will be subtracted from the EDA in the subsequent year. If no such assistance is due in the subsequent school year, the Foundation School Fund will be reduced accordingly. If no payments are due from the Foundation School Fund, the district will be notified about the overpayment and must remit that amount to the TEA [ Texas Education Agency (TEA) ] no later than 30 days [ three weeks ] after notification.

(C) Adjustments to state assistance based on changes in the final counts of ADA , [ or ] changes to a district's property value , changes to IFA eligible debt, or any other reason must be requested no later than three years following the close of the school year for which the adjustment is sought.

(e) Deposit and uses of funds.

(1) Funds received from the state for assistance with existing debt must be deposited in the district's I&S fund and must be taken into account before setting the I&S fund tax rate.

(2) State and local shares of the EDA must be used for the exclusive purpose of making principal and interest payments on eligible debt.

(f) Refinancing of eligible debt.

(1) A district that refinances eligible debt in part or in full must inform the TEA [ TEA's ] division responsible for state funding in writing and must provide appropriate documentation related to the refinancing, including payment schedules for the refinanced [ refunded ] debt that clearly identify the bonds being refinanced [ refunded ] and the debt service attributable to the refinanced [ refunded ] bonds, if available. Refinancing of eligible debt includes: [ State aid payments for EDA will not be processed until these documents have been received by the TEA division responsible for state funding. ]

(A) the refunding of eligible debt through the issuance of refunding bonds; and

(B) the conversion of the period, mode, or index used to determine the interest rate for eligible debt in accordance with the order authorizing the issuance or delivery of such eligible debt.

(2) In order to retain eligibility for EDA funding, a district shall submit an EDA correction form packet in accordance with subsection (b)(3) of this section to the TEA division responsible for state funding no later than 180 days after the date the refunding bonds were approved for sale by the office of the attorney general (or, in the case of a conversion, such information shall be submitted within 180 days after the date of the conversion). Failure to submit the information required by this paragraph within 180 days after the date the refunding bonds were approved for sale by the attorney general (or, in the case of a conversion, within 180 days after the date of the conversion) will disqualify otherwise eligible bonds for EDA funding as described in subsection (b)(4) of this section. Such bonds will remain ineligible until such information is provided to the TEA division responsible for state funding. The commissioner may require that EDA funding paid to a district for such ineligible debt service be refunded by the district.

(3) [ (2) ] The portion of the debt eligible for state assistance on refinanced [ refunded ] bonds is subject to the same limits as eligible debt that has not been refinanced.

(4) [ (3) ] If a refinancing transaction [ refunding pricing of a district ] decreases the current year bond payment requirement, the reduced payment amount shall be the basis of determining the limit on funding.

(5) [ (4) ] If a refinancing transaction [ refunding pricing of a district ] increases the bond payment requirement, the amount of increase shall not be used to determine state aid unless the pricing took place prior to January 1 of the last fiscal year of the preceding state fiscal biennium. The total debt service eligible for state assistance will be limited to the district's total debt service prior to January 1 of the last fiscal year of the preceding state fiscal biennium.

(g) Reports required. The commissioner shall require such information and reports as are necessary to assure compliance with applicable laws.

(1) The commissioner shall require immediate notification by a district of relevant financing activities as described in subsections (b)(3) and (b)(5) of this section. Failure by a district to make such notification will result in the disqualification of debt service from EDA state aid as described in subsections (b)(4) and (b)(5)(C) of this section. A district is also required to report changes in use of bond proceeds, or other actions taken by the district that might affect state funding requirements by submitting a complete EDA correction form packet, or possibly face disqualification of debt service from EDA state aid, as described in subsections (b)(4) and (b)(5)(C) of this section.

