Adopted Rules Title 19

TITLE 19. EDUCATION

CHAPTER 109. BUDGETING, ACCOUNTING, AND AUDITING

SUBCHAPTER AA. COMMISSIONER'S RULES CONCERNING FINANCIAL ACCOUNTABILITY

(Editor's note: In accordance with Texas Government Code, §2002.014, which permits the omission of material which is "cumbersome, expensive, or otherwise inexpedient," the figures in 19 TAC §109.1001 are not included in the print version of the Texas Register. The figures are available in the on-line version of the June 7, 2024, issue of the Texas Register.)

The Texas Education Agency (TEA) adopts an amendment to §109.1001, concerning financial accountability ratings. The amendment is adopted with changes to the proposed text as published in the February 23, 2024 issue of the Texas Register (49 TexReg 958) and will be republished. The adopted amendment updates financial accountability rating information and rating worksheets for school districts and open-enrollment charter schools.

REASONED JUSTIFICATION: Section 109.1001 includes the financial accountability rating system and rating worksheets that explain the indicators that TEA will analyze to assign financial accountability ratings for school districts and open-enrollment charter schools. The rule also specifies the minimum financial accountability rating information that a school district or an open-enrollment charter school is to report to parents and taxpayers in the district.

The adopted amendment clarifies the financial accountability rating indicators terminology used to determine each school district's and charter school's rating for the 2023-2024 rating year and subsequent years. The adopted amendment also includes some pandemic-related adjustments applicable to 2023 data, as required by Texas Education Code (TEC), §39.087, as that section existed before expiration on September 1, 2023, to the Financial Integrity Rating System of Texas (FIRST) based on TEC, §39.082(b) and (d), which require that the FIRST system include uniform indicators that measure the financial management performance and future financial solvency of a school district or open-enrollment charter school.

19 TAC §109.1001(e)(8)

Adopted new subsection (e)(8) is added, including new Figure: 19 TAC §109.1001(e)(8) that clarifies terminology and calculations for School FIRST indicators for rating year 2023-2024 and beyond. The new worksheet differs from the previous year's worksheet as follows.

A new Indicator 21 has been added to read, "Did the school district receive an adjusted repayment schedule for more than one fiscal year for an over-allocation of Foundation School Program (FSP) funds because of a financial hardship?"

In response to public comment, the proposed changes for Indicator 13 have been moved at adoption to new §109.1001(e)(9) and are effective for the 2025-2026 rating year.

19 TAC §109.1001(e)(9)

In response to public comment requesting a delay in the implementation of Indicator 13 as proposed in Figure: 19 TAC §109.1001(e)(8), new subsection (e)(9) has been added at adoption to include new Figure: 19 TAC §109.1001(e)(9). The new figure allows Indicator 13 as proposed to become effective subsequent to the 2024-2025 rating year. The new worksheet differs from the previous year's worksheet as follows.

Effective for the 2025-2026 rating year, the calculation for Indicator 13 is revised to compare administrative costs to total costs instead of instructional costs. The thresholds for Indicator 13 are adjusted to reflect the revised administrative cost ratio calculation so that school districts with lower administrative costs ratios, which suggest they are effectively managing their administrative expenses, receive the maximum points for this indicator.

19 TAC §109.1001(f)(8)

Adopted new subsection (f)(8) is added, including new Figure: 19 TAC §109.1001(f)(8) that clarifies terminology and calculations for Charter FIRST indicators for rating year 2023-2024 and beyond. The new worksheet differs from the previous year's worksheet as follows.

A new Indicator 21 has been added to read, "Did the charter school receive an adjusted repayment schedule for more than one fiscal year for an over-allocation of Foundation School Program (FSP) funds because of a financial hardship?"

In response to public comment, the proposed changes for Indicator 14 have been moved at adoption to new §109.1001(f)(9) and are effective for the 2025-2026 rating year.

19 TAC §109.1001(f)(9)

In response to public comment requesting a delay in the implementation of Indicator 14 as proposed in Figure: 19 TAC §109.1001(f)(8), new subsection (f)(9) has been added at adoption to include new Figure: 19 TAC §109.1001(f)(9). The new figure allows Indicator 14 as proposed to become effective subsequent to the 2024-2025 rating year. The new worksheet differs from the previous year's worksheet as follows.

Effective for the 2025-2026 rating year, the calculation for Indicator 14 is revised to compare administrative costs to total costs instead of instructional costs. The thresholds for Indicator 14 are adjusted to reflect the revised administrative cost ratio calculation so that charter schools with lower administrative costs ratios, which suggests they are effectively managing their administrative expenses, receive the maximum points for this indicator.

SUMMARY OF COMMENTS AND AGENCY RESPONSES: The public comment period on the proposal began February 23, 2024, and ended March 25, 2024. Following is a summary of the public comments received and agency responses.

