65% Rule Update March 2008

1. 65% Rule UpdateMarch 2008 Texas Association of School Business Officials 62nd Annual Conference & Exhibits Tom Canby TASBO Rita Chase Texas Education Agency

2. Objective of Presentation • Changes to School FIRST • Disclosures • What’s New for 2008 • 65% Rule • Other changes to School FIRST • Update To The Resource Guide

3. School FIRST Disclosures

4. Disclosures in 2008 • Disclosures In Financial Management Report • Effective for School FIRST Financial Management Report Issued by District in August / September 2008 • Superintendent’s contract • Reimbursements of superintendent and board • Outside compensation of superintendent in exchange for professional and personal services • Gifts of $250 or more to executive officers and board members, and immediate families • Business transactions between district and board members

5. Timelines Up to Hearing • ~ June 2008 – Preliminary ratings released by TEA • 30 day period for appeals • ~ August 2008 – Final ratings released by TEA • 60 day period - public hearing • Notice about School FIRST hearing • Newspaper and electronic media • Two notices in newspaper • Once a week for two weeks • First newspaper notice not more than 30 days before and not less than 14 days prior to hearing • Provide copy of School FIRST financial management report to attendees

6. Superintendent Contract • Copy in effect on date of hearing • Provide copy in financial management report at hearing • May publish on school district’s web site at time of hearing and leave on web site for one year • Current employment contract at time of hearing • Indicators mostly based upon fiscal year 2007 data • Employment contract may be for 07-08 or 08-09 school year depending upon date of hearing • Not required to be published in newspaper

7. Reimbursements • Fiscal year 2007 • Superintendent • Disclose for individual board members • Dollar amount by category • Lodging • Meals • Transportation • Motor Fuel • Other

9. Reimbursements Continued… • Examples • If the superintendent pays for meal for all board members • Disclose amount per board member • In-district meals (outside of board meetings and excludes catered meals)

10. Reimbursements Continued… • If school district uses direct billing to pay for lodging • Disclose amount paid on-behalf • Superintendent • Individual board members

11. Outside Compensation Superintendent • Fiscal year 2007 • Gross receipts/revenue before costs • By vendor

13. Gifts • Fiscal year 2007 • Actual vendors • Potential vendors (vendors that submitted quotes, proposals, bids…..) • Amounts in excess of $250 or more per vendor awarded contracts in prior fiscal year and per a competing vendor that was not awarded contracts for a gift or series of gifts provided to • Executive officer • Individual board member (including members of their immediate family) • Limited exclusions • Travel related to duties • Education related conferences and seminars

15. Transactions with Board Members • Fiscal year 2007 • Disclose for individual board members • Dollar amount • Do not duplicate transactions disclosed under reimbursements

17. What’s New for 2008 • 65% Rule Indicators • Option to Publish Check Register • Additional New Indicators • Changes to Thresholds for Several Indicators • Changes to Determination of Ratings

18. Financial Accountability Rating System • Also referred to as • School FIRST (Financial Integrity Rating System of Texas)

19. Financial Accountability Rating System • History • Senate Bill 875, 76th Legislative Session • TEA Consulted With Comptroller Of Public Accounts • TEA Forwarded A Proposal To Legislature December 2000 • Senate Bill 218 Required Implementation of System • Amendment To System Published In Texas Register In 2004 • Legislative Leadership And Other Stakeholder Provide Feedback To Proposed Amendment • Amendment Published In Texas Register Spring 2005 • Amendment later withdrawn • Revisions To School FIRST To Be Official For Ratings Anticipated In June 2008

20. Senate Bill 218 • “SUBCHAPTER I. FINANCIAL ACCOUNTABILITY Added to Chapter 39, Texas Education Code • Section 39.201. Definitions • Section 39.202. Development and Implementation • Section 39.203. Reporting • Section 39.204. Rules

21. Objectives For Rating System • Simple And Understandable • Applicable To All Districts • Based On Hard Data • Allows For Self Administrations • Zero Burden To Districts • Provide An Early Warning • Substantially Within District’s Control • Linkage To Academic Performance (Did The Academic Rating Exceed Academically Unacceptable) • Transparency