(2) A complete EDA correction form packet includes:

(A) a completed EDA correction form;

(B) the appropriate schedules needed to identify the original EDA allotment award or the most recently approved revised allotment award and changes to the title of the debt issuance, the authorization to issue the debt, and other relevant terms;

(C) the appropriate schedules needed to describe changes in debt service schedules;

(D) a copy of the FOS, or, if an FOS is not available, the final bond order or other official document describing the relevant financing activity, including a final debt service requirement schedule, the sources and uses schedule, and the schedule of refinanced bonds;

(E) a copy of the letter from the attorney general approving the transaction, if the transaction required approval by the attorney general; and

(F) copies of the payment vouchers for the payments made on the debt associated with the allotment, if requested by the TEA.

(3) Receipt of the complete EDA correction form packet is required before debt service payments on the relevant debt issuances will be qualified for EDA state aid.

(4) Upon evaluation of the complete EDA correction form packet, the TEA may request additional supporting documentation.

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 January 23, 2008.

TRD-200800314

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

Subchapter C. OTHER PROVISIONS

19 TAC §74.35

The State Board of Education (SBOE) proposes new §74.35, concerning additional requirements for high school health classes. The proposed new section would require school districts and open-enrollment charter schools to incorporate instruction in parenting awareness into any course meeting a requirement for a health education credit, using the materials approved by the SBOE.

House Bill 2176, 80th Texas Legislature, 2007, added Texas Education Code, §28.002(p), which requires the SBOE, in conjunction with the Office of the Attorney General, to develop a parenting and paternity awareness program that school districts will be required to use in the high school health curriculum. This program must address parenting skills and responsibilities, including child support and other legal rights and relationship skills, including money management, communication skills, and marriage preparation. In high schools that do not have a family violence prevention program, skills relating to the prevention of family violence must be included.

The proposed new 19 TAC §74.35, Additional Requirements for High School Health Classes, would outline school district and open-enrollment charter school requirements for implementation of this program. The proposed new rule would establish that SBOE-approved materials must be used, specify that local school health advisory councils must assist in ensuring that local community values are reflected in the district's health instruction, stipulate that school districts may add elements but must include specific areas of instruction, address instances where health education credit courses are taken prior to Grade 9, and establish that the requirements begin with the 2008-2009 school year.

It is anticipated that the SBOE-approved materials for the parenting and paternity awareness program will be provided to school districts at no charge.

Sharon Jackson, deputy associate commissioner for standards and alignment, has determined that, for the first five-year period the proposed new section is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the new section.

Dr. Jackson has determined that, for each year of the first five years the proposed new section, is in effect the public benefit anticipated as a result of enforcing the new section would include additional resources to be used in teaching students about parenting. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed new section.

Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 new section 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 Texas Register.

The new section is proposed under the Texas Education Code, §28.002(p), as added by House Bill 2176, 80th Texas Legislature, 2007, which authorizes the SBOE, in conjunction with the Office of the Attorney General, to develop a parenting and paternity awareness program that a school district shall use in the district's high school health curriculum.

The proposed new section implements the Texas Education Code, §28.002(p).

§74.35.Additional Requirements for High School Health Classes.

(a) A school district and an open-enrollment charter school shall incorporate instruction in parenting awareness into any course meeting a requirement for a health education credit, using the materials approved by the State Board of Education for this purpose in accordance with Texas Education Code (TEC), §28.002(p). Implementation of this requirement shall comply with requirements that the board of trustees of each school district establish a local school health advisory council to assist the district in ensuring that local community values are reflected in the district's health education instruction as stated in TEC, §28.004.

(b) A school district may add elements at its discretion but must include the following areas of instruction:

(1) parenting skills and responsibilities, including child support;

(2) relationship skills, including money management, communication, and marriage preparation; and

(3) skills relating to the prevention of family violence, only if the school district's high schools do not have a family violence prevention program.

(c) If the required high school health education credit is earned through a course taken prior to Grade 9, the materials and parenting awareness instruction must be incorporated into that course or, at the district's discretion, may be incorporated into another course available to all students in Grades 9-12.

