School Finance Update Fall Superintendents’ Leadership Conference Region 3 Education Service...

School Finance Update

Fall Superintendents’ Leadership ConferenceRegion 3 Education Service Center

September 28, 2015

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Agenda• Review of the 84th 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

Office of School FinanceTexas Education Agency

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OVERVIEW OF LEGISLATIVE SESSION

Office of School Finance Texas Education Agency

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House Bill 1 and Foundation School Program (FSP) Appropriations

2014-2015 2015-2016 2016-2017

Basic Allotment $5,040 $5,140 $5,140

Equalized Wealth Level (Tier I) $504,000 $514,000 $514,000

Guaranteed Yield (Austin Pennies) $61.86 $74.28 $77.53

Guaranteed Yield (Copper Pennies) $31.95 $31.95 $31.95

Equalized Wealth Level (Copper Pennies)

$319,500 $319,500 $319,500


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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


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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!


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• 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


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• Rider 71 funding discontinued


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Compressed Tax Rate Adjustments

• What is the compressed tax rate?– The district’s 2005 tax rate x 0.6667– 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 0.6667 = $0.90 compressed rate• $0.90/$1.00 x $5,140 = $4,626 basic allotment


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• 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 2017–2018


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• 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.


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Compressed Tax Rate Adjustments Example

Without Conversion With Conversion

2005 tax rate $1.35 $1.35

Current Adopted Rate 1.04 1.04

Compressed tax rate 90 98

Pennies allocated to Austin Yield 6 6

Pennies allocated to Copper Yield 8 0


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Yield per Penny of Tax Effort

Tier I Austin Copper$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$51.40

$74.28

$31.75


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• 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 2017.

• Run templates before making the 2015–2016 and 2016–2017 decision!


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• 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!!!


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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


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• 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


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• Districts held harmless to the state and local maintenance and operations (M&O) revenue that would have been available:– Without exemption– Based on

• 2015-2016 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


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• 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.


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• 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.


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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


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UPDATES FROM STATE FUNDING


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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.


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2014–2015 Settle-Up

• Near-Final SOFs for the 2014-2015 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


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Preliminary 2015–2016 SOF

• Preliminary 2015-2016 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


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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)


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UPDATES FROM FINANCIAL COMPLIANCE


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Auditor Requirements• See: 19 Texas Administrative Code §109.23• 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.


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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.


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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.


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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 68


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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


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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


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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)


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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:• http://texreg.sos.state.tx.us/public/readtac$ext.TacPage?

sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=19&pt=2&ch=109&rl=1001

•


http://texreg.sos.state.tx.us/public/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=19&pt=2&ch=109&rl=1001




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Questions?

Lisa Dawn-Fisher, Ph.D.Chief School Finance Officer512.463.9179 phone512.305.9165 [email protected]


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