22. 65 % Rule Continued… • NCES standard calculation in School FIRST to be: • Phased In Over Three Years at 55%, 60%, 65% • Full Implementation 65% - Ratings Issued Summer 2010 • Direct Instruction / Total Current Expenditures • All Funds (Excluding Shared Service Arrangement Funds, and Debt Service Fund) • Direct Instruction - Operating Expenditures (Codes 6112-6499) Functions 11, 36, 93 and 95 • Total Current Expenditures Operating Expenditures (Codes 6112-6499) Functions 11 – 61, and 93 and 95 (Includes Function 34, Student (Pupil) Transportation, and Function 35, Food Services )

23. 65 % Rule Continued… • NCES modified calculation in School FIRST to be: • 65% Threshold Applied to Preliminary Ratings Issued June 2008 • Direct Instruction / Total Current Expenditures • All Funds (Excluding Shared Service Arrangement Funds, and Debt Service Fund) • Direct Instruction - Operating Expenditures (Codes 6112-6499) Functions 11, 12, 31, 33, 36, 93 and 95 • Total Current Expenditures Operating Expenditures (Codes 6112-6499) Functions 11 – 61, and 93 and 95 (Includes Function 34, Student (Pupil) Transportation, and Function 35, Food Services )

24. 65 % Rule Continued… • Option to publish check register • A district that does not meet the 65% instructional expenditure standard (Indicator 13) may publish on their website their check register (excluding their payroll register) and their yearly payroll expenditure and receive full credit (3 points) for these indicators. • The district must notify the TEA within the 30-day review process that they have posted their register on the district's website and provide the website address to receive credit for this indicator. • Publish check register for current fiscal year through date of School FIRST hearing

25. 65 % Rule Continued… • NCES Fiscal Data • http://nces.ed.gov/ccd/districtsearch/ • Definitions for Instructional Expenditures http://nces.ed.gov/ccd/pdf/NPEFSmanual2004.pdf

26. Determination Of Ratings Ratings Points • Superior >=75 And Yes Indicator 7 • Above Standard >=75 And No Indicator 7 >=65 <75 • Standard >=55 <65 • Substandard <55 OR Zero Points For One Default Indicator

27. District Ratings • New System For Ratings to be Issued June 2008 • Based Upon 24 Indicators • Ratings Function Of Aggregate Number Of Points And Answers To Critical Indicators • Five Point Scale For Most Indicators With Calculated Values • Five Point Scale Based Upon 20% Variance For Most Indicators With Calculated Values • Some Indicators Remain Pass/Fail • Failing To Pass One Or More Critical Indicators Will Result In Automatic Failing Grade

28. Overview of Base Indicators • Critical Indicators • Fiscal Efficiencies And Academic Performance • Budgeting • Personnel • Cash Management

29. Critical Indicators • Was Total Fund Balance Less Reserved Fund Balance Greater Than Zero In The General Fund? • Was The Total Unrestricted Net Asset Balance (Net Of Accretion OF Interest On Capital Appreciation Bonds) In The Governmental Activities Column In The Statement Of Net Assets Greater Than Zero (If The District’s Five Year Percent Change In Students Was A 10% Increase Or More Then Answer This Question Yes)?

30. Critical Indicators Continued… • Were There No Disclosures In The Annual Financial Report And/Or Other Sources Of Information Concerning Default On Bonded Indebtedness Obligations? • Was The Annual Financial Report Filed Within One Month After November 27th or January 28th Deadline Depending Upon The District's Fiscal Year End Date (June 30th or August 31st)?

31. Critical Indicators Continued… • Was There An Unqualified Opinion In Annual Financial Report? • Did The Annual Financial Report Not Disclose Any Instance(s) Of Material Weaknesses In Internal Controls?

32. Fiscal Responsibility And Academic Performance • Did The District’s Academic Rating Exceed Academically Unacceptable?

33. Fiscal Responsibility And Academic PerformanceContinued… • Was The Three-Year Average Percent Of Total Tax Collections (Including Delinquent) Greater Than 98%? • Did The Comparison Of PEIMS Data To Like Information In Annual Financial Report Result In An Aggregate Variance Of Less Than 3 Percent Of Expenditures Per Fund Type (Data Quality Measure)?