School FIRST Indicators 8 and 13

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(8), a school district administrator, the Texas Association of School Business Officials (TASBO), and the Texas School Coalition recommended that no changes be made to the 2023-2024 School FIRST ratings that rely on fiscal year 2023 data because school districts and charter schools do not have an opportunity to adjust their spending to meet the accountability targets. The school district administrator and TASBO further stated that new indicators should not take effect until the 2025-2026 ratings based on fiscal year 2025 data. They also recommended that recapture amounts be removed from revenue and expenditures for FIRST Indicators 8 and 13.

Response: The agency agrees that Indicator 13 should not take effect for the 2023-2024 rating year and has modified Figure: 19 TAC §109.1001(e)(8) at adoption to reflect the calculation and thresholds for School FIRST Indicator 13 as they existed for rating year 2022-2023. New Figure: 19 TAC §109.1001(e)(9) was added at adoption to make the proposed administrative cost ratio calculation and thresholds effective for the 2025-2026 rating year.

The agency disagrees with removing recapture amounts from revenue and expenditures for the 2023-2024 School FIRST rating year. School districts that have local revenue in excess of entitlement are legally obligated to reduce their level under TEC, Chapter 49, and one option is through making recapture payments. The agency agrees to analyze indicators for possible adjustments in future rating years.

School FIRST Indicator 10

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(8), a school district administrator proposed that School FIRST Indicator 10 be updated to reflect districts that have Chapter 313 agreements because the revenue from these agreements fluctuate and is not guaranteed.

Response: The agency disagrees with adjusting School FIRST Indicator 10 to exclude revenue from Chapter 313 agreements because it is an operational decision by school districts to enter into Chapter 313 agreements, and school districts may appeal Indicator 10 if they consider the result to be adverse. However, the agency will not evaluate School FIRST Indicator 10 for the 2023-2024 rating year, and all school districts will receive the maximum points for the indicator.

Administrative Cost Ratio Calculation (School FIRST Indicator 13 and Charter FIRST Indicator 14)

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a charter school administrator requested a gradual transition to the proposed thresholds for the administrative cost ratio in Charter FIRST Indicator 14 because schools may need more time to adjust their administrative offices.

Response: The agency agrees to a transition for the proposed thresholds for the revised administrative cost ratio calculation. The agency has modified proposed Figure: 19 TAC §109.1001(e)(8) and Figure: 19 TAC §109.1001(f)(8) at adoption to reflect the calculation and thresholds for School FIRST Indicator 13 and Charter FIRST Indicator 14 as they existed for rating year 2022-2023. New Figure: 19 TAC §109.1001(e)(9) and Figure: 19 TAC §109.1001(f)(9) were added at adoption to make the revised administrative cost ratio calculation and thresholds effective for the 2025-2026 rating year.

Foundation School Program Repayment Plan (School FIRST and Charter FIRST Indicator 21)

Comment: Concerning proposed Figure: 19 TAC §109.1001(e)(8), a school district administrator stated that proposed School FIRST Indicator 21 is an unfair and inaccurate way to assess the financial condition of a school district that is repaying an over-allocation of Foundation School Program funds and that a school district's ability to secure a bond guarantee from the Permanent School Fund could be impacted by a reduced School FIRST rating. The school district administrator suggested that a ceiling of 89 points or B = Above Standard Achievement rating, instead of the proposed 70 points or C = Meets Standard Achievement rating, be used for School FIRST Indicator 21 if the agency proceeds with the implementation of the indicator. The school district administrator recommended that the rule be effective no earlier than the 2025-2026 School FIRST rating year because making Indicator 21 effective retroactively to the 2023-2024 rating year changes the rules of accountability after the school year is over.

Response: The agency disagrees that School FIRST and Charter FIRST Indicator 21 is a not a fair way to assess the financial condition of a school district or that the ceiling should be 89 points or a B = Above Standard Achievement instead of 70 points or a C = Meets Standard Achievement rating. The agency considers whether a school district or charter school received a passed or failed School FIRST rating, not the numerical score, in its determination for approval or disapproval for the Bond Guarantee Program to guarantee bonds. The agency has maintained language as proposed concerning School FIRST and Charter FIRST Indicator 21, making the indicator effective for the 2023-2024 rating year.

Charter FIRST Indicator 1

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator suggested that Charter FIRST Indicator 1 be a ceiling indicator instead of a critical indicator.

Response: The agency disagrees that Charter FIRST Indicator 1 should be a ceiling indicator. Language in 19 TAC §109.1001(n)(9) allows the commissioner of education to adjust the overall score and rating to a passing score and rating upon appeal of Indicator 1 if the certificate of the board and the audit opinion letter from the external auditor for the charter school's annual financial and compliance report (AFR) were signed on or before the due date of the AFR as required in TEC, §44.008.

Charter FIRST Indicators 5 and 6

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator suggested that Charter FIRST Indicators 5 and 6 be revised to exclude the effect of other post-employment benefits (OPEB) and net pension liabilities (NPL) since these amounts are based on actuarial estimates that can have a significant impact on net position. The charter school administrator also suggested that these indicators be revised to exclude the effect of deferred inflows or outflows of resources related to pension plans on total net assets. The charter school administrator further stated that when OPEB, NPL, and deferred inflows and outflows of resources are included in these indicators, the year-over-year changes in net position are less meaningful.