(d) A school district shall use the materials approved by the State Board of Education for this purpose beginning with the 2008-2009 school year.

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 January 28, 2008.

TRD-200800361

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

Subchapter AA. COMMISSIONER'S RULES CONCERNING THE PARTICIPATION OF LIMITED ENGLISH PROFICIENT STUDENTS IN STATE ASSESSMENTS

19 TAC §101.1007, §101.1009

The Texas Education Agency (TEA) proposes amendments to §101.1007 and §101.1009, concerning participation of limited English proficient students in state assessments. Section 101.1007 addresses limited English proficient students at grades other than the exit level. Section 101.1009 addresses limited English proficient students who receive special education services. The proposed amendments reflect clarifications on serving students who receive both special language and special education services to correspond with recent changes adopted in 19 TAC Chapter 89, Adaptations for Special Populations, Subchapter BB, Commissioner's Rules Concerning State Plan for Educating Limited English Proficient Students. The proposed amendments would also update references to state assessments to reflect recent changes in the state assessment program.

Amendments to 19 TAC Chapter 89, Adaptations for Special Populations, Subchapter BB, Commissioner's Rules Concerning State Plan for Educating Limited English Proficient Students, adopted to be effective September 17, 2007, included clarification on serving students who receive both special language and special education services. The adopted amendments clarify that the admission, review, and dismissal (ARD) committee and language proficiency assessment committee (LPAC) shall work in conjunction in the testing and classification of students who are designated as limited English proficient (LEP) and receive special education services.

The proposed amendments to 19 TAC Chapter 101, Assessment, Subchapter AA, Commissioner's Rules Concerning the Participation of Limited English Proficient Students in State Assessments, would reflect the changes made in 19 TAC Chapter 89, Subchapter BB. In addition, the proposed amendments would update references to state assessments to reflect recent changes in the state assessment program.

The proposed amendment to 19 TAC §101.1007, Limited English Proficient Students at Grades Other Than the Exit Level, would include a technical update in subsection (b)(1) to reference English language proficiency assessments in reading.

The proposed amendment to 19 TAC §101.1009, Limited English Proficient Students Who Receive Special Education Services, would revise language in subsections (b) and (c) to clarify that the ARD committee and LPAC shall work in conjunction to make decisions regarding the selection of state assessments and testing accommodations for a LEP student served by special education to ensure that factors related to both the student's second language acquisition needs and disabling condition are considered. Guidance documents for meeting the requirement that the ARD committee and LPAC work in conjunction are under development by the TEA Department of Standards and Programs. The proposed amendment would also update reference to the state assessments in subsection (d) to reflect recent changes in the state assessment program.

Relating to procedural and reporting implications, the proposed clarifications may increase the frequency with which the LPAC and ARD committee collaborate on state assessment participation decisions for LEP students served through special education.

The proposed clarifications may increase the paperwork required and maintained by the LPAC and/or ARD committee in order to consider testing decisions for LEP students served through special education.

Criss Cloudt, associate commissioner for assessment, accountability, and data quality, 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.

Dr. Cloudt 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 amendments will be the extension of the clarifications provided in 19 TAC Chapter 89, Subchapter BB, to the state assessment decision-making processes followed by ARD committees and LPACs for the benefit of LEP students served through special education. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the amendments.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 Texas Register.

The amendments are proposed under the Texas Education Code, §39.023, which authorizes the commissioner of education to adopt rules concerning the exemption of limited English proficient students from the administration of assessment instruments.

The amendments implement the Texas Education Code, §39.023.

§101.1007.Limited English Proficient Students at Grades Other Than the Exit Level.

(a) In Grades 3-6, the language proficiency assessment committee (LPAC) shall determine whether a limited English proficient (LEP) student is administered the assessment of academic skills in English or in Spanish. A LEP student may be administered a Spanish version of the assessment of academic skills for a maximum of three years. If the LEP student is an immigrant, the number of LEP exemptions and administrations of the assessment in Spanish must not exceed three.

