Project Goals



Introduction

Senate Bill (SB) 875 of the 76th Legislature (1999) required the development of a proposal for a school financial accountability rating system for school districts. The 77th Legislature (2001) enacted SB 218, which requires the implementation of a financial accountability rating system. The financial accountability rating system will be officially referred to as “School FIRST” (Financial Integrity Rating System of Texas).

Project Goals

The primary goal of School FIRST is to achieve improved performance in the management of school districts’ financial resources. Legislators and their constituents have raised many questions regarding qualitative aspects of the management of financial resources in Texas public schools. Improvement in the quality of financial management will facilitate better uses of resources. The importance of the rating system’s stated goal is underscored by the steadily increasing complexity of the state’s funding of public schools compounded by the increasing sophistication of the associated accounting system.

Project Objectives

The primary objective of the rating system is to assess the quality of financial management in Texas public schools. A secondary objective is to measure and report the extent to which financial resources in Texas public schools assure the maximum allocation possible for direct instructional purposes. Other objectives reflect the implementation of a rating system that fairly and equitably evaluates the quality of financial management decisions. After full implementation of the rating system, the districts’ ratings will be openly reported to the general public and to other interested persons and entities.

District Ratings

Districts’ ratings are based upon the districts’ numerical scores expressed as the count of indicators that show “No” answers. The four primary levels of ratings are based upon the count of “No” answers to the 21 indicators by each school district. The maximum count of “Yes” answers is 21. The 21 indicators are assigned equal points.

|Rating |Score (Number of “No” Answers to |

| |Indicators) |

|Superior Achievement |0 - 2 |

|Above Standard Achievement |3 - 4 |

|Standard Achievement |5 - 6 |

|Substandard Achievement |=>7 OR No To One Default Indicator |

|Suspended – Data Quality | |

Failure to meet the criteria for any one of three critical indicators (i.e., no evidence of a deficit unreserved fund balance; no evidence of default on debt; or no evidence of filing the annual financial report more than one month late), or failure to meet the criteria of both of the two other critical indicators (i.e., no evidence of a qualified opinion to the annual financial report, and no evidence of material weaknesses in internal controls) will result in an automatic rating of “Substandard Achievement.” The lowest possible score is zero for all combinations of the 21 indicators, which would result in a “Superior Achievement” rating. However, if serious data quality arises from an analysis of the districts’ information, one additional rating may apply. The additional rating is “Suspended – Data Quality.”

Sanctions

Sanctions would be applied to districts that receive a “Substandard Achievement” rating. Additional sanctions could apply if issues arise relating to data quality. Sanctions could result in the assignment of a financial monitor or master by the Texas Education Agency Accountability Department in accordance with Chapter 39 of the Education Code. Additional sanctions could involve an accreditation investigation that could result in specific requirements for improvements in financial management. A lowered rating status resulting from an investigation would remain in effect until the commissioner acknowledges that significant improvement was being made in financial management problem areas.

Sanctions may also be applied as a result of data problems of a sufficient magnitude to raise questions about the validity of measurements used in the financial accountability rating system indicators. The district’s rating would be suspended if serious, systemic data quality problems occurred. If not resolved by an investigation of data quality issues, an actual rating of “Suspended – Data Quality” may be assigned.

Reports

During the transitional implementation of the financial accountability rating system (the 2002-2003 school year), the Texas Education Agency will distribute preliminary and final paper reports to each district and regional education service center. Upon full implementation of the rating system in school year 2003-2004, the Texas Education Agency will discontinue distribution of preliminary and final paper reports and will post the districts’ final reports to the Texas Education Agency’s world wide web site and districts will be able to print copies of all materials from that source. For districts without means to acquire the information from the web, regional education service centers will be able to provide assistance.

Upon the full implementation of the financial accountability rating system, there will be a distribution by the school districts of the rating reports to all the districts’ taxpayers, in addition to the parents and guardians of students. The districts will also hold public discussions of the ratings.

Public Notice Of The Ratings

Each board of trustees will publish an annual report describing the financial management performance of the district. The report must include the information provided by the Texas Education Agency. Supplemental information to be included in the report may be determined by the local board of trustees.

Public Discussion Of The Ratings

The board of trustees shall hold a hearing for public discussion of the annual financial accountability system report. The board of trustees shall notify property owners and parents and guardians in the district of the hearing.