Response: The agency disagrees that the calculation for Charter FIRST Indicator 5 for charter schools should exclude the effect of deferred inflows and outflows of resources related to pension plans. The calculation includes the addition of pension expense, OPEB, and NPL to total net position to exclude their effect in the calculation for Indicator 5; however, deferred outflows and deferred inflows of resources related to pensions are the portions of the effects not recognized in pension expense.

The agency disagrees that the calculation for Charter FIRST Indicator 6 should exclude the effect of OPEB and NPL and the effect of deferred inflows and outflows of resources related to pension plans on total net assets. Indicator 6 is a calculation of the average change in total net assets over three years, not a single year, so the impact of OPEB, NPL, and the effect of deferred inflows or outflows of resources related to pension plans are comparable per year.

Charter FIRST Indicator 8

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a consultant for charter schools requested that the Texas Education Agency evaluate Charter FIRST Indicator 8 for possible rating changes and possibly waive the indicator for the 2023-2024 rating year because the implementation of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) Topic 842 for leases is affecting the score for Indicator 8 negatively for some charter schools. The consultant stated that ASU-842 requires the creation of a right-of-use asset and a liability on the lessee's balance sheet for all leases.

Response: The agency agrees that FASB ASU-842 impacts the reporting of assets and liabilities in the Statement of Financial Position because ASU-842 requires a lessee to recognize a right-of-use asset and a lease liability for leases but disagrees with adjusting the determination of points for Indicator 8 for the 2023-2024 rating year because the results of the calculation closely align with the results of prior years. The agency will continue to analyze Indicator 8 for possible adjustments in future rating years.

Charter FIRST Indicator 10

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator suggested that Charter FIRST Indicator 10 be revised to allow a 15% variance when comparing budgeted revenues to actual revenues for the last three fiscal years to allow for fluctuations for smaller schools serving students in correctional facilities or residential treatment centers that do not have control over which students enroll.

Response: The agency disagrees that Charter FIRST Indicator 10 should be revised to allow for a 15% variance because a variance of 10% encourages accuracy and due diligence in budgeting and demonstrates a charter school has given thoughtful consideration to managing its finances. Generally, acceptable variances for school budgets are 5% to 10%, and about 75% of Texas charter schools averaged less than a 10% variance between budgeted and actual revenues over three years. The agency recognizes that there may be challenges with budgeting revenues for certain charter schools with student enrollment that is based on circumstances outside of the control of the charter school. Charter FIRST Indicator 10 will not be evaluated for Charter FIRST rating year 2023-2024, and all charter schools will receive the maximum of 10 points for Indicator 10 for rating year 2023-2024.

Charter FIRST Indicator 13

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator commented that Charter FIRST Indicator 13 appears to measure the impact of long-term debt on a school's operations and that the indicator should be revised to divide long-term indebtedness (bonds and loans), excluding OPEB and NPL, by total assets to determine a ratio. Additionally, the administrator provided a point scale for the ratio and added that a charter school should automatically pass Indicator 13 if the charter school's change of students in membership over five years is 7% or more.

Response: The agency disagrees that Charter FIRST Indicator 13 should be revised to divide long-term indebtedness, excluding OPEB and NPL, by total assets. The calculation for Indicator 11 for Charter FIRST already determines the long-term liabilities to total assets ratio with the point scale that was suggested by the administrator and allows a charter school to automatically pass the indicator if the charter school's change of students in membership over five years is 7% or more.

Charter FIRST Indicator 16

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a consultant for charter schools requested that the agency adopt a larger scale to establish a "Competency rate of a Charter's actual average daily attendance (ADA)" for Charter FIRST Indicator 16 since it is difficult to estimate a fair (close) enrollment and ADA number. The consultant requested the agency to allow for a scaled range with the measurement based on enrollment size to provide some relief to charter schools.

Response: The agency disagrees with the suggested rule change. Charter schools submit ADA estimates during the summer of the start of each school year, unlike school districts that submit projections biannually, so charter school estimates should be more reflective of environmental conditions. However, the agency agrees that there may be challenges with estimating ADA for certain charter schools. Charter FIRST Indicator 16 will not be evaluated for rating year 2023-2024, and all charter schools will receive the maximum of 5 points for Indicator 16 for rating year 2023-2024.

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator suggested that Charter FIRST Indicator 16 be revised to allow wider fluctuations in enrollment and attendance impacting schools with a smaller number of students.

Charter FIRST Indicator 17

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(8), a governmental charter school administrator suggested that Charter FIRST Indicator 17 be clarified to state the data in the Public Education Information Management System (PEIMS) should be within 3% of all expenses in the financial audit report that are reported in the Statement of Revenues, Expenditures, and Changes in Fund Balance (i.e., on a modified accrual basis) for governmental charter schools.