(b) In accordance with paragraphs (1) - (4) of this subsection, certain immigrant LEP students who have had inadequate schooling outside the U.S. may be eligible for an exemption from the assessment of academic skills during a period not to exceed their first three school years of enrollment in U.S. schools. The term "immigrant" in this subchapter is defined as a student who has resided outside the 50 U.S. states for at least two consecutive years.

(1) In Grades 2-12, an [ An ] immigrant LEP student who achieves a rating of advanced high on the state-administered [ reading proficiency tests in ] English language proficiency assessment in reading during the student's first school year of enrollment in U.S. schools is not eligible for an exemption in the second or third school year of enrollment in U.S. schools. An immigrant LEP student who achieves a rating of advanced or advanced high on this assessment during the student's second school year of enrollment in U.S. schools is not eligible for an exemption in the third school year of enrollment in U.S. schools.

(2) During the first school year of enrollment in U.S. schools, the immigrant student may be granted a LEP exemption if the LPAC determines that the student has not had the schooling outside the U.S. necessary to provide the foundation of learning that Texas schools require and measure on the assessment, whether the foundation be in knowledge of the English language or specific academic skills and concepts in the subjects assessed.

(3) During the second and third school year of enrollment in U.S. schools, the immigrant student whose schooling outside the U.S. was inadequate and for whom a primary language assessment is not available may be granted a LEP exemption if the LPAC determines that the student lacks the academic language proficiency in English necessary for an assessment of academic skills in English to measure the student's academic progress in a valid, reliable manner.

(4) During the second and third school year of enrollment in U.S. schools, the immigrant student whose schooling outside the U.S. was inadequate and for whom a Spanish-version assessment is available is not eligible for a LEP exemption and must take the assessment in either English or Spanish unless:

(A) the student is in an English as a second language (ESL) program, which does not call for instruction in Spanish, and the LPAC determines that the student lacks the language proficiency in English and the academic instruction in Spanish and/or literacy in Spanish for the assessment in either English or Spanish to measure the student's academic progress in a valid, reliable manner; or

(B) the student is in a bilingual education program and the LPAC has documentation, including signed verification by the parent or guardian whenever possible, that there was an extensive period of time outside the U.S. in which the student did not attend school and that this absence of schooling resulted in such limited academic achievement and/or literacy that assessment in either English or Spanish is inappropriate as a measure for school accountability. The term "extensive period of time outside the U.S.," as used in this subparagraph, shall be defined in the test administration materials.

(c) Students exempted under subsection (b) of this section shall be administered assessments in subjects and grades required by federal law and regulations as delineated in the test administration materials. Exempt students assessed only for federal accountability purposes shall not be subject to the grade advancement requirements under the Student Success Initiative.

(d) A LEP student whose parent or guardian has declined the services required by the Texas Education Code, Chapter 29, Subchapter B, is not eligible for an exemption under subsection (b) of this section. The student shall take the assessments of academic skills in English and the English language proficiency assessments required by §101.1001 of this title (relating to English Language Proficiency Assessments).

(e) School districts may administer the assessment of academic skills in Spanish to a student who is not identified as limited English proficient but who participates in a two-way bilingual program if the LPAC determines the assessment in Spanish to be the most appropriate measure of the student's academic progress. However, the student may not be administered the Spanish-version assessment for longer than three years.

§101.1009.Limited English Proficient Students Who Receive Special Education Services.

(a) The provisions of this subchapter apply to limited English proficient (LEP) students who receive special education services except as otherwise specified in this section.

(b) The admission, review, and dismissal (ARD) committee in conjunction with the language proficiency assessment committee (LPAC) shall make decisions [ Decisions ] regarding the selection of assessments and appropriate accommodations for LEP students who receive special education services [ shall be made by the admission, review, and dismissal (ARD) committee, which includes a language proficiency assessment committee (LPAC) member to ensure that issues related to the student's language proficiency are duly considered ] .