After receipt of the financial accountability rating system report generated by the Texas Education Agency, the district level decision making committee must hold at least one public meeting annually for the purpose of discussing the financial performance of the district and district performance objectives.

Corrective Action Plan

A corrective action plan is to be filed with the TEA by each school district that received a rating of “Substandard Achievement” or “Suspended – Data Quality. ”

|School FIRST - Rating Worksheet Calculations - Proposed Draft |

| |Indicator |Calculation Defined |

|1 |Was Total Fund Balance Less Reserved Fund Balance Greater Than|A > 0 Where A = [Aggregate Of Unreserved, Designated Fund Balance And |

| |Zero In The General Fund? |Unreserved, Undesignated Fund Balance In General Fund At August 31] |

|2 |Were There No Disclosures In The Annual Financial Report |No Calculation Involved |

| |And/Or Other Sources Of Information Concerning Default On | |

| |Bonded Indebtedness Obligations? | |

|3 |Was The Annual Financial Report Filed Within One Month After |No Calculation Involved |

| |November 27th or January 28th Deadline Depending Upon The | |

| |District's Fiscal Year End Date (June 30th or August 31st)? | |

|4 |Was There An Unqualified Opinion In Annual Financial Report? |No Calculation Involved |

|5 |Did The Annual Financial Report Not Disclose Any Instance(s) |No Calculation Involved |

| |Of Material Weaknesses In Internal Controls? | |

|6 |Was The Percent Of Total Tax Collections (Including |((A / B) X 100) Where A = [Tax Collections]; B = [Tax Levy] Reported In |

| |Delinquent) Greater Than 96%? |Exhibit C-1 Schedule of Delinquent Taxes Receivable In The Annual Financial |

| | |Report |

|7 |Did The Comparison Of PEIMS Data To Like Information In Annual|((A / B) X 100) Of C Where A = [Absolute Value Of All Differences In |

| |Financial Report Result In An Aggregate Variance Of Less Than |Expenditures In Exhibit A-2 And PEIMS]; B = [Sum Of Expenditure In PEIMS Per |

| |4 Percent Of Expenditures Per Fund Type (Data Quality |Fund Type Presented In Exhibit A-2]; C = [Fund Class] |

| |Measure)? | |

|8 |Were Debt Related Expenditures (Net Of IFA And/Or EDA |If ((B – D)/ D) X 100 < 2 % Or E / F < $100,000, Then Continue Calculation ((A|

| |Allotment) Less Than $770.00 Per Student? (If The District's |- C )/ B) Where A = [Function 71 Expenditures In The Debt Service And General |

| |Five-Year Percent Change In Students Was A 2% Increase Or |Funds (Excluding Expenditure Object Codes 6524 and 6525)]; B = [Number Of |

| |More, Or If Property Taxes Collected Per Penny Of Tax Effort |Students In Year 5 From Base Year]; C = [IFA + EDA Allotments]; D = [Number Of|

| |Were More Than $100,000, Then Answer This Indicator Yes) |Students In Base Year]; E = [Total Tax Collections]; F = [Total Tax Rate In |

| | |Pennies] |

|9 |Was There No Disclosure In The Annual Audit Report Of Material|No Calculation Involved |

| |Noncompliance? | |

|10 |Did The District Have Full Accreditation Status In Relation To|No Calculation Involved |

| |Financial Management Practices? (e.g., No Master Or Monitor | |

| |Assigned) | |

|11 |Was The Percent Of Operating Expenditures Expended For |((A / B) X 100) Where A = [ Expenditures In General Fund, Special Revenue, and|

| |Instruction More Than 54%? |Capital Project Funds (Excluding SSA Fund Codes) In Function 11 And Object |

| | |Codes 6112-6499]; B = [Expenditures In General Fund, Special Revenue Fund |

| | |(Excluding SSA Fund Codes), Capital Project Fund, And Enterprise Fund 701 |

| | |(Child Nutrition Program); Functions 11 through 61; Object Codes 6112 through |

| | |6499] |

|12 |Was The Aggregate Of Budgeted Expenditures And Other Uses Less|(A + B) - (C + D + E) < 0 Where A = [Budgeted Appropriations In General Fund];|

| |Than The Aggregate Of Total Revenues, Other Resources and Fund|B = [Budgeted Other Uses In The General Fund]; C = [Budgeted Revenues In |

| |Balance in General Fund? |General Fund]; D = [Budgeted Other Resources In The General Fund]; E = [Fund |