Response: The agency agrees that the source of data used in the calculation for Charter FIRST Indicator 17 for governmental charter schools should be clarified. At a later date, the agency intends to provide clarification on the sources of data used for governmental charter schools. The agency disagrees with making the suggested change to the rule at this time because TEA staff needs time to update documents to reflect sources for all indicators for governmental charter schools.

STATUTORY AUTHORITY. The amendment is adopted under Texas Education Code, §12.104, which subjects open-enrollment charter schools to the prohibitions, restrictions, or requirements relating to public school accountability and special investigations under TEC, Chapter 39, Subchapters A, B, C, D, F, G, and J, and TEC, Chapter 39A; §39.082, which requires the commissioner to develop and implement a financial accountability rating system for public schools and establishes certain minimum requirements for the system, including an appeals process; §39.083, which requires the commissioner to include in the financial accountability system procedures for public schools to report and receive public comment on an annual financial management report; §39.085, which requires the commissioner to adopt rules to implement TEC, Chapter 39, Subchapter D, which addresses financial accountability for public schools; §39.087, as added by House Bill 1525, 87th Texas Legislature, Regular Session, 2021, and as that section existed before expiration on September 1, 2023, which required the commissioner to adjust the financial accountability rating system under TEC, §39.082, to account for the impact of financial practices necessary as a response to the coronavirus disease (COVID-19) pandemic, including adjustments required to account for federal funding and funding adjustments under TEC, Chapter 48, Subchapter F; and §39.151, which requires the commissioner to provide a process by which a school district or an open-enrollment charter school can challenge an agency decision related to academic or financial accountability under TEC, Chapter 39, including a determination of consecutive school years of unacceptable performance ratings. This process must include a committee to make recommendations to the commissioner. These provisions collectively authorize and require the commissioner to adopt the financial accountability system rules, which implement each requirement of statute applicable to school districts and open-enrollment charter schools.

CROSS REFERENCE TO STATUTE. The amendment implements Texas Education Code, §§12.104; 39.082; 39.083; 39.085; 39.087, as added by House Bill 1525, 87th Texas Legislature, Regular Session, 2021, and as that section existed before expiration on September 1, 2023; and 39.151.

§109.1001.Financial Accountability Ratings.

(a) The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise.

(1) Annual Financial Report (AFR)--The audited annual report required by the Texas Education Code (TEC), §44.008, that is due to the Texas Education Agency (TEA) by no later than 150 days after the close of a school district's or an open-enrollment charter school's fiscal year.

(2) Ceiling indicator--An upper limit (the maximum score) at which a score from a standard limit of a specific indicator will result regardless of overall points.

(3) Debt--An amount of money owed to a person, bank, company, or other organization.

(4) Electronic submission--The TEA electronic data feed format required for use by school districts, open-enrollment charter schools, and regional education service centers (ESCs).

(5) Financial Integrity Rating System of Texas (FIRST)--The financial accountability rating system administered by the TEA in accordance with the TEC, §39.082 and §39.085. The system provides additional transparency to public education finance and meaningful financial oversight and improvement for school districts (School FIRST) and open-enrollment charter schools and charter schools operated by a public institution of higher education under TEC, Chapter 12, Subchapters D and E (Charter FIRST).

(6) Fiscal year--The fiscal year of a school district or an open-enrollment charter school, which begins on July 1 or September 1 of each year, as determined by the board of trustees of the district or the governing body of the charter holder in accordance with the TEC, §44.0011.

(7) Foundation School Program (FSP)--The program established under the TEC, Chapters 41, 42, and 46, or any successor program of state-appropriated funding for school districts in this state.

(8) Open-enrollment charter school--A charter school authorized by the commissioner of education under TEC, Chapter 12, Subchapter D.

(9) Public institution of higher education (IHE)--A public college or university eligible to operate a school district; an open-enrollment charter school; or a TEC, Chapter 12, Subchapter E, charter school authorized by the commissioner.

(10) Summary of Finances (SOF) report--The document of record for FSP allocations. An SOF report is produced for each school district and open-enrollment charter school by the TEA division responsible for state funding that describes the school district's or open-enrollment charter school's funding elements and FSP state aid.

(11) Texas Student Data System Public Education Information Management System (TSDS PEIMS)--The system that school districts and open-enrollment charter schools use to load, validate, and submit their data to the TEA.

(12) Warrant hold--The process by which state payments issued to payees indebted to the state, or payees with a tax delinquency, are held by the Texas Comptroller of Public Accounts until the debt is satisfied in accordance with the Texas Government Code, §403.055.

(b) The TEA will assign a financial accountability rating to each school district, open-enrollment charter school, and charter school operated by a public IHE under TEC, Chapter 12, Subchapters D and E, as required by the TEC, §39.082.

(c) The commissioner will evaluate the rating system every three years as required by the TEC, §39.082, and may modify the system in order to improve the effectiveness of the rating system. If the rating system has been modified, the TEA will communicate changes to ratings criteria and their effective dates to school districts, open-enrollment charter schools, and charter schools operated by public IHEs.