(c) A LEP student who receives special education services may be exempted from the English language proficiency assessments required by §101.1001 of this title (relating to English Language Proficiency Assessments) only if the ARD committee and LPAC determine [ determines ] that these assessments cannot provide a meaningful measure of the student's annual growth in English language proficiency for reasons associated with the student's disability.

(d) The provisions of §101.1007(b) and (c) of this title (relating to Limited English Proficient Students at Grades Other Than the Exit Level) apply to the state's general and alternate assessments [ assessment ] of academic skills [ and the state-developed alternative assessment of academic skills ] .

(e) A LEP student who receives special education services and whose parent or guardian has declined the services required by the Texas Education Code, Chapter 29, Subchapter B, is not eligible for an exemption on the basis of limited English proficiency.

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 January 25, 2008.

TRD-200800357

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

Subchapter BB. COMMISSIONER'S RULES CONCERNING STATE AID ENTITLEMENTS

19 TAC §105.1014

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Education Agency or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Education Agency (TEA) proposes the repeal of §105.1014, concerning state aid entitlements. The section addresses state reimbursement for electric utility restructuring. The proposed repeal is necessary due to the repeal of the section's authorizing statute, Texas Utilities Code, §39.901, and expiration of the rule.

Texas Utilities Code, §39.901, required the TEA to provide supplemental state aid to school districts experiencing a decline in taxable property values because of electric utility restructuring. The commissioner exercised rulemaking authority to adopt 19 TAC §105.1014, State Reimbursement for Electric Utility Restructuring, effective December 2, 2001.

Senate Bill 1652, 79th Texas Legislature, Regular Session, 2005, repealed Texas Utilities Code, §39.901, and, therefore, removed the statutory authority for the rule. In addition, 19 TAC §105.1014(c) specifies an expiration date of August 31, 2007, for the section.

The proposed repeal of 19 TAC §105.1014 would implement the statutory change and remove an expired rule.

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the proposed repeal is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the repeal.

Ms. Beaulieu has determined that, for each year of the first five years the proposed repeal is in effect, the public benefit anticipated as a result of enforcing the repeal would be adherence to statutory changes and elimination of an expired rule. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed repeal.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 repeal 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 Texas Register.

The repeal is proposed under Senate Bill 1652, 79th Texas Legislature, Regular Session, 2005, which repealed the section's authorizing statute, Texas Utilities Code, §39.901.

The proposed repeal implements Senate 1652, 79th Texas Legislature, Regular Session, 2005.

§105.1014.State Reimbursement for Electric Utility Restructuring.

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 January 23, 2008.

TRD-200800315

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

Subchapter B. STUDENT ATTENDANCE ACCOUNTING

19 TAC §129.22

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Education Agency or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The State Board of Education (SBOE) proposes the repeal of §129.22, concerning court-related students. The section establishes provisions relating to absences for specific students. The proposed repeal is necessary to reflect statutory changes resulting from House Bill (HB) 2455, 80th Texas Legislature, 2007.

HB 2455, 80th Texas Legislature, 2007, amended the TEC, §25.087, authorizing excused absences for required court appearances. The amended statute allows such an absence to be counted as a day of compulsory attendance and counted in average daily attendance.

Section 129.22, Court-Related Students, addresses excused absences for students referred to a juvenile court for delinquent conduct or conduct indicating a need for supervision and students referred to the Texas Department of Human Services or a county or local welfare unit for abuse or neglect. This section can be repealed because TEC, §25.087, as amended by HB 2455, 80th Texas Legislature, 2007, provides the statutory authority for excused absences for court-related appearances by students.

The proposed repeal of 19 TAC §129.22 would eliminate the potential for conflict with statute regarding court appearances by students.

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the proposed repeal is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the repeal.

