TITLE 19. EDUCATION

PART 2. TEXAS EDUCATION AGENCY

CHAPTER 33. STATEMENT OF INVESTMENT OBJECTIVES, POLICIES, AND GUIDELINES OF THE TEXAS PERMANENT SCHOOL FUND

SUBCHAPTER A. STATE BOARD OF EDUCATION RULES

19 TAC §33.65

The State Board of Education (SBOE) proposes an amendment to §33.65, concerning the bond guarantee program (BGP) for school districts. The section establishes provisions for the administration of the BGP. The proposed amendment would increase the multiplier used in calculating the capacity of the Permanent School Fund (PSF).

The Texas Education Code (TEC), §7.102(c)(33), authorizes the SBOE to adopt rules for the implementation of the PSF BGP as authorized in the TEC, Chapter 45, School District Funds, Subchapter C, Guaranteed Bonds. The TEC, §45.063, authorizes the SBOE to adopt rules necessary for the administration of the program. Section 33.65 is the rule the SBOE adopted to implement the program.

Section 33.65 sets out the statutory provisions for the BGP, provides definitions, specifies bond eligibility requirements, and explains the requirements of and policies related to the program's application process. The rule also describes how PSF capacity to guarantee bonds is determined, provides limitations on access to the program, and allows for the commissioner to allocate specific holdings of the PSF under certain conditions. In addition, the rule provides requirements specific to districts that have declared financial exigency, explains what effect defeasance has on guaranteed bonds, and sets out specific program conditions for bonds issued or guaranteed on certain specified dates. The rule also explains program payment conditions and guarantee restrictions.

Under the TEC, §45.053, the board has authority to increase the multiplier used in the calculation of the PSF capacity to guarantee bonds. The proposed amendment to 19 TAC §33.65 would increase the multiplier in subsection (e)(1) to three and one-half times the cost value of the PSF effective March 1, 2017, and three and three-fourths times the cost value of the PSF effective September 1, 2017.

The SBOE approved the proposed amendment for first reading and filing authorization at its November 18, 2016 meeting.

The proposed amendment would have no procedural and reporting implications.

The proposed amendment would have no locally maintained paperwork requirements.

FISCAL NOTE. Leo Lopez, associate commissioner for school finance / chief school finance officer, has determined that for the first five-year period the proposed amendment is in effect there will be no additional costs to state and local government as a result of enforcing or administering the proposed amendment.

There is no effect on local economy for the first five years that the proposed amendment is in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.

PUBLIC BENEFIT/COST NOTE. Mr. Lopez has determined that for each year of the first five years the proposed amendment is in effect, the public benefit anticipated as a result of enforcing the amendment will be enabling the BGP to recommence providing guarantees to open-enrollment charter schools. This part of the guarantee program is currently frozen due to a lack of available capacity. The program is very beneficial to these schools and their students as they have extensive needs to build new facilities and the BGP provides for significantly lower interest rates on financing. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL BUSINESSES AND MICROBUSINESSES. There is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

REQUEST FOR PUBLIC COMMENT. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Rulemaking, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701. Comments may also be submitted electronically to rules@tea.texas.gov. A request for a public hearing on the proposed amendment submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register.

STATUTORY AUTHORITY. The amendment is proposed under the Texas Education Code (TEC), §7.102(c)(33), which requires the State Board of Education (SBOE) to adopt an annual report on the status of the guaranteed bond program and authorizes the SBOE to adopt rules as necessary to administer the bond guarantee program; TEC, §45.053(d), which grants the SBOE the authority to increase by rule the multiplier used in calculating the capacity of the fund; TEC, §45.063, which authorizes the SBOE to adopt rules necessary for the administration of the bond guarantee program; and Texas Constitution, Article VII, §5(d), which authorizes the legislature to use the permanent school fund to establish a bond guarantee program that has been enacted under the TEC, Chapter 45, Subchapter C.

CROSS REFERENCE TO STATUTE. The amendment implements the Texas Education Code, §§7.102(c)(33), 45.053(d), and 45.063, and the Texas Constitution, Article VII, §5(d).

§33.65.Bond Guarantee Program for School Districts.

(a) Statutory provision. The commissioner of education must administer the guarantee program for school district bonds according to the provisions of the Texas Education Code (TEC), Chapter 45, Subchapter C.

(b) Definitions. The following definitions apply to the guarantee program for school district bonds.

(1) Annual debt service--Payments of principal and interest on outstanding bonded debt scheduled to occur between September 1 and August 31 during the fiscal year in which the guarantee is sought as reported by the Municipal Advisory Council (MAC) of Texas or its successor, if the district has outstanding bonded indebtedness.

(A) The annual debt service will be determined by the current report of the bonded indebtedness of the district as reported by the MAC of Texas or its successor as of the date of the application deadline.

(B) The annual debt service does not include:

(i) the amount of debt service to be paid on the bonds for which the reservation is sought; or

(ii) the amount of debt service attributable to any debt that is no longer outstanding at the application deadline, provided that the Texas Education Agency (TEA) has sufficient evidence of the discharge or defeasance of such debt.

(C) Solely for the purpose of this calculation, the debt service amounts for variable rate bonds will be those that are published in the final official statement, or if there is no official statement, debt service amounts based on the maximum rate permitted by the bond order or other bond proceeding that establishes a maximum interest rate for the bonds.

(2) Application deadline--The last business day of the month in which an application for a guarantee is filed. Applications must be submitted electronically through the website of the MAC of Texas or its successor by 5:00 p.m. on the last business day of the month to be considered in that month's application processing.

(3) Average daily attendance (ADA)--Total refined average daily attendance as defined by the TEC, §42.005.

(4) Bond--A debt security issuance approved by the attorney general, issued under the TEC, §45.003 or §45.004, to provide long-term financing with a maturity schedule of at least three years.

(5) Bond Guarantee Program (BGP)--The guarantee program that is described by this section and established under the TEC, Chapter 45, Subchapter C.

(6) Bond order--The order adopted by the governing body of a school district that authorizes the issuance of bonds and the pricing certificate, if any, establishing the terms of the bonds executed pursuant to such order.

(7) Combination issue--An issuance of bonds for which an application for a guarantee is filed that includes both a new money portion and a refunding portion, as permitted by the Texas Government Code, Chapter 1207. The eligibility of combination issues for the guarantee is limited by the eligibility of the new money and refunding portions as defined in this subsection.

(8) Enrollment growth--Growth in student enrollment, as defined by §129.1025 of this title (relating to Adoption by Reference: Student Attendance Accounting Handbook), that has occurred over the previous five school years.

(9) Nationally recognized investment rating firm--An investment rating firm that is designated by the United States Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) and is demonstrating that it has:

(A) had its current NRSRO designation for at least three consecutive years;

(B) provided credit ratings to each of the following:

(i) fifteen or more fixed income securities denominated in United States dollars and issued during the immediately preceding three years; and

(ii) ten or more school districts in the United States; and

(C) a documented separation of duties between employees involved in credit analysis and employees involved in business relationships with clients.