(d) The TEA will use the following sources of data in calculating the financial accountability indicators for school districts, open-enrollment charter schools, and charter schools operated by public IHEs.

(1) AFR. For each school district, open-enrollment charter school, and charter school operated by a public IHE, the TEA will use audited financial data in the district's or charter's AFR. The AFR, submitted as an electronic submission through the TEA website, must include data required in the Financial Accountability System Resource Guide (FASRG) adopted under §109.41 of this title (relating to Financial Accountability System Resource Guide).

(2) TSDS PEIMS. The TEA will use TSDS PEIMS data submitted by the school district, open-enrollment charter school, or charter school operated by a public IHE in the calculation of the financial accountability indicators.

(3) Warrant holds. The TEA will use warrant holds as reported by the Texas Comptroller of Public Accounts in the calculation of the financial accountability indicators.

(4) FSP. The TEA will use the average daily attendance (ADA) information used for FSP funding purposes for the school district, open-enrollment charter school, or charter school operated by a public IHE in the calculation of the financial accountability indicators.

(e) The TEA will base the financial accountability rating of a school district on its overall performance on the financial measurements, ratios, and other indicators established by the commissioner, as shown in the figures provided in this subsection. Financial accountability ratings for a rating year are based on the data from the immediate prior fiscal year.

(1) The financial accountability rating indicators for rating year 2014-2015 are based on fiscal year 2014 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated August 2015 for rating year 2014-2015."

Figure: 19 TAC §109.1001(e)(1) (No change.)

(2) The financial accountability rating indicators for rating year 2015-2016 are based on fiscal year 2015 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated August 2015 for rating year 2015-2016."

Figure: 19 TAC §109.1001(e)(2) (No change.)

(3) The financial accountability rating indicators for rating year 2016-2017 are based on fiscal year 2016 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated December 2016 for rating year 2016-2017."

Figure: 19 TAC §109.1001(e)(3) (No change.)

(4) The financial accountability rating indicators for rating years 2017-2018, 2018-2019, and 2019-2020 are based on financial data from fiscal years 2017, 2018, and 2019, respectively, and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated April 2020 for rating years 2017-2018 through 2019-2020." The financial accountability rating indicators for rating years 2017-2018, 2018-2019, and 2019-2020 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(4) (No change.)

(5) The financial accountability rating indicators for rating year 2020-2021 are based on fiscal year 2020 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated October 2021 for rating year 2020-2021." The financial accountability rating indicators for rating years after 2020-2021 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(5) (No change.)

(6) The financial accountability rating indicators for rating year 2021-2022 are based on fiscal year 2021 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated October 2021 for rating year 2021-2022." The financial accountability rating indicators for rating years after 2021-2022 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(6) (No change.)

(7) The financial accountability rating indicators for rating year 2022-2023 are based on fiscal year 2022 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated June 2023 for rating year 2022-2023." The financial accountability rating indicators for rating years after 2022-2023 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(7) (No change.)

(8) The financial accountability rating indicators for rating year 2023-2024 are based on fiscal year 2023 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated June 2024 for Rating Years 2023-2024+." The financial accountability rating indicators for rating years after 2023-2024 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(8) (.pdf)

(9) The financial accountability rating indicators for rating year 2025-2026 are based on fiscal year 2025 financial data and are provided in the figure in this paragraph entitled "School FIRST - Rating Worksheet Dated June 2024 for Rating Years 2025-2026+." The financial accountability rating indicators for rating years after 2025-2026 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(e)(9) (.pdf)

(10) The specific calculations and scoring methods used in the financial accountability rating worksheets for school districts for rating years prior to 2014-2015 remain in effect for all purposes with respect to those rating years.

(f) The TEA will base the financial accountability rating of an open-enrollment charter school on its overall performance on the financial measurements, ratios, and other indicators established by the commissioner, as shown in the figures provided in this subsection. Financial accountability ratings for a rating year are based on the data from the immediate prior fiscal year.

(1) The financial accountability rating indicators for rating year 2014-2015 are based on fiscal year 2014 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated August 2015 for rating year 2014-2015."

Figure: 19 TAC §109.1001(f)(1) (No change.)

(2) The financial accountability rating indicators for rating year 2015-2016 are based on fiscal year 2015 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated August 2015 for rating year 2015-2016."

Figure: 19 TAC §109.1001(f)(2) (No change.)

(3) The financial accountability rating indicators for rating year 2016-2017 are based on fiscal year 2016 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated August 2015 for rating year 2016-2017."

Figure: 19 TAC §109.1001(f)(3) (No change.)

(4) The financial accountability rating indicators for rating years 2017-2018, 2018-2019, and 2019-2020 are based on financial data from fiscal years 2017, 2018, and 2019, respectively, and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated April 2020 for rating year 2017-2018." The financial accountability rating indicators for rating years 2017-2018, 2018-2019, and 2019-2020 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(4) (No change.)

(5) The financial accountability rating indicators for rating year 2020-2021 are based on fiscal year 2020 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated October 2021 for rating year 2020-2021." The financial accountability rating indicators for rating years after 2020-2021 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(5) (No change.)