Ms. Beaulieu has determined that, for each year of the first five years the proposed repeal is in effect, the public benefit anticipated as a result of enforcing the repeal would be the elimination of duplicate provisions for excused absences for required court appearances. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed repeal.

Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 repeal 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 Texas Register.

The repeal is proposed under HB 2455, 80th Texas Legislature, 2007, which amended the TEC, §25.087, to address student absences for required court appearances. Therefore, the repeal of 19 TAC §129.22 is necessary to eliminate the potential for conflict with statute.

The repeal implements HB 2455, 80th Texas Legislature, 2007, and Texas Education Code, §25.087.

§129.22.Court-Related Students.

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 January 28, 2008.

TRD-200800363

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497

19 TAC §129.1025

The Texas Education Agency (TEA) proposes an amendment to §129.1025, concerning student attendance accounting. The section adopts by reference the annual student attendance accounting handbook. The handbook provides student attendance accounting rules for school districts and charter schools. The proposed amendment would adopt by reference the 2007-2008 Student Attendance Accounting Handbook.

Legal counsel with the TEA has recommended that the procedures contained in each annual student attendance accounting handbook be adopted as part of the Texas Administrative Code. This decision was made in 2000 as a result of a court decision challenging state agency decision-making via administrative letters/publications. Given the statewide application of the attendance accounting rules and the existence of sufficient statutory authority for the commissioner of education to adopt by reference the student attendance accounting handbook, staff proceeded with formal adoption of rules in this area. The intention is to annually update the rule to refer to the most recently published student attendance accounting handbook.

Each annual student attendance accounting handbook provides school districts and charter schools with the Foundation School Program (FSP) eligibility requirements of all students, prescribes the minimum requirements of all student attendance accounting systems, lists the documentation requirements for attendance audit purposes, specifies the minimum standards for systems that are entirely functional without the use of paper, and details the responsibilities of all district personnel involved in student attendance accounting. The TEA distributes FSP resources under the procedures specified in each current student attendance accounting handbook. The final version of the student attendance accounting handbook is published on the TEA website each June/July. A supplement, if necessary, is also published on the TEA website.

The proposed amendment to 19 TAC §129.1025 would adopt by reference the student attendance accounting handbook for the 2007-2008 school year. Data from previous school years will continue to be subject to the student attendance accounting handbook as the handbook existed in those years.

Significant changes to the 2007-2008 Student Attendance Accounting Handbook include the addition of information relating to the following sections.

In section 3, on general attendance requirements, information relating to the following has been added: (1) students ages 21 to 25 are eligible for state funding if they are attempting to complete requirements for a high school diploma; (2) absences for court appearances are excused absences; (3) absences for students playing taps at a veteran's funeral are excused absences; and (4) the board of trustees of a school district may adopt a policy requiring a student who voluntarily enrolls or attends school after his or her 18th birthday to attend until the end of the school year.

In section 5, on career and technical education, information relating to the following has been added: school districts must offer three or more programs of study in at least three different clusters to be eligible for career and technology funding.

In section 6, on bilingual/English as a second language (ESL) education, information relating to the following has been added: (1) limited English proficient students will be provided instruction in mathematics, science, health, and social studies both in their home language and in English; (2) students may be served in an approved program under an exception to the Spanish bilingual program for six consecutive years and under an exception to the ESL program for one year; (3) students may be served in an approved bilingual program in a language other than Spanish for as long the State Board for Educator Certification does not have a certificate for that language; (4) bilingual education or ESL program eligible days present may not be claimed when students in these programs are placed in disciplinary settings for more then five consecutive days if the same type of bilingual or ESL program services are not provided; and (5) students may earn state credit for English for Speakers of Other Languages (ESOL).

In section 7, on prekindergarten, information relating to the following has been added: children who are or ever have been in foster care are eligible for prekindergarten attendance.