| | |Balance In General Fund At September 1] |

|13 |If The District's Aggregate Fund Balance In The General Fund |If (C + D) < 0 Then Continue Calculation As (A - B - (C + D)) < 0 Where A = |

| |And Capital Projects Fund Was Less Than Zero, Were |[Expenditures Function 81 In General Fund and Capital Projects Fund]; B = |

| |Construction Projects Adequately Financed? (Were Construction |[Other Resources For Real Property Financing In General Fund and Capital |

| |Projects Adequately Financed Or Adjusted By Change Orders Or |Projects Fund]; C = [Fund Balance In General Fund At September 1]; D = [Fund |

| |Other Legal Means To Avoid Creating Or Adding To The Fund |Balance In Capital Projects Fund At September 1] |

| |Balance Deficit Situation?) | |

|14 |Was The Ratio Of Cash And Investments To Deferred Revenues |If B > 0 Then Continue Calculation As (A / B) Where A = [Cash And Investments |

| |(Excluding Amount Equal To Net Delinquent Taxes Receivable) In|In General Fund]; B = [Deferred Revenue In General Fund – Property Tax |

| |The General Fund Greater Than Or Equal To 1:1? (If Deferred |Receivable Net Of Uncollectible] |

| |Revenues Are Less Than Net Delinquent Taxes Receivable, Then | |

| |Answer This Indicator Yes) | |

|15 |Was The Administrative Cost Ratio Less Than The Standard In |(A>B) A = [Acceptable Administrative Cost Ratio]; B = [Administrative Cost |

| |State Law? |Ratio Of The District Published By The Texas Education Agency On The Internet]|

|16 |Was The Ratio Of Students To Teachers Within The Ranges Shown |(A / B) Where A = [Number Of Students]; B = [Number Of Teachers FTEs] |

| |Below According To District Size? (See Ranges Below) | |

|17 |Was The Ratio Of Students To Total Staff Within The Ranges |(A / B) Where A = [Number Of Students]; B = [Total Staff FTEs] |

| |Shown Below According To District Size? (See Ranges Below) | |

|18 |Was The Total Fund Balance In The General Fund More Than 50% |B + C + D + E = Optimum; and Deficient Fund Balance Amount In General Fund Is |

| |And Less Than 150% of Optimum According To The Fund Balance |Defined As A < ((B + C + D + E) X .5) AND /Excess Is Defined As A > ((B + C + |

| |and Cash Flow Calculation Worksheet in the Annual Financial |D + E) X 1.5) Where A = [Total General Fund Balance At August 31, 20XX]; B = |

| |Report? |[Total Reserved Fund Balance In General Fund]; C = [Total Designated Fund |

| | |Balance In General Fund]; D = [Estimated Amount To Cover Fall Cash Flow |

| | |Deficit In General Fund]; E = [Estimate Of One Month's Cash Disbursement |

| | |Amount During Regular School Session 9/1 Through 5/31] |

|19 |Was The Decrease In Undesignated Unreserved Fund Balance Less |If (A – B) > 0 And Optimum Fund Balance X 1.5 Is Less Than Total Fund Balance |

| |Than 20% Over Two Fiscal Years? (If 1.5 Times Optimum Fund |In General Fund And [C] X .80 > [D], Then Continue Calculation [A] - [B] Where|

| |Balance Is Less Than Total Fund Balance In General Fund Or If |A = [Expenditures In General Fund In Functions 11 Through 61 And Expenditure |

| |Total Revenues Exceeded Operating Expenditures In The General |Object Codes 6100 Through 6400]; B = [Total Revenues In General Fund]; C = |

| |Fund, Then Answer This Indicator Yes). |[Undesignated, Unreserved Fund Balance In General Fund At August 31 Two Fiscal|

| | |Years Prior]; D= [Undesignated, Unreserved Fund Balance In General Fund For |

| | |The Last Fiscal Year] |

|20 |Was The Aggregate Total Of Cash And Investments In The General|A > 0 Where A = [Cash and Investments In General Fund] |

| |Fund More Than $0? | |

|21 |Were Investment Earnings In All Funds More Than $15.00 Per |(A / B) Where A = [Investment Earnings]; B = [Number Of Students] |

| |Student? | |

| |Ranges for Ratios|

|District Size - Number of Students Between |Low |High |

|Indicator 16 |

| |10,000 | |13.5 |22 |

|Indicator 17 |

| |10,000 | |6.6 |14 |

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