(6) The financial accountability rating indicators for rating year 2021-2022 are based on fiscal year 2021 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated October 2021 for rating year 2021-2022." The financial accountability rating indicators for rating years after 2021-2022 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(6) (No change.)

(7) The financial accountability rating indicators for rating year 2022-2023 are based on fiscal year 2022 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated June 2023 for rating year 2022-2023." The financial accountability rating indicators for rating years after 2022-2023 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(7) (No change.)

(8) The financial accountability rating indicators for rating year 2023-2024 are based on fiscal year 2022 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated June 2024 for Rating Years 2023-2024+." The financial accountability rating indicators for rating years after 2023-2024 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(8) (.pdf)

(9) The financial accountability rating indicators for rating year 2025-2026 are based on fiscal year 2025 financial data and are provided in the figure in this paragraph entitled "Charter FIRST - Rating Worksheet Dated June 2024 for Rating Years 2025-2026+." The financial accountability rating indicators for rating years after 2025-2026 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(f)(9) (.pdf)

(10) The specific calculations and scoring methods used in the financial accountability rating worksheets for open-enrollment charter schools for rating years prior to 2014-2015 remain in effect for all purposes with respect to those rating years.

(g) The TEA will base the financial accountability rating of a charter school operated by a public IHE on its overall performance on the financial measurements, ratios, and other indicators established by the commissioner, as shown in the figures provided in this subsection. Financial accountability ratings for a rating year are based on the data from the immediate prior fiscal year.

(1) The financial accountability rating indicators for rating year 2016-2017 are based on fiscal year 2016 financial data and are provided in the figure in this paragraph entitled "IHE Charter FIRST - Rating Worksheet Dated June 2019 for rating years 2016-2017 through 2019-2020." The financial accountability rating indicators for rating years 2016-2017 through 2019-2020 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(g)(1) (No change.)

(2) The financial accountability rating indicators for rating year 2020-2021 are based on fiscal year 2020 financial data and are provided in the figure in this paragraph entitled "IHE Charter FIRST - Rating Worksheet Dated June 2019 for rating year 2020-2021." The financial accountability rating indicators for rating years after 2020-2021 will use the same calculations and scoring method provided in the figure in this paragraph.

Figure: 19 TAC §109.1001(g)(2) (No change.)

(h) The types of financial accountability ratings that school districts or open-enrollment charter schools may receive for the rating year 2014-2015 are as follows.

(1) P for pass. This rating applies only to the financial accountability rating for rating year 2014-2015 based on fiscal year 2014 financial data. In accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive a P rating if it scores within the applicable range established by the commissioner for a P rating.

(2) F for substandard achievement. This rating applies to the financial accountability rating for rating year 2014-2015 based on fiscal year 2014 financial data. In accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive an F rating if it scores within the applicable range established by the commissioner for an F rating.

(i) The types of financial accountability ratings that school districts or open-enrollment charter schools may receive for the rating year 2015-2016 and all subsequent rating years are as follows.

(1) A for superior achievement. Beginning with the financial accountability rating for rating year 2015-2016 and all subsequent rating years, in accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive an A rating if it scores within the applicable range established by the commissioner for an A rating.

(2) B for above standard achievement. Beginning with the financial accountability rating for rating year 2015-2016 and all subsequent rating years, in accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive a B rating if it scores within the applicable range established by the commissioner for a B rating.

(3) C for standard achievement. Beginning with the financial accountability rating for rating year 2015-2016 and all subsequent rating years, in accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive a C rating if it scores within the applicable range established by the commissioner for a C rating.

(4) F for substandard achievement. Beginning with the financial accountability rating for rating year 2015-2016 and all subsequent rating years, in accordance with the procedures established in this section, a school district or an open-enrollment charter school will receive an F rating if it scores within the applicable range established by the commissioner for an F rating.

(5) No Rating. Beginning with the financial accountability rating for rating year 2016-2017 and all subsequent rating years, in accordance with the procedures established in this section, a school district receiving territory due to an annexation order by the commissioner under the TEC, §13.054, or consolidation under the TEC, Chapter 49, Subchapter H, will not receive a rating for two consecutive rating years beginning with the rating year that is based on financial data from the fiscal year in which the order of annexation becomes effective. After the second rating year, the receiving district will be subject to the financial accountability rating system established by the commissioner in this section.

(j) The types of financial accountability ratings that charter schools operated by public IHEs may receive for the rating year 2016-2017 and all subsequent rating years are as follows.

(1) P for pass. Beginning with the financial accountability rating for rating year 2016-2017 and all subsequent rating years, in accordance with the procedures established in this section, a charter school operated by a public IHE will receive a P rating if it scores within the applicable range established by the commissioner for a P rating.

(2) F for substandard achievement. Beginning with the financial accountability rating for rating year 2016-2017 and all subsequent rating years, in accordance with the procedures established in this section, a charter school operated by a public IHE will receive an F rating if it scores within the applicable range established by the commissioner for an F rating.