(10) New money issue--An issuance of bonds for the purposes of constructing, renovating, acquiring, and equipping school buildings; the purchase of property; or the purchase of school buses. An issuance of bonds for the purpose of constructing teacher or student housing is eligible for the guarantee for new money only if it is an integral part of the educational mission of the school district as determined by the commissioner. Eligibility for the guarantee for new money issues is limited to the issuance of bonds authorized under the TEC, §45.003. A new money issue does not include the issuance of bonds to purchase a facility from a public facility corporation created by the school district or to purchase any property that is currently under a lease-purchase contract under the Local Government Code, Chapter 271, Subchapter A. A new money issue does not include an issuance of bonds to refinance any type of maintenance tax-supported debt. Maintenance tax-supported debt includes, but is not limited to:

(A) time warrants or loans entered under the TEC, Chapter 45, Subchapter E; or

(B) any other type of loan or warrant that is not supported by bond taxes as defined by the TEC, §45.003.

(11) Notes issued to provide interim financing--An issuance of notes, including commercial paper notes, designed to provide short-term financing for the purposes of constructing, renovating, acquiring, and equipping school buildings; the purchase of property; or the purchase of school buses. For notes to be eligible for the guarantee under this section, the notes must be:

(A) issued to pay costs for which bonds have been authorized at an election occurring before the issuance of the notes;

(B) approved by the attorney general or issued in accordance with proceedings that have been approved by the attorney general; and

(C) refunded by bonds issued to provide long-term financing no more than three years from the date of issuance of such notes, provided that the date of issuance of notes will be determined by reference to the date on which the notes were issued for capital expenditures and the intervening date or dates of issuance of any notes issued to refinance outstanding notes will be disregarded.

(12) Refunding issue--An issuance of bonds for the purpose of refunding bonds, including notes issued to provide interim financing, that are supported by bond taxes as defined by the TEC, §45.003. Eligibility for the guarantee for refunding issues is limited to refunding issues that refund bonds, including notes issued to provide interim financing, that were authorized by a bond election under the TEC, §45.003.

(13) Total debt service--Total outstanding principal and interest on bonded debt.

(A) The total debt service will be determined by the current report of the bonded indebtedness of the district as reported by the MAC of Texas or its successor as of the date of the application deadline, if the district has outstanding bonded indebtedness.

(B) The total debt service does not include:

(i) the amount of debt service to be paid on the bonds for which the reservation is sought; or

(ii) the amount of debt service attributable to any debt that is no longer outstanding at the application deadline, provided that the TEA has sufficient evidence of the discharge or defeasance of such debt.

(C) Solely for the purpose of this calculation, the debt service amounts for variable rate bonds will be those that are published in the final official statement, or if there is no official statement, debt service amounts based on the maximum rate permitted by the bond order or other bond proceeding that establishes a maximum interest rate for the bonds.

(c) Data sources.

(1) The following data sources will be used for purposes of prioritization:

(A) projected ADA for the current school year as adopted by the legislature for appropriations purposes;

(B) final property values certified by the comptroller of public accounts, as described in the Texas Government Code, Chapter 403, Subchapter M, for the tax year preceding the year in which the bonds will be issued. If final property values are unavailable, the most recent projection of property values by the comptroller, as described in the Texas Government Code, Chapter 403, Subchapter M, will be used;

(C) debt service information reported by the MAC of Texas or its successor as of the date of the application deadline; and

(D) enrollment information reported to the Public Education Information Management System (PEIMS) for the five-year time period ending in the year before the application date.

(2) The commissioner may consider adjustments to data values determined to be erroneous or not reflective of current conditions before the deadline for receipt of applications for that application cycle.

(d) Bond eligibility.

(1) Only those combination, new money, and refunding issues as defined in subsection (b)(7), (10), and (12), respectively, of this section are eligible to receive the guarantee.

(2) Refunding issues must comply with the following requirements to retain eligibility for the guarantee for the refunding bonds, except that subparagraph (C) of this paragraph does not apply to a refunding issue that provides long-term financing for notes issued to provide interim financing.

(A) As with any district applying for approval for the guarantee, the district issuing the refunding bonds must meet the requirements for initial approval specified in subsection (g)(2)(A) of this section.

(B) The bonds to be refunded must have been:

(i) previously guaranteed by the Permanent School Fund (PSF) or approved for credit enhancement under §61.1038 of this title (relating to School District Bond Enhancement Program);

(ii) issued on or after November 1, 2008, and before January 1, 2010; or

(iii) issued as notes to provide interim financing as defined in subsection (b)(11) of this section.

(C) The district must demonstrate that issuing the refunding bond(s) will result in a present value savings to the district and that the refunding bond or bonds will not have a maturity date later than the final maturity date of the bonds being refunded. Present value savings is determined by computing the net present value of the difference between each scheduled payment on the original bonds and each scheduled payment on the refunding bonds. Present value savings must be computed at the true interest cost of the refunding bonds. If the commissioner approves refunding bonds for the guarantee based on evidence of present value savings but at the time of the sale of the refunding bonds a present value savings is not realized, the commissioner may revoke the approval of the bonds for the guarantee.

(D) The refunding transaction must comply with the provisions of subsection (g)(4)(A)-(C) of this section.

(3) If a district files an application for a combination issue, the application will be treated as an application for a single issue for the purposes of eligibility for the guarantee. A guarantee for the combination issue will be awarded only if both the new money portion and the refunding portion meet all of the applicable eligibility requirements described in this section. As part of its application, the applicant district must present data that demonstrate compliance for both the new money portion of the issue and the refunding portion of the issue.

(4) If the commissioner determines that an applicant has deliberately misrepresented information related to a bond issue to secure a guarantee, the commissioner must revoke the approval of the bonds for the guarantee.

(e) Determination of PSF capacity to guarantee bonds.

(1) Each month the commissioner will estimate the available capacity of the PSF. If necessary, the commissioner will confirm that the PSF has sufficient capacity to guarantee the bonds before the issuance of the final approval for the guarantee in accordance with subsection (g)(3) of this section. The calculation of capacity will be based on a multiplier of three and one-half [one-fourth ] times the cost value of the PSF effective March 1, 2017, and a multiplier of three and three-fourths times the cost value of the PSF effective September 1, 2017. The commissioner may reduce the multiplier to maintain the AAA credit rating of the PSF. Changes to the multiplier made by the commissioner are to be ratified or rejected by the State Board of Education (SBOE) at the next meeting for which the item can be posted.

(2) The SBOE will establish an amount of capacity to be held in reserve of no less than 5.0% of the fund's capacity. The reserved capacity can be used to award guarantees for districts that experience unforeseen catastrophes or emergencies that require the renovation or replacement of school facilities as described in the TEC, §44.031(h). The amount to be held in reserve may be increased by a majority vote of the SBOE based on changes in the asset allocation and risk in the portfolio and unrealized gains in the portfolio, or by the commissioner as necessary to prudently manage fund capacity. Changes to the amount held in reserve made by the commissioner are to be ratified or rejected by the SBOE at the next meeting for which the item can be posted.