In section 9, on pregnancy related services (PRS), information relating to the following has been added: (1) students receiving PRS and returning to campus on a temporary, limited basis to take the Texas Assessment of Knowledge and Skills (TAKS) test can be credited with receiving a maximum of one hour of PRS compensatory education home instruction (CEHI) for each day they are on campus and involved in TAKS testing; (2) students receiving PRS and provided the TAKS test in the home can be credited with receiving a maximum of one hour of PRS CEHI for each day they test at home; (3) students receiving PRS and receiving TAKS tutoring, taking practice tests, etc., cannot be credited for CEHI; and (4) students receiving PRS must have a doctor's approval to be involved in TAKS testing on campus.

In section 10, on nontraditional schools, information relating to the following has been added: (1) students who are 21 years of age or older and are admitted for the purpose of completing the requirements of a high school diploma are not eligible for placement in a disciplinary alternative education program (DAEP) or juvenile justice alternative education program (JJAEP), but will have their admission revoked for conduct that would require or authorize placement in a DAEP or JJAEP for a student under the age of 21; (2) the commissioner of education can waive certain requirements established by state law or the State Board of Education if it directly benefits the students' education, except as provided in the provisions of TEC, §7.056(e) and (f), regarding criminal misconduct or restrictions imposed by state or federal law; (3) an alternative campus for at-risk students must serve pre- and post-adjudicated students, homeless students, or students who previously resided or currently reside in a residential placement facility in the district; (4) school districts must adopt consistent procedures for determining serious or persistent misbehavior violating the student code of conduct for students in an alternative education program; (5) each school district that is in a county with a population greater than 125,000 and the county's juvenile board shall annually enter into a joint memorandum of understanding (MOU); and (6) academically, the mission of a JJAEP shall be to enable students to perform at grade level.

In addition to changes related to these requirements and allowances, a new section on nontraditional programs has been included in the handbook to provide student attendance guidelines for the High School Equivalency Program (HSEP) and the Optional Flexible School Day Program (OFSDP).

Shirley Beaulieu, associate commissioner for finance/chief financial officer, has determined that, for the first five-year period the proposed amendment is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the amendment.

Ms. Beaulieu has determined that, for each year of the first five years the proposed amendment is in effect, the public benefit anticipated as a result of enforcing the amendment would be the public notice of the existence of the current publications specifying attendance accounting procedures for school districts and charter schools. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

The public comment period on the proposal begins February 8, 2008, and ends March 9, 2008. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Policy Coordination Division, Texas Education Agency, 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 amendment 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 Texas Register.

The amendment is proposed under the Texas Education Code, §42.004, which authorizes the commissioner of education, in accordance with rules of the State Board of Education, to take such action and require such reports consistent with Texas Education Code, Chapter 42, as may be necessary to implement and administer the Foundation School Program.

The proposed amendment implements the Texas Education Code, §42.004.

§129.1025.Adoption By Reference: Student Attendance Accounting Handbook.

(a) The standard procedures that school districts and charter schools shall use to maintain records and make reports on student attendance and student participation in special programs for school year 2007-2008 [ 2006-2007 ] are described in the official Texas Education Agency (TEA) publication[ , ] 2007-2008 [ 2006-2007 ] Student Attendance Accounting Handbook , which is adopted by this reference as the agency's official rule. A copy of the 2007-2008 [ 2006-2007 ] Student Attendance Accounting Handbook is available for examination during regular office hours, 8:00 a.m. to 5:00 p.m., except holidays, Saturdays, and Sundays, at the Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701. In addition, the publication can be accessed from the TEA official website. The commissioner of education shall amend the 2007-2008 [ 2006-2007 ] Student Attendance Accounting Handbook and this subsection adopting it by reference, as needed.

(b) Data from previous school years will continue to be subject to the student attendance accounting handbook as the handbook existed in those years.

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 January 23, 2008.

TRD-200800316

Cristina De La Fuente-Valadez

Director, Policy Coordination

Texas Education Agency

Earliest possible date of adoption: March 9, 2008

For further information, please call: (512) 475-1497