(k) The commissioner may lower a financial accountability rating based on the findings of an action conducted under the TEC, Chapter 39 or 39A, or change a financial accountability rating in cases of disaster, flood, extreme weather conditions, fuel curtailment, or another calamity.

(l) A financial accountability rating remains in effect until replaced by a subsequent financial accountability rating.

(m) The TEA will issue a preliminary financial accountability rating to a school district, an open-enrollment charter school, or a charter school operated by a public IHE on or before August 8 of each year. The TEA will base the financial accountability rating for a rating year on the data from the fiscal year preceding the rating year.

(1) The TEA will not delay the issuance of the preliminary or final rating if a school district, an open-enrollment charter school, or a charter school operated by a public IHE fails to meet the statutory deadline under the TEC, §44.008, for submitting the AFR. Instead, the school district, open-enrollment charter school, or charter school operated by a public IHE will receive an F rating for substandard achievement.

(2) If the TEA receives an appeal of a preliminary rating, described by subsection (n) of this section, the TEA will issue a final rating to the school district, open-enrollment charter school, or charter school operated by a public IHE no later than 60 days after the deadline for submitting appeals.

(3) If the TEA does not receive an appeal of a preliminary rating, described by subsection (n) of this section, the preliminary rating automatically becomes a final rating 31 days after issuance of the preliminary rating.

(n) A school district, an open-enrollment charter school, or a charter school operated by a public IHE may appeal its preliminary financial accountability rating through the following appeals process.

(1) The TEA division responsible for financial accountability must receive a written appeal no later than 30 days after the TEA's release of the preliminary rating. The appeal must include adequate evidence and additional information that supports the position of the school district, open-enrollment charter school, or charter school operated by a public IHE. Appeals received 31 days or more after TEA issues a preliminary rating will not be considered.

(2) A data error attributable to the TEA is a basis for an appeal. If a preliminary rating contains a data error attributable to the TEA, a school district or an open-enrollment charter school may submit a written appeal requesting a review of the preliminary rating.

(3) A school district, an open-enrollment charter school, or a charter school operated by a public IHE may appeal any other adverse issue it identifies in the preliminary rating.

(4) The TEA will only consider appeals that would result in a change of the preliminary rating.

(5) The TEA division responsible for financial accountability will select an external review panel to independently oversee the appeals process.

(6) The TEA division responsible for financial accountability will submit the information provided by the school district, open-enrollment charter school, or charter school operated by a public IHE to the external review panel members for review.

(7) Each external review panel member will examine the appeal and supporting documentation and will submit his or her recommendation to the TEA division responsible for financial accountability.

(8) The TEA division responsible for financial accountability will compile the recommendations and forward them to the commissioner.

(9) The commissioner will make a final ratings decision.

(A) The commissioner may adjust a score for an indicator or the overall score upon appeal of the indicator(s) by the school district, open-enrollment charter school, or charter school operated by a public IHE.

(B) Upon appeal of the indicator for the timely submission of a complete AFR, the commissioner may adjust the overall score and rating as described in clauses (i)-(iii) of this subparagraph if the certificate of the board and the audit opinion letter from the external auditor for the school district's or charter school's AFR were signed on or before the due date of the AFR as required in TEC, §44.008.

(i) For a school district or charter school that has a failed preliminary FIRST rating with 85 to 100 points, deduct 15 points from the total points for an overall passing score if no other critical indicators were failed.

(ii) For a school district or charter school that has a failed preliminary FIRST rating with 70 to 84 points, adjust the overall score to 70 points for an overall passing score if no other critical indicators were failed.

(iii) For a school district or charter school that has a failed preliminary FIRST rating with total points less than the threshold for an overall passing score and/or the school district or charter school failed any other critical indicators, no adjustment to the points will be made for the overall score.

(o) A final rating issued by the TEA under this section may not be appealed under the TEC, §7.057, or any other law or rule.

(p) A financial accountability rating by a voluntary association is a local option of the school district, open-enrollment charter school, or charter school operated by a public IHE, but it does not substitute for a financial accountability rating by the TEA.

(q) Each school district, open-enrollment charter school, and charter school operated by a public IHE is required to report information and financial accountability ratings to parents, taxpayers, and other stakeholders by implementing the following reporting procedures.

(1) Each school district, open-enrollment charter school, and charter school operated by a public IHE must prepare and distribute an annual financial management report in accordance with this subsection.

(2) Each school district, open-enrollment charter school, and charter school operated by a public IHE must provide the public with an opportunity to comment on the report at a public hearing.