(3) The net capacity of the PSF to guarantee bonds is determined by subtracting the amount to be held in reserve, as determined under paragraph (2) of this subsection, from the total available capacity, as described in paragraph (1) of this subsection.

(f) Application process and application processing.

(1) Application submission and fee. A district must apply to the commissioner for the guarantee of eligible bonds or the credit enhancement of eligible bonds as authorized under §61.1038 of this title by submitting an application electronically through the website of the MAC of Texas or its successor. The district must submit the information required under the TEC, §45.055(b), and this section and any additional information the commissioner may require. The application and all additional information required by the commissioner must be received before the application will be processed. The district may not submit an application for a guarantee or credit enhancement before the successful passage of an authorizing proposition.

(A) The application fee is $1,500.

(B) The fee is due at the time the application for the guarantee or the credit enhancement is submitted. An application will not be processed until the fee has been remitted according to the directions provided on the website of the MAC of Texas or its successor and received by the TEA.

(C) The fee will not be refunded to a district that:

(i) is not approved for the guarantee or the credit enhancement; or

(ii) does not sell its bonds before the expiration of its approval for the guarantee or the credit enhancement.

(D) The fee may be transferred to a subsequent application for the guarantee or the credit enhancement by the district if the district withdraws its application and submits the subsequent application before the expiration of its approval for the guarantee or the credit enhancement.

(2) Application prioritization and processing. Applications will be prioritized based on districts' property wealth per ADA, with the application of a district with a lower property wealth per ADA prioritized before that of a district with a higher property wealth per ADA. All applications received during a calendar month will be held until up to the 15th business day of the subsequent month. On or before the 15th business day of each month, the commissioner will announce the results of the prioritization and process applications for initial approval for the guarantee, up to the available net capacity as of the application deadline, subject to the requirements of this section.

(A) Approval for guarantees will be awarded each month beginning with the districts with the lowest property wealth per ADA until the PSF reaches its net capacity to guarantee bonds.

(B) Approval for guarantees will be awarded based on the fund's capacity to fully guarantee the bond issue for which the guarantee is sought. Applications for bond issues that cannot be fully guaranteed will not receive an award. The amount of bond issue for which the guarantee was requested may not be modified after the monthly application deadline for the purposes of securing the guarantee during the award process. If PSF net capacity has been exhausted, the commissioner will process the application for approval of the credit enhancement as specified in §61.1038 of this title.

(C) The actual guarantee of the bonds is subject to the approval process prescribed in subsection (g) of this section.

(D) An applicant school district is ineligible for consideration for the guarantee if its lowest credit rating from any nationally recognized investment rating firm as defined in subsection (b)(9) of this section is the same as or higher than that of the PSF.

(3) Late application. An application received after the application deadline will be considered a valid application for the subsequent month, unless withdrawn by the submitting district before the end of the subsequent month.

(4) Notice of application status. Each district that submits a valid application will be notified of the application status within 15 business days of the application deadline.

(5) Reapplication. If a district does not receive approval for the guarantee or for any reason does not receive approval of the bonds from the attorney general within the time period specified in subsection (g)(4) of this section, the district may reapply in a subsequent month. Applications that were denied approval for the guarantee will not be retained for consideration in subsequent months.

(g) Approval for the guarantee; district responsibilities on receipt of approval.

(1) Initial and final approval provisions.

(A) If, during the monthly estimation of PSF capacity described in subsection (e)(1) of this section, the commissioner determines that the available capacity of the PSF is 10% or less, the commissioner may require an applicant school district to obtain final approval for the guarantee as described in paragraph (3) of this subsection.

(B) If the commissioner has not made such a determination:

(i) the commissioner will consider the initial approval described in paragraph (2) of this subsection as both the initial and final approval; and

(ii) an applicant school district that has received notification of initial approval for the guarantee, as described in paragraph (2) of this subsection, may consider that notification as notification of initial and final approval for the guarantee and may complete the sale of the applicable bonds.

(2) Initial approval.

(A) The following provisions apply to all applications for the guarantee, regardless of whether an application is for a new money, refunding, or combination issue. Under the TEC, §45.056, the commissioner will investigate the applicant school district's accreditation status and financial status. A district must be accredited and financially sound to be eligible for initial approval by the commissioner. The commissioner's review will include the following:

(i) the purpose of the bond issue;

(ii) the district's accreditation status as defined by §97.1055 of this title (relating to Accreditation Status) in accordance with the following:

(I) if the district's accreditation status is Accredited, the district will be eligible for consideration for the guarantee;

(II) if the district's accreditation status is Accredited-Warned or Accredited-Probation, the commissioner will investigate the underlying reason for the accreditation rating to determine whether the accreditation rating is related to the district's financial soundness. If the accreditation rating is related to the district's financial soundness, the district will not be eligible for consideration for the guarantee; or

(III) if the district's accreditation status is Not Accredited-Revoked, the district will not be eligible for consideration for the guarantee;

(iii) the district's compliance with statutes and rules of the TEA; and

(iv) the district's financial status and stability, regardless of the district's accreditation rating, including approval of the bonds by the attorney general under the provisions of the TEC, §45.0031 and §45.005.

(B) The following limitation applies to applications for new money issues of bonds for which the election authorizing the issuance of the bonds was called after July 15, 2004. The commissioner will limit approval for the guarantee to a district that has, at the time of the application for the guarantee, less than 90% of the annual debt service of the district with the highest annual debt service per ADA, as determined by the commissioner annually, or less than 90% of the total debt service of the district with the highest total debt service per ADA, as determined by the commissioner annually. The limitation will not apply to school districts that have enrollment growth, as defined in subsection (b)(8) of this section, of at least 25%, based on PEIMS data on enrollment available at the time of application. The annual debt service amount is the amount defined by subsection (b)(1) of this section. The total debt service amount is the amount defined by subsection (b)(13) of this section.

(C) The commissioner will grant or deny initial approval for the guarantee based on the review described in subparagraph (A) of this paragraph and the limitation described in subparagraph (B) of this paragraph and will provide an applicant district whose application has received initial approval for the guarantee written notice of initial approval.

(3) Final approval. The provisions of this paragraph apply only as described in paragraph (1) of this subsection. A district must receive final approval before completing the sale of the bonds for which the district has received notification of initial approval.

(A) A district that has received initial approval must provide a written notice to the TEA two business days before issuing a preliminary official statement (POS) for the bonds that are eligible for the guarantee or two business days before soliciting investment offers, if the bonds will be privately placed without the use of a POS.

(i) The district must receive written confirmation from the TEA that the capacity continues to be available before proceeding with the public or private offer to sell bonds.

(ii) The TEA will provide this notification within one business day of receiving the notice of the POS or notice of other solicitation offers to sell the bonds.

(B) A district that received confirmation from the TEA in accordance with subparagraph (A) of this paragraph must provide written notice to the TEA of the placement of an item to approve the bond sale on the agenda of a meeting of the school board of trustees no later than two business days before the meeting. If the bond sale is completed pursuant to a delegation by the board to a pricing officer or committee, notice must be given to the TEA no later than two business days before the execution of a bond purchase agreement by such pricing officer or committee.

(i) The district must receive written confirmation from the TEA that the capacity continues to be available for the bond sale before the approval of the sale by the school board of trustees or by the pricing officer or committee.

(ii) The TEA will provide this notification within one business day before the date that the district expects to complete the sale by official action of the board or of a pricing officer or committee.

(C) The TEA will process requests for final approval from districts that have received initial approval on a first come, first served basis. Requests for final approval must be received before the expiration of the initial approval.

(D) A district may provide written notification as required by this paragraph by facsimile transmission or by email in a manner prescribed by the commissioner.

(4) District responsibilities on receipt of approval.

(A) Once a district is awarded initial approval for the guarantee, each issuance of the bonds must be approved by the attorney general within 180 days of the date of the letter granting the approval for the guarantee. The initial approval for the guarantee will expire at the end of the 180-day period. The commissioner may extend the 180-day period, based on extraordinary circumstances, on receiving a written request from the district or the attorney general before the expiration of the 180-day period.

(B) If the bonds are not approved by the attorney general within 180 days of the date of the letter granting the approval for the guarantee, the commissioner will consider the application withdrawn, and the district must reapply for a guarantee.

(C) If applicable, the district must comply with the provisions for final approval described in paragraph (3) of this subsection to maintain approval for the guarantee.

(D) A district may not represent bonds as guaranteed for the purpose of pricing or marketing the bonds before the date of the letter granting approval for the guarantee.

(h) Financial exigency. The following provisions describe how a declaration of financial exigency under §109.2001 of this title (relating to Financial Exigency) affects a district's application for guarantee approval or a district's previously granted approval.

(1) Application for guarantee of new money issue. The commissioner will deny approval of an application for the guarantee of a new money issue if the applicant school district has declared a state of financial exigency for the district's current fiscal year. The denial of approval will be in effect for the duration of the applicable fiscal year unless the district can demonstrate financial stability.

(2) Approval granted before declaration. If in a given district's fiscal year the commissioner grants approval for the guarantee of a new money issue and the school district subsequently declares a state of financial exigency for that same fiscal year, the district must immediately notify the commissioner and may not offer the bonds for sale unless the commissioner determines that the district may proceed.

(3) Application for guarantee of refunding issue. The commissioner will consider an application for the guarantee of a refunding issue that meets all applicable requirements specified in this section even if the applicant school district has declared a state of financial exigency for the district's current fiscal year. In addition to fulfilling all applicable requirements specified in this section, the applicant school district must also describe, in its application, the reason financial exigency was declared and how the refunding issue will support the district's financial recovery plan.

(i) Allocation of specific holdings. If necessary to successfully operate the BGP, the commissioner may allocate specific holdings of the PSF to specific bond issues guaranteed under this section. This allocation will not prejudice the right of the SBOE to dispose of the holdings according to law and requirements applicable to the fund; however, the SBOE will ensure that holdings of the PSF are available for a substitute allocation sufficient to meet the purposes of the initial allocation. This allocation will not affect any rights of the bond holders under law.

(j) Defeasance. The guarantee will be completely removed when bonds guaranteed by the BGP are defeased, and such a provision must be specifically stated in the bond order. If bonds guaranteed by the BGP are defeased, the district must notify the commissioner in writing within ten calendar days of the action.

(k) Bonds issued before August 15, 1993. For bonds issued before August 15, 1993, a school district seeking the guarantee of eligible bonds must certify that, on the date of issuance of any bond, no funds received by the district from the Available School Fund (ASF) are reasonably expected to be used directly or indirectly to pay the principal or interest on, or the tender or retirement price of, any bond of the political subdivision or to fund a reserve or placement fund for any such bond.

(l) Bonds guaranteed before December 1, 1993. For bonds guaranteed before December 1, 1993, if a school district cannot pay the maturing or matured principal or interest on a guaranteed bond, the commissioner will cause the amount needed to pay the principal or interest to be transferred to the district's paying agent solely from the PSF and not from the ASF. The commissioner also will direct the comptroller of public accounts to withhold the amount paid, plus interest, from the first state money payable to the district, excluding payments from the ASF.

(m) Bonds issued after August 15, 1993, and guaranteed on or after December 1, 1993. If a school district cannot pay the maturing or matured principal or interest on a guaranteed bond, the commissioner will cause the amount needed to pay the principal or interest to be transferred to the district's paying agent from the PSF. The commissioner also will direct the comptroller of public accounts to withhold the amount paid, plus interest, from the first state money payable to the district, regardless of source, including the ASF.

(n) Payments. For purposes of the provisions of the TEC, Chapter 45, Subchapter C, matured principal and interest payments are limited to amounts due on guaranteed bonds at scheduled maturity, at scheduled interest payment dates, and at dates when bonds are subject to mandatory redemption, including extraordinary mandatory redemption, in accordance with the terms of the bond order. All such payment dates, including mandatory redemption dates, must be specified in the bond order or other document pursuant to which the bonds initially are issued. Without limiting the provisions of this subsection, payments attributable to an optional redemption or a right granted to a bondholder to demand payment on a tender of such bonds according to the terms of the bonds do not constitute matured principal and interest payments.

(o) Guarantee restrictions. The guarantee provided for eligible bonds under the provisions of the TEC, Chapter 45, Subchapter C, is restricted to matured bond principal and interest. The guarantee applies to all matured interest on eligible bonds, whether the bonds were issued with a fixed or variable interest rate and whether the interest rate changes as a result of an interest reset provision or other bond order provision requiring an interest rate change. The guarantee does not extend to any obligation of a district under any agreement with a third party relating to bonds that is defined or described in state law as a "bond enhancement agreement" or a "credit agreement," unless the right to payment of such third party is directly as a result of such third party being a bondholder.

(p) Notice of default. A school district that has determined that it is or will be unable to pay maturing or matured principal or interest on a guaranteed bond must immediately, but not later than the fifth business day before maturity date, notify the commissioner.

(q) Payment from PSF.

(1) Immediately after the commissioner receives the notice described in subsection (p) of this section, the commissioner will instruct the comptroller to transfer from the appropriate account in the PSF to the district's paying agent the amount necessary to pay the maturing or matured principal or interest.

(2) Immediately after receipt of the funds for payment of the principal or interest, the paying agent must pay the amount due and forward the canceled bond or coupon to the comptroller. The comptroller will hold the canceled bond or coupon on behalf of the PSF.

(3) Following full reimbursement to the PSF with interest, the comptroller will further cancel the bond or coupon and forward it to the school district for which payment was made. Interest will be charged at the rate determined under the Texas Government Code, §2251.025(b). Interest will accrue as specified in the Texas Government Code, §2251.025(a) and (c).

(r) Bonds not accelerated on default. If a school district fails to pay principal or interest on a guaranteed bond when it matures, other amounts not yet mature are not accelerated and do not become due by virtue of the school district's default.

(s) Reimbursement of PSF. If payment from the PSF is made on behalf of a school district, the school district must reimburse the amount of the payment, plus interest, in accordance with the requirements of the TEC, §45.061.

(t) Repeated failure to pay. If a total of two or more payments are made under the BGP or the credit enhancement program authorized under §61.1038 of this title on the bonds of a school district, the commissioner will take action in accordance with the provisions of the TEC, §45.062.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 5, 2016.

TRD-201606144

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Earliest possible date of adoption: January 15, 2017

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


SUBCHAPTER AA. COMMISSIONER'S RULES

19 TAC §33.1001

The Texas Education Agency proposes an amendment to §33.1001, concerning the Charter District Bond Guarantee Reserve Fund. The proposed amendment would change the method for calculating the amount to be paid by charter holders to the Charter District Bond Guarantee Reserve Fund established under the Texas Education Code (TEC), §45.0571, and clarify that the payment is withheld during the month of the anniversary date of closing rather than on the anniversary date of closing.

TEC, §45.0571, authorizes the commissioner to establish rules related to the Charter District Bond Guarantee Reserve Fund. The statute provides that a charter district that has a bond guaranteed as provided by TEC, Chapter 45, Subchapter C, must annually remit to the commissioner, for deposit in the Charter District Bond Guarantee Reserve Fund, an amount equal to 10% of the savings to the charter district resulting from the lower interest rate on the bond due to the guarantee by the permanent school fund.

The proposed amendment would redefine how the savings are calculated using a method that takes into account interest rates spreads that occur with market changes. The proposed amendment would also specify when the commissioner will compute the cost savings and post the information to the agency website. In addition, a clarification would be made that annual payments would be withheld during the month of the anniversary date of closing rather than on the anniversary date of closing.

The proposed amendment would have no procedural or reporting implications. The proposed amendment would have no locally maintained paperwork requirements.

FISCAL NOTE. Leo Lopez, associate commissioner for school finance / chief school finance officer, has determined that for the first five-year period the amendment is in effect, there will be fiscal implications for open-enrollment charter schools, but not beyond what is provided for by the authorizing statute.

The TEC, §45.0571, requires an open-enrollment charter holder that is designated a charter district and whose bonds are approved for the guarantee to remit annually to the commissioner, for deposit in the Charter District Bond Guarantee Reserve Fund, the amount equal to 10% of the savings resulting from the lower interest rate on the bonds that is due to the guarantee. The TEC, §45.0571, also requires the commissioner to adopt rules for determining the amount due under this section.

The commissioner has determined that the savings should be calculated as the difference between the preceding 36-month average of the Thomson Reuters Municipal Market Data index yield for Baa twenty-year maturity and the preceding 36-month moving average of the Thomson Reuters Municipal Market Data index yield for the AAA twenty-year maturity. Savings will be calculated semi-annually. The reserve payment due will be the principal amount outstanding on a given date multiplied by the savings, then by 0.1.

There is no effect on local economy for the first five years that the proposed amendment is in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.

PUBLIC BENEFIT/COST NOTE. Mr. Lopez has determined that for each year of the first five years the amendment is in effect the public benefit anticipated as a result of enforcing the amendment will be measuring more accurately the savings realized by charter districts and amending the procedures for making the payments required for remittance to the Charter District Bond Guarantee Reserve Fund. There is no anticipated economic cost to persons who are required to comply with the proposed amendment.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL BUSINESSES AND MICROBUSINESSES. There is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

REQUEST FOR PUBLIC COMMENT. The public comment period on the proposal begins December 16, 2016, and ends January 17, 2017. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Rulemaking, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701. Comments may also be submitted electronically to rules@tea.texas.gov. A request for a public hearing on the proposal submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register on December 16, 2016.

STATUTORY AUTHORITY. The amendment is proposed under the Texas Education Code, §45.0571, which authorizes the commissioner of education to adopt rules to determine the amount of the statutorily required 10% savings set aside for the Charter District Bond Guarantee Reserve Fund.

CROSS REFERENCE TO STATUTE. The amendment implements the Texas Education Code, §45.0571.

§33.1001.Payments for Remittance to Charter District Bond Guarantee Reserve Fund.

(a) In this section, "charter district," "combination issue," and "refunding issue," have the meanings assigned to those terms by §33.67 of this title (relating to Bond Guarantee Program for Charter Schools).

(b) A charter district that has bonds guaranteed under §33.67 of this title must annually remit to the commissioner of education a payment for deposit in the Charter District Bond Guarantee Reserve Fund established under the Texas Education Code (TEC), §45.0571, as described in subsections [(d) and] (e) and (f) of this section.

(c) To calculate the total payments required under subsections (e) and (f) of this section for charter district bonds guaranteed under §33.67 of this title with a closing date before March 1, 2017, the [The] first annual amount due under this section is the amount equal to 0.1% of the principal amount that is outstanding on the date the bonds were issued, which is the closing date for the bonds. The amount due annually for each subsequent payment due under this section is the amount equal to 0.1% of the principal amount that is outstanding on the anniversary of the closing date. [No payment is due on an anniversary date on which no principal amount is outstanding. The total amount due under this section is the sum of all annual payments due.]

(d) To calculate the total payments required under subsections (e) and (f) of this section for charter district bonds guaranteed under §33.67 of this title with a closing date on or after March 1, 2017, the commissioner will calculate an amount equal to 10% of the savings to the charter district resulting from the lower interest rate on the bond due to the guarantee by the permanent school fund.

(1) The annual amount due to the Charter District Bond Guarantee Reserve Fund will be computed as R = P x S x 0.1, where:

(A) "R" is the amount to be contributed to Charter District Bond Guarantee Reserve Fund;

(B) "P" is the outstanding principal amount on the closing date of the bond for payments made under subsection (e) of this section or the outstanding principal amount on the anniversary of the closing date of the bond for payments made under subsection (f) of this section; and

(C) "S" is the savings to the charter district as a result of the bond guarantee under §33.67 of this title, which is computed as the difference between the preceding 36-month moving average of the Thomson Reuters Municipal Market Data index yield for the Baa twenty-year maturity and the preceding 36-month moving average of the Thomson Reuters Municipal Market Data index yield for the AAA twenty-year maturity.

(i) The savings "S" shall remain constant for the life of the newly guaranteed bond.

(ii) If Thomson Reuters Municipal Market Data index is decomposed to reflect each ratings step within the Baa universe, the savings calculation shall be based on the charter district's actual rating to the comparable rating in the decomposed index.

(2) The commissioner will semi-annually compute "S," which is the value to be used to compute "R" for charter district bonds, and post it on the agency's website during the first week of September and March of the applicable state fiscal year.

(e) [(d)] The first payment due under this section is due within 30 days of the closing date. The commissioner will direct the comptroller to withhold the amount of this first payment from the state funds otherwise payable to the charter district, on a date that falls within 30 days of the closing date. If, on that date, the state funds remaining to be paid to the charter district for the year are less than the amount due to the reserve fund for that year, the commissioner will recover the difference as authorized under the TEC, §42.258.

(f) [(e)] Each subsequent annual payment is due on the anniversary of the closing date. The commissioner will direct the comptroller to annually, during the month of [on] the anniversary date, withhold the amount due to the reserve fund for that year from the state funds otherwise payable to the charter district. If, on the anniversary date, the state funds remaining to be paid to the charter district for the year are less than the amount due to the reserve fund for that year, the commissioner will recover the difference as authorized under the TEC, §42.258.

(g) [(f)] The commissioner will provide a charter district with a statement of the total and annual amounts due under this section within 60 days of the date that the bonds approved for the guarantee under §33.67 of this title are sold. The commissioner will calculate savings for refunding issues, and the refunding portion of combination issues, using the principal amount that is being refunded.

(h) No payment is due on an anniversary date on which no principal amount is outstanding. The total amount due under this section is the sum of all annual payments due.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 5, 2016.

TRD-201606142

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Earliest possible date of adoption: January 15, 2017

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


CHAPTER 74. CURRICULUM REQUIREMENTS

SUBCHAPTER B. GRADUATION REQUIREMENTS

19 TAC §74.12, §74.13

The State Board of Education (SBOE) proposes amendments to §74.12 and §74.13, concerning graduation requirements. The proposed amendments would update the rules to include new career and technical education (CTE) course options that will be available for students to satisfy graduation requirements beginning with the 2017 - 2018 school year.

The 83rd Texas Legislature, 2013, passed House Bill (HB) 5, amending the Texas Education Code (TEC), §28.025, to transition from three high school graduation programs to one foundation high school program with endorsement options to increase flexibility for students. HB 5 gave the SBOE the authority to identify advanced courses related to the new graduation program, identify the curriculum requirements for the endorsements, and determine the requirements for performance acknowledgments related to the new graduation program.

In June 2014, the SBOE began the review of the TEKS for CTE. Due to the large number of courses, the SBOE divided the adoption of the CTE TEKS revisions into two portions. The SBOE approved the first group of CTE courses for second reading and final adoption at the April 2015 meeting. The SBOE approved the second portion of courses for second reading and final adoption at the July 2015 meeting. The board approved for second reading and final adoption proposed new CTE TEKS for an Advanced Marketing course and second-level practicum and automotive technology courses at the September 2015 meeting and a new career preparation course at the April 2016 meeting. The CTE TEKS review committees included in their final recommendations to the SBOE suggestions for CTE courses that may satisfy a specific graduation requirement.

At the September 2016 meeting, the committee discussed updates to the rules to include new CTE course options and a new Advanced Placement computer science course that will be available for students to satisfy graduation requirements beginning with the 2017 - 2018 school year. At that time, the committee made a number of decisions regarding the proposed rules and requested that staff move forward with the preparation of rule text reflecting those decisions to be presented for first reading and filing authorization.

Section 74.12, Foundation High School Program, would be amended to add the following CTE courses as options to satisfy the third mathematics credit requirement: Applied Mathematics for Technical Professionals, Accounting II, Manufacturing Engineering Technology II, Robotics II, Statistics and Business Decision Making, and Mathematics for Medical Professionals. Language would be added to specify that Algebra I and Geometry must be taken prior to the courses specified in §74.12(b)(2)(A) and (B) to more closely reflect statutory requirements.

Section 74.12 would also be amended to add the following CTE courses as options to satisfy the third science credit requirement: Biotechnology I, Biotechnology II, and Engineering Science.

Section 74.13, Endorsements, would be amended to add Statistics and Business Decision Making and Mathematics for Medical Professionals as options to satisfy a fourth mathematics credit and Biotechnology I, Biotechnology II, and Engineering Science as options to satisfy a fourth science credit. Additionally, AP Computer Science Principles would be added as a course option for the science, technology, engineering, and mathematics endorsement.

The SBOE approved the proposed amendments for first reading and filing authorization at its November 18, 2016, meeting.

The proposed amendments would have no new procedural and reporting implications.

The proposed amendments would have no new locally maintained paperwork requirements.

FISCAL NOTE. Monica Martinez, associate commissioner for standards and support services, has determined that for the first five-year period the proposed amendments are in effect there will be no additional costs to state and local government as a result of enforcing or administering the proposed amendments.

There is no effect on local economy for the first five years that the proposed amendments are in effect; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.

PUBLIC BENEFIT/COST NOTE. Ms. Martinez has determined that for each year of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of enforcing the amendments will be added flexibility in course options for students to meet high school graduation requirements. There is no anticipated economic cost to persons who are required to comply with the proposed amendments.

ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL BUSINESSES AND MICROBUSINESSES. There is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

REQUEST FOR PUBLIC COMMENT. Comments on the proposal may be submitted to Cristina De La Fuente-Valadez, Rulemaking, Texas Education Agency, 1701 North Congress Avenue, Austin, Texas 78701. Comments may also be submitted electronically to rules@tea.texas.gov. A request for a public hearing on the proposed amendment submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register.

STATUTORY AUTHORITY. The amendments are proposed under the Texas Education Code (TEC), §7.102(c)(4), which requires the State Board of Education (SBOE) to establish curriculum and graduation requirements; TEC, §28.002, which identifies the subjects of the required curriculum and requires the SBOE to by rule identify the essential knowledge and skills of each subject in the required curriculum that all students should be able to demonstrate and that will be used in evaluating instructional materials and addressed on the state assessment instruments; TEC, §28.025(a), which requires the SBOE to by rule determine the curriculum requirements for the foundation high school program that are consistent with the required curriculum and to designate the specific courses in the foundation curriculum that are required under the foundation high school program; TEC, §28.025(b-1), which requires the SBOE to by rule require that the curriculum requirements for the foundation high school program include a requirement that students successfully complete four credits in English language arts, including one credit in English I, one credit in English II, one credit in English III, and one credit in an advanced English course; three credits in mathematics, including one credit in Algebra I, one credit in geometry, and one credit in any advanced mathematics course; three credits in science, including one credit in biology, one credit in any advanced science course, and one credit in integrated physics and chemistry or in an additional advanced science course; three credits in social studies, including one credit in United States history, at least one-half credit in government and at least one-half credit in economics, and one credit in world geography or world history; two credits in the same language in a language other than English; five elective credits; one credit in fine arts; and one credit in physical education; TEC, §28.025(b-2), which requires the SBOE, in adopting rules, to provide for a student to comply with the curriculum requirements for an advanced English course taken after successful completion of English I, English II, and English III, for an advanced mathematics course taken after the successful completion of Algebra I and geometry, and for any advanced science course by successfully completing a course in the appropriate content area that has been approved as an advanced course by board rule or that is offered as an advanced course for credit without board approval as provided by Section 28.002(g-1). TEC, §28.025(b-2), also requires the SBOE, in adopting rules, to allow a student to comply with the curriculum requirements for the third and fourth mathematics credits or the third and fourth science credits under Subsection (b-1)(1) by successfully completing an advanced CTE course designated by the SBOE as containing substantively similar and rigorous academic content; TEC, §28.025(b-3), which requires the SBOE, in adopting rules for purposes of Subsection (b-2), to approve a variety of advanced English, mathematics, and science courses that may be taken to comply with the foundation high school program requirements, provided that each approved course prepares students to enter the workforce successfully or postsecondary education without remediation; and TEC, §28.025(c-2), which requires the SBOE, in adopting rules to require a student in order to earn any endorsement to successfully complete four credits in mathematics, which must include Algebra I, geometry, and two advanced mathematics courses; four credits in science, which must include biology, integrated physics and chemistry or an additional advanced science course, and two advanced science courses or an advanced career and technology course; and two additional elective credits. The SBOE, in adopting rules, is also required to develop additional curriculum requirements for each endorsement with the direct participation of educators and business, labor, and industry representatives, and require each school district to report to the agency the categories of endorsements for which the district offers all courses for curriculum requirements, as determined by board rule.