34. Fiscal Responsibility And Academic PerformanceContinued… • Were Debt Related Expenditures (Net Of IFA And/Or EDA Allotment) Less Than $250.00 Per Student? (If The District's Five-Year Percent Change In Students Was A 7% Increase Or More, Or If Property Taxes Collected Per Penny Of Tax Effort Were More Than $200,000, Then Answer This Indicator Yes)

35. Fiscal Responsibility And Academic PerformanceContinued… • Was There No Disclosure In The Annual Audit Report Of Material Noncompliance? • Did The District Have Full Accreditation Status In Relation To Financial Management Practices? (e.g., No Conservator Or Monitor Assigned)

36. Budgeting • Was The Aggregate Of Budgeted Expenditures And Other Uses Less Than The Aggregate Of Total Revenues, Other Resources and Fund Balance in General Fund?

37. Budgeting Continued… • If The District's Aggregate Fund Balance In The General Fund And Capital Projects Fund Was Less Than Zero, Were Construction Projects Adequately Financed? (Were Construction Projects Adequately Financed Or Adjusted By Change Orders Or Other Legal Means To Avoid Creating Or Adding To The Fund Balance Deficit Situation?)

38. Budgeting Continued… • Was The Ratio Of Cash And Investments To Deferred Revenues (Excluding Amount Equal To Net Delinquent Taxes Receivable) In The General Fund Greater Than Or Equal To 1:1? (If Deferred Revenues Are Less Than Net Delinquent Taxes Receivable, Then Answer This Indicator Yes)

39. Personnel • Was The Administrative Cost Ratio Less Than The Threshold Ratio? • Was The Ratio Of Students To Teachers Within The Ranges Shown Below According To District Size? • Was The Ratio Of Students To Total Staff Within The Ranges Shown Below According To District Size?

40. Cash Management • Was The Total Fund Balance In The General Fund More Than 50% And Less Than 150% of Optimum According To The Fund Balance and Cash Flow Calculation Worksheet in the Annual Financial Report?

41. Cash Management Continued… • Was The Decrease In Undesignated Unreserved Fund Balance Less Than 20% Over Two Fiscal Years? (If 1.5 Times Optimum Fund Balance Is Less Than Total Fund Balance In General Fund Or If Total Revenues Exceeded Operating Expenditures In The General Fund, Then Answer This Indicator Yes).

42. Cash Management Continued… • Was The Aggregate Total Of Cash And Investments In The General Fund More Than $0? • Were Investment Earnings (Excluding Debt Service and Capital Projects Fund) In All Funds More Than $20.00 Per Student?

43. Update to Resource Guide • Version 13 of the Financial Accountability System Resource Guide available in February, 2008 • New Fund Codes (Effective 2008-2009) • 273 – Mathematics and Science Partnerships • 274 – GEAR UP • 275 – School Dropout Prevention • 276 – Title I SIP Academy Grant • 358 – SSA Title I SIP Academy Grant • 375 – SSA Mathematics and Science Partnerships • 423 – Limited English Proficient (LEP) Student Success Initiative • 424 – School Leadership Pilot Program • 425 – Teacher Induction and Mentoring Program • 426 – Texas Educator Excellence Award Grant Program • 428 – High School Allotment (Effective now) • New Object Codes • 2516 – Premium and Discount on Issuance of Bonds • 6122 – Salaries or Wages for Substitute Support Personnel • 6214 – Lobbying • 6291 – Consulting Services • 6495 - Dues

44. Resource Guide • Deleted Modules on GASB 34 and Dropout • Merged the GASB 34 into the FAR and Audit modules • Updated the remainder of the Guide

45. References • Resource Guide • http://www.tea.state.tx.us/school.finance/audit/resguide13/index.html • http://www.tea.state.tx.us/school.finance/audit/resguide13/Charter_School_Chart_of_Accounts07.pdf • http://www.tea.state.tx.us/school.finance/audit/resguide13/charter_supplement_update_4.pdf

46. Questions???? rita.chase@tea.state.tx.us 512-463-7595 tcanby@tasbo.org 512-462-1711