(3) The annual financial management report for a school district, an open-enrollment charter school, or a charter school operated by a public IHE must include:

(A) a description of its financial management performance based on a comparison, provided by the TEA, of its performance on the indicators established by the commissioner and reflected in this section. The report will contain information that discloses:

(i) state-established standards; and

(ii) the financial management performance of the school district, open-enrollment charter school, or charter school operated by a public IHE under each indicator for the current and previous year's financial accountability ratings;

(B) any descriptive information required by the commissioner, including:

(i) a copy of the superintendent's current employment contract or other written documentation of employment if no contract exists. This must disclose all compensation and benefits paid to the superintendent. The school district, open-enrollment charter school, or charter school operated by a public IHE may publish the superintendent's employment contract on its website instead of publishing it in the annual financial management report;

(ii) a summary schedule for the fiscal year (12-month period) of expenditures paid on behalf of the superintendent and each board member and total reimbursements received by the superintendent and each board member. This includes transactions on the credit card(s), debit card(s), stored-value card(s), and any other similar instrument(s) of the school district, open-enrollment charter school, or charter school operated by a public IHE to cover expenses incurred by the superintendent and each board member. The summary schedule must separately report reimbursements for meals, lodging, transportation, motor fuel, and other items. The summary schedule of total reimbursements should not include reimbursements for supplies and materials that were purchased for the operation of the school district, open-enrollment charter school, or charter school operated by a public IHE;

(iii) a summary schedule for the fiscal year of the dollar amount of compensation and fees received by the superintendent from an outside school district, open-enrollment charter school, charter school operated by a public IHE, or any other outside entity in exchange for professional consulting or other personal services. The schedule must separately report the amount received from each entity;

(iv) a summary schedule for the fiscal year of the total dollar amount of gifts that had a total economic value of $250 or more received by the executive officers and board members. This reporting requirement applies only to gifts received by the executive officers and board members (and their immediate family as described by Government Code, Chapter 573, Subchapter B, Relationships by Consanguinity or by Affinity) of the school district, open-enrollment charter school (or charter holder), or charter school operated by a public IHE (or charter holder) from an outside entity that received payments from the school district, open-enrollment charter school (or charter holder), or charter school operated by a public IHE (or charter holder) in the prior fiscal year and to gifts from competing vendors that were not awarded contracts in the prior fiscal year. This reporting requirement does not apply to reimbursement by an outside entity for travel-related expenses when the purpose of the travel was to investigate matters directly related to an executive officer's or board member's duties or to investigate matters related to attendance at education-related conferences and seminars with the primary purpose of providing continuing education (this exclusion does not apply to trips for entertainment purposes or pleasure trips). This reporting requirement excludes an individual gift or a series of gifts from a single outside entity that had a total economic value of less than $250 per executive officer or board member; and

(v) a summary schedule for the fiscal year of the dollar amount received by board members for the total amount of business transactions with the school district, open-enrollment charter school (or charter holder), or charter school operated by a public IHE (or charter holder). This reporting requirement is not to duplicate the items disclosed in the summary schedule of reimbursements received by board members; and

(C) any other information the board of trustees of the school district, open-enrollment charter school, or charter school operated by a public IHE determines to be useful.

(4) The board of trustees of each school district, open-enrollment charter school, or charter school operated by a public IHE must hold a public hearing on the annual financial management report within two months after receiving a final financial accountability rating. The public hearing must be held at a location in the facilities of the school district, open-enrollment charter school, or charter school operated by a public IHE. The board must give notice of the hearing to owners of real estate property in the geographic boundaries of the school district, open-enrollment charter school, or charter school operated by a public IHE and to parents of school district, open-enrollment charter school, or charter school operated by a public IHE students. In addition to other notice required by law, the board must provide notice of the hearing:

(A) to a newspaper of general circulation in the geographic boundaries of the school district, each campus of an open-enrollment charter school, or each campus of a charter school operated by a public IHE in one posting prior to holding the public meeting, providing the time and place of the hearing. The notice in the newspaper may not be earlier than 30 days or later than 10 days before the date of the hearing. If no newspaper is published in the county in which the district's central administration office is located or within the geographic boundaries of an open-enrollment charter school's campus or campus of a charter school operated by a public IHE, then the board must publish the notice in the county nearest to the county seat of the county in which the district's central administration office is located or in which the campus of the open-enrollment charter school or the campus of a charter school operated by a public IHE is located; and

(B) through electronic mail to the mass communication media serving the school district, open-enrollment charter school, or charter school operated by a public IHE, including, but not limited to, radio and television.

(5) At the hearing, the school district, open-enrollment charter school, or charter school operated by a public IHE must provide the annual financial management report to the attending parents and taxpayers.

(6) The school district, open-enrollment charter school, or charter school operated by a public IHE must retain the annual financial management report for at least three years after the public hearing and make it available to parents and taxpayers upon request.

(7) Each school district, open-enrollment charter school, or charter school operated by a public IHE that received an F rating must file a corrective action plan with the TEA, prepared in accordance with instructions from the commissioner, within one month after the public hearing of the school district, open-enrollment charter school, or charter school operated by a public IHE. The commissioner may require certain information in the corrective action plan to address the factor(s) that may have contributed to the F rating for a school district, open-enrollment charter school, or charter school operated by a public IHE.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 24, 2024.

TRD-202402342

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Effective date: June 13, 2024

Proposal publication date: February 23, 2024

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