CROSS REFERENCE TO STATUTE. The amendments implement the Texas Education Code, §§7.102(c)(4), 28.002, and 28.025.

§74.12.Foundation High School Program.

(a) Credits. A student must earn at least 22 credits to complete the Foundation High School Program.

(b) Core courses. A student must demonstrate proficiency in the following.

(1) English language arts--four credits. Three of the credits must consist of English I, II, and III. (Students with limited English proficiency who are at the beginning or intermediate level of English language proficiency, as defined by §74.4(d) of this title (relating to English Language Proficiency Standards), may satisfy the English I and English II graduation requirements by successfully completing English I for Speakers of Other Languages and English II for Speakers of Other Languages.) After the successful completion of English I, II, and III, the additional credit may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following courses:

(A) English IV;

(B) Independent Study in English;

(C) Literary Genres;

(D) Creative Writing;

(E) Research and Technical Writing;

(F) Humanities;

(G) Public Speaking III;

(H) Communication Applications, which must be combined with another half credit from the other courses listed in subparagraphs (A)-(G) and (I)-(S) of this paragraph;

(I) Oral Interpretation III;

(J) Debate III;

(K) Independent Study in Speech;

(L) Independent Study in Journalism;

(M) Advanced Broadcast Journalism III;

(N) Advanced Journalism: Newspaper III;

(O) Advanced Journalism: Yearbook III;

(P) an Advanced Placement (AP) or International Baccalaureate [Baccaulareate] (IB) English language arts course in accordance with §74.11(h) of this title (relating to High School Graduation Requirements);

(Q) after the successful completion of English I, II, and III, a locally developed English language arts course or other activity, including an apprenticeship or training hours needed to obtain an industry-recognized credential or certificate that is developed pursuant to the Texas Education Code (TEC), §28.002(g-1);

(R) Business English; and

(S) a college preparatory English language arts course that is developed pursuant to the TEC, §28.014.

(2) Mathematics--three credits. Two of the credits must consist of Algebra I and Geometry.

(A) After the successful completion of Algebra I and Geometry, the [The] additional credit may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following courses or a credit selected from the courses listed in subparagraph (B) of this paragraph:

(i) Mathematical Models with Applications;

(ii) Mathematical Applications in Agriculture, Food, and Natural Resources;

(iii) Digital Electronics;

(iv) Robotics Programming and Design; [and]

(v) Financial Mathematics;[.]

(vi) Applied Mathematics for Technical Professionals;

(vii) Accounting II;

(viii) Manufacturing Engineering Technology II; and

(ix) Robotics II.

(B) After the successful completion of Algebra I and Geometry, the [The] additional credit may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following courses:

(i) Algebra II;

(ii) Precalculus;

(iii) Advanced Quantitative Reasoning;

(iv) Independent Study in Mathematics;

(v) Discrete Mathematics for Problem Solving;

(vi) Algebraic Reasoning;

(vii) Statistics;

(viii) an AP or IB mathematics course in accordance with §74.11(h) of this title;

(ix) AP Computer Science;

(x) Engineering Mathematics;

(xi) Statistics and Business Decision Making;

(xii) Mathematics for Medical Professionals;

[(xi) Statistics and Risk Management;]

(xiii) [(xii)] Discrete Mathematics for Computer Science;

(xiv) [(xiii)] pursuant to the TEC, §28.025(b-5), after the successful completion of Algebra II, a mathematics course endorsed by an institution of higher education as a course for which the institution would award course credit or as a prerequisite for a course for which the institution would award course credit. The Texas Education Agency (TEA) shall maintain a current list of courses offered under this subparagraph; and

(xv) [(xiv)] after the successful completion of Algebra I and Geometry, a locally developed mathematics course or other activity, including an apprenticeship or training hours needed to obtain an industry-recognized credential or certificate that is developed pursuant to the TEC, §28.002(g-1).

(3) Science--three credits. One credit must consist of Biology or an AP or IB biology course in accordance with §74.11(h) of this title.

(A) One credit must be selected from the following laboratory-based courses:

(i) Integrated Physics and Chemistry;

(ii) Chemistry;

(iii) Physics;

(iv) Principles of Technology; and

(v) an AP or IB science course in accordance with §74.11(h) of this title.

(B) The additional credit may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following laboratory-based courses:

(i) Chemistry;

(ii) Physics;

(iii) Aquatic Science;

(iv) Astronomy;

(v) Earth and Space Science;

(vi) Environmental Systems;

(vii) an AP or IB science course in accordance with §74.11(h) of this title;

(viii) Advanced Animal Science;

(ix) Advanced Plant and Soil Science;

(x) Anatomy and Physiology;

(xi) Medical Microbiology;

(xii) Pathophysiology;

(xiii) Food Science;

(xiv) Forensic Science;

(xv) Biotechnology I;

(xvi) Biotechnology II;

[(xv) Advanced Biotechnology;]

(xvii) [(xvi)] Principles of Technology;

(xviii) [(xvii)] Scientific Research and Design;

(xix) [(xviii)] Engineering Design and Problem Solving;

(xx) Engineering Science;

[(xix) Principles of Engineering;]

(xxi) [(xx)] pursuant to the TEC, §28.025(b-5), after the successful completion of physics, a science course endorsed by an institution of higher education as a course for which the institution would award course credit or as a prerequisite for a course for which the institution would award course credit. The TEA shall maintain a current list of courses offered under this clause; and

(xxii) [(xxi)] a locally developed science course or other activity, including an apprenticeship or training hours needed to obtain an industry-recognized credential or certificate that is developed pursuant to the TEC, §28.002(g-1).

(C) Credit may not be earned for both physics and Principles of Technology to satisfy science credit requirements.

(4) Social studies--three credits. Two of the credits must consist of United States History Studies Since 1877 (one credit), United States Government (one-half credit), and Economics with Emphasis on the Free Enterprise System and Its Benefits (one-half credit). The additional credit may be selected from the following courses:

(A) World History Studies; and

(B) World Geography Studies.

(5) Languages other than English (LOTE)--two credits.

(A) The credits may be selected from the following:

(i) any two levels in the same language; or

(ii) two credits in computer programming languages selected from Computer Science I, II, and III.

(B) If a student, in completing the first credit of LOTE, demonstrates that the student is unlikely to be able to complete the second credit, the student may substitute another appropriate course as follows:

(i) Special Topics in Language and Culture;

(ii) World History Studies or World Geography Studies for a student who is not required to complete both by the local district;

(iii) another credit selected from Chapter 114 of this title (relating to Texas Essential Knowledge and Skills for Languages Other Than English); or

(iv) computer programming languages.

(C) The determination regarding a student's ability to complete the second credit of LOTE must be agreed to by:

(i) the teacher of the first LOTE credit course or another LOTE teacher designated by the school district, the principal or designee, and the student's parent or person standing in parental relation;

(ii) the student's admission, review, and dismissal (ARD) committee if the student receives special education services under the TEC, Chapter 29, Subchapter A; or

(iii) the committee established for the student under Section 504, Rehabilitation Act of 1973 (29 United States Code, Section 794) if the student does not receive special education services under the TEC, Chapter 29, Subchapter A, but is covered by the Rehabilitation Act of 1973.

(D) A student, who due to a disability, is unable to complete two credits in the same language in a language other than English, may substitute a combination of two credits from English language arts, mathematics, science, or social studies or two credits in career and technical education or technology applications for the LOTE credit requirements. The determination regarding a student's ability to complete the LOTE credit requirements will be made by:

(i) the student's ARD committee if the student receives special education services under the TEC, Chapter 29, Subchapter A; or

(ii) the committee established for the student under Section 504, Rehabilitation Act of 1973 (29 United States Code (USC), §794) if the student does not receive special education services under the TEC, Chapter 29, Subchapter A, but is covered by the Rehabilitation Act of 1973.

(6) Physical education--one credit.

(A) The required credit may be selected from any combination of the following one-half to one credit courses:

(i) Foundations of Personal Fitness;

(ii) Adventure/Outdoor Education;

(iii) Aerobic Activities; and

(iv) Team or Individual Sports.

(B) In accordance with local district policy, the required credit may be earned through completion of any Texas essential knowledge and skills-based course that meets the requirement in subparagraph (E) of this paragraph for 100 minutes of moderate to vigorous physical activity per five-day school week and that is not being used to satisfy another specific graduation requirement.

(C) In accordance with local district policy, credit for any of the courses listed in subparagraph (A) of this paragraph may be earned through participation in the following activities:

(i) Athletics;

(ii) Junior Reserve Officer Training Corps (JROTC); and

(iii) appropriate private or commercially sponsored physical activity programs conducted on or off campus. The district must apply to the commissioner of education for approval of such programs, which may be substituted for state graduation credit in physical education. Such approval may be granted under the following conditions.

(I) Olympic-level participation and/or competition includes a minimum of 15 hours per week of highly intensive, professional, supervised training. The training facility, instructors, and the activities involved in the program must be certified by the superintendent to be of exceptional quality. Students qualifying and participating at this level may be dismissed from school one hour per day. Students dismissed may not miss any class other than physical education.

(II) Private or commercially sponsored physical activities include those certified by the superintendent to be of high quality and well supervised by appropriately trained instructors. Student participation of at least five hours per week must be required. Students certified to participate at this level may not be dismissed from any part of the regular school day.

(D) In accordance with local district policy, up to one credit for any one of the courses listed in subparagraph (A) of this paragraph may be earned through participation in any of the following activities:

(i) Drill Team;

(ii) Marching Band; and

(iii) Cheerleading.

(E) All substitution activities allowed in subparagraphs (B)-(D) of this paragraph must include at least 100 minutes per five-day school week of moderate to vigorous physical activity.

(F) Credit may not be earned more than once for any course identified in subparagraph (A) of this paragraph. No more than four substitution credits may be earned through any combination of substitutions allowed in subparagraphs (B)-(D) of this paragraph.

(G) A student who is unable to participate in physical activity due to disability or illness may substitute an academic elective credit (English language arts, mathematics, science, or social studies) or a course that is offered for credit as provided by the TEC, §28.002(g-1), for the physical education credit requirement. The determination regarding a student's ability to participate in physical activity will be made by:

(i) the student's ARD committee if the student receives special education services under the TEC, Chapter 29, Subchapter A;

(ii) the committee established for the student under Section 504, Rehabilitation Act of 1973 (29 USC, §794) if the student does not receive special education services under the TEC, Chapter 29, Subchapter A, but is covered by the Rehabilitation Act of 1973; or

(iii) a committee established by the school district of persons with appropriate knowledge regarding the student if each of the committees described by clauses (i) and (ii) of this subparagraph is inapplicable. This committee shall follow the same procedures required of an ARD or a Section 504 committee.

(7) Fine arts--one credit.

(A) The credit may be selected from the following courses subject to prerequisite requirements:

(i) Art, Level I, II, III, or IV;

(ii) Dance, Level I, II, III, or IV;

(iii) Music, Level I, II, III, or IV;

(iv) Music Studies;

(v) Theatre, Level I, II, III, or IV;

(vi) Musical Theatre, Level I, II, III, or IV;

(vii) Technical Theatre, Level I, II, III, or IV;

(viii) Principles and Elements of Floral Design;

(ix) Digital Art and Animation; and

(x) 3-D Modeling and Animation.

(B) In accordance with local district policy, credit may be earned through participation in a community-based fine arts program not provided by the school district in which the student is enrolled. The district must apply to the commissioner of education for approval of such programs, which may be substituted for state graduation credit in fine arts. Approval may be granted if the fine arts program provides instruction in the essential knowledge and skills identified for a fine arts course as defined by Chapter 117, Subchapter C, of this title (relating to High School).

(c) Elective courses--five credits. The credits must be selected from the list of courses specified in §74.11(g), (h), or (i) of this title (relating to High School Graduation Requirements) or from a locally developed course or activity developed pursuant to the TEC, §28.002(g-1), for which a student may receive credit and that does not satisfy a specific course requirement.

(d) Substitutions. No substitutions are allowed in the Foundation High School Program, except as specified in this chapter.

§74.13.Endorsements.

(a) A student shall specify in writing an endorsement the student intends to earn upon entering Grade 9.

(b) A district shall permit a student to enroll in courses under more than one endorsement before the student's junior year and to choose, at any time, to earn an endorsement other than the endorsement the student previously indicated. This section does not entitle a student to remain enrolled to earn more than 26 credits.

(c) A student must earn at least 26 credits to earn an endorsement.

(d) A school district may define advanced courses and determine a coherent sequence of courses for an endorsement area, provided that prerequisites in Chapters 110-118, 126, 127, and 130 of this title are followed.

(e) To earn an endorsement a student must demonstrate proficiency in the following.

(1) The curriculum requirements for the Foundation High School Program as defined by §74.12 of this title (relating to Foundation High School Program).

(2) A fourth credit in mathematics that may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following courses:

(A) Algebra II;

(B) Precalculus;

(C) Advanced Quantitative Reasoning;

(D) Independent Study in Mathematics;

(E) Discrete Mathematics for Problem Solving;

(F) Algebraic Reasoning;

(G) Statistics;

(H) an Advanced Placement (AP) