School Finance Update Fall Superintendents’ Leadership Conference Region 3 Education Service Center September 28, 2015

Agenda Review of the 84 th Legislative Session – House Bill 1 and the Foundation School Program appropriations – Compressed tax rate adjustment – Mandatory homestead exemption increase – Other legislation with financial implications Updates from State Funding – What is settle-up? – 2014–2015 settle-up – Preliminary 2015–2016 Summary Of Finances Updates from Financial Compliance – Auditor requirements – Audit guidance updates – Student attendance accounting – School FIRST 2 Office of School Finance Texas Education Agency

OVERVIEW OF LEGISLATIVE SESSION 3 Office of School Finance Texas Education Agency

House Bill 1 and Foundation School Program (FSP) Appropriations Basic Allotment$5,040$5,140 Equalized Wealth Level (Tier I)$504,000$514,000 Guaranteed Yield (Austin Pennies)$61.86$74.28$77.53 Guaranteed Yield (Copper Pennies)$31.95 Equalized Wealth Level (Copper Pennies) $319,500 4 Office of School Finance Texas Education Agency

HB 1 and FSP Appropriations New Instructional Facilities Allotment (NIFA) – $23.7 million in each year of the biennium – Provides for $250 per ADA in a new campus up to appropriations limit – Since the program was not funded last year, no campuses are currently in second year status – Only districts that applied through the FSP system are eligible – Applications are under review. Be sure to resubmit if yours is returned! – Allotments to be incorporated into Summary of Finances (SOF) later this fall 5 Office of School Finance Texas Education Agency

HB 1 and FSP Appropriations Instructional Facilities Allotment (IFA) – Appropriation of $55.5 million in fiscal year 2017 – Will provide for a new round of IFA – IFA is a program to provide property-poor school districts assistance in repaying debt on instructional facilities – It is not the same thing as NIFA! 6 Office of School Finance Texas Education Agency

HB 1 and FSP Appropriations Supplemental prekindergarten funding – $15 million in each year of the biennium – Funded on the basis of eligible prekindergarten ADA – Payments expected in October – Provided $148 per prekindergarten ADA last year 7 Office of School Finance Texas Education Agency

HB 1 and FSP Appropriations Rider 71 funding discontinued 8 Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments What is the compressed tax rate? – The district’s 2005 tax rate x – The basis for determining the district’s basic allotment and local fund assignment – The point at which Tier I ends and Tier II begins What is fractional funding? – The basic allotment is downwardly adjusted for districts that have compressed tax rates below $1.00. – Example: 2005 adopted tax rate = $1.35 $1.35 x = $0.90 compressed rate $0.90/$1.00 x $5,140 = $4,626 basic allotment 9 Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments Does my district qualify for an adjustment? – Compressed tax rate must be below $1.00 – Current-year M&O tax rate must be greater than the compressed tax rate plus $0.06 – Must request the conversion for 2015–2016 and 2016–2017 – Conversion is automatic beginning with 2017– Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments Should my district request an adjustment? – If tax rate conversion occurs: Tax effort shifted out of the zone of Tier 2 that is equalized at $31.95 per penny of tax effort into Tier 1. Tax effort shifted out of the zone of recapture governed by the equalized wealth level of $319,500 to the zone governed by the equalized wealth level of $514,000. For districts that receive ASATR, tax effort will be shifted out of Tier 2 into Tier 1, which counts against ASATR. 11 Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments Example Without ConversionWith Conversion 2005 tax rate$1.35 Current Adopted Rate1.04 Compressed tax rate9098 Pennies allocated to Austin Yield66 Pennies allocated to Copper Yield80 12 Office of School Finance Texas Education Agency

Yield per Penny of Tax Effort 13 Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments Districts that do not receive ASATR typically benefit from tax rate conversion because lower-yield copper pennies are converted to Tier I, which has a higher yield. Districts that receive ASATR may not benefit since revenue is shifted from outside to within the ASATR portion of the formula. For districts that receive ASATR, tax rate conversion may mitigate the impact of the ASATR repeal in September Run templates before making the 2015–2016 and 2016– 2017 decision! 14 Office of School Finance Texas Education Agency

Compressed Tax Rate Adjustments Districts that notified us by September 1 should now see the impact of tax rate conversion in their SOF. What if I made the wrong decision or forgot to send my letter??? – Districts will have the opportunity to revise their decision at Near- Final through the Tax Information Survey. – Use a template to ensure that you are making the best decision for your district. – Don’t forget to do your Tax Information Survey next summer!!! 15 Office of School Finance Texas Education Agency

Mandatory Homestead Exemption Increase Increases the mandatory homestead exemption from $15,000 to $25,000 Requires voter approval of SJR 1 in the November Begins in tax year 2015 (2015–2016 school year) – Property Tax Assistance Division (PTAD) property value for recapture and state aid will be calculated as if the exemption went into effect in 2014 – SOFs will reflect revisions after election 16 Office of School Finance Texas Education Agency

Mandatory Homestead Exemption Increase The recalculation of the PTAD property value will: – Reduce the local share and increase the state share of Tier I – Reduce the local share and increase the state share of Tier II – Reduce the local share and increase the state share of the Existing Debt Allotment (EDA) and IFA – Reduce recapture The recalculation of tax collections will: – Increase ASATR for those districts that receive it – Reduce recapture 17 Office of School Finance Texas Education Agency

Mandatory Homestead Exemption Increase Districts held harmless to the state and local maintenance and operations (M&O) revenue that would have been available: – Without exemption – Based on school finance formulas 2014 M&O tax rate or current tax rate, whichever is lower Districts held harmless to the state and local interest and sinking revenue (I&S) that would have been available – Without the exemption – Based on 2015–2016 eligible debt First payment made on bond on or before August 31, 2015 Future debt issuances will not be eligible for I&S hold harmless 18 Office of School Finance Texas Education Agency

Mandatory Homestead Exemption Increase We will post revised values reflecting the additional exemption to our website when we receive them. Revised property values and tax collections will be incorporated into the SOF after the November election passes. State funding for hold-harmless implemented will start to flow at that time. 19 Office of School Finance Texas Education Agency

Mandatory Homestead Exemption Increase Most of the increased state aid will flow through the formulas rather than the hold-harmless due to the use of revised property values. I&S hold-harmless will flow through the EDA payment ledger. – EDA ledgers will be created for all districts with eligible debt. 20 Office of School Finance Texas Education Agency

Other Legislation with Financial Implications House Bill 2251 – Allows charter schools with enrollment growth of more than 10 percent from prior year to request FSP payment acceleration House Bill 1305 – Allows locally funded program for provision of free or reduced- priced breakfast – Allows alternative reporting for compensatory education on one or more campuses in a district 21 Office of School Finance Texas Education Agency

UPDATES FROM STATE FUNDING 22 Office of School Finance Texas Education Agency

What Is Settle-up? Districts are paid based on estimates during the school year. Revised attendance and tax collections are incorporated into the SOF in September of the following year to calculate Near-Final settle-up. – If revised state aid is higher, a payment is issued. – If revised state aid is lower, the negative adjustment is rolled to the subsequent school year and netted against current-year state aid. Payments are required if this results in a negative balance. 23 Office of School Finance Texas Education Agency

2014–2015 Settle-Up Near-Final SOFs for the school year are posted. These incorporate: – Transportation module data if the district submitted! – Staff salary data if the district submitted! – Tax collections from the tax information survey – Final PEIMS ADA Final settle-up for 2014–2015 – Spring 2016 – March/April – Uses tax collections reported in mid-year submission of audit data – Incorporates any changes to transportation and staff salary data 24 Office of School Finance Texas Education Agency

Preliminary 2015–2016 SOF Preliminary SOFs incorporate: – Revised basic allotment, equalized wealth level, guaranteed yield – Student counts submitted through pupil projections – 2014 preliminary property values from the Property Tax Assistance Division (PTAD) – M&O tax collections increased by 4.56 percent from 2014 budget – I&S tax collections from 2015 Tax Information Survey 25 Office of School Finance Texas Education Agency

Preliminary 2015–2016 SOF Preliminary 2015–2016 SOFs incorporate: – Adjustments to the compressed tax rate for districts that requested them Coming updates to legislative payment estimates (LPE) include – Updated PTAD value reflecting mandatory homestead exemption and hold-harmless (after November election) – Updated tax rates and collections for those districts that had TREs (February/March) – Updated compensatory education data (January/February) 26 Office of School Finance Texas Education Agency

UPDATES FROM FINANCIAL COMPLIANCE 27 Office of School Finance Texas Education Agency

Auditor Requirements See: 19 Texas Administrative Code § The district or other educational entity must hire an independent auditor to: – Conduct an independent audit of its financial statements, and – Provide an opinion on its annual financial report The independent auditor must: – Be associated with a certified public accountancy (CPA) firm that has a current valid license, and – Be a CPA with a current valid license – Adhere to: The generally accepted auditing standards (GAAS), adopted by the American Institute of CPAs (AICPA), and The generally accepted government auditing standards (GAGAS), adopted by the US Government Accountability Office, as amended. 28 Office of School Finance Texas Education Agency

Auditor Requirements The CPA firm must: – Be a member of the AICPA Governmental Audit Quality Center (GAQC); – Adhere to GAQC's membership requirements; and – Collectively have the knowledge, skills, and experience to be competent for the audit being conducted, including thorough knowledge of the government auditing requirements for: Texas public school district environment; or Public sector; or Nonprofit sector. 29 Office of School Finance Texas Education Agency

Auditor Requirements If at any time the TEA division responsible for financial compliance an audit firm's working papers and finds that the firm reviews or the quality of the work does not meet the required standards, the division may require the district or other educational entity to change its audit firm. There is NO requirement for mandatory rotation. 30 Office of School Finance Texas Education Agency

Audit Guidance Updates To the Administrator Addressed (posted 9/14/2015) – Advises districts on the reporting of their portion of the net pension liabilities (NPL) or net pension assets (NPA) of the Texas Retirement System pension plan in accordance with GASB 68 – Provides new codes for reporting purposes – Directs districts to develop method for allocating pension expenses across fund, organization, and program codes – Does not require separate line item New L-1 schedule coming soon – Aligns language in L-1 with indicators in School FIRST – Provides lines for reporting NPL/NPA as required by GASB Office of School Finance Texas Education Agency

Attendance Accounting House Bill 2610 – Changed requirements to deliver 180 days of instruction to 75,600 minutes of instruction Provides flexibility in dealing with staff development and bad weather days Lunch counts! – Frequently asked questions (FAQs) posted on Student Attendance Accounting Handbook (SAAH) webpage 32 Office of School Finance Texas Education Agency

Attendance Accounting House Bill 2660 – Allows for use of two- or four-hour rule for Optional Flexible School Day program House Bill 2812 – Provides funding for college courses that do not earn high school credit SAAH – Delayed release – 2015–2016 is transition year for attendance accounting 33 Office of School Finance Texas Education Agency

School FIRST Financial Integrity Rating System of Texas (FIRST) revised as required by House Bill 5 (2013) Three-year phase-in of new indicators – 2014–2015 ratings (based on 2013–2014 financial data) 7 indicators Pass/fail – 2015–2016 ratings (based on 2014–2015 financial data) 15 indicators A-F ratings, phased in score requirements (requires 70 points to earn A) – 2016–2017 ratings (based on 2015–2016 financial data) 15 indicators A-F ratings, final score requirements (requires 90 points to earn A) 34 Office of School Finance Texas Education Agency

School FIRST Ratings expected to be final in late October REMINDER: Your district or charter must prepare, distribute, and hold a public meeting to discuss the Annual Financial Management Report within two months of the final FIRST rating. See rules for full details on reporting elements: =R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_t ac=&ti=19&pt=2&ch=109&rl= =R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_t ac=&ti=19&pt=2&ch=109&rl= Office of School Finance Texas Education Agency

Questions? Lisa Dawn-Fisher, Ph.D. Chief School Finance Officer phone fax 36 Office of School Finance Texas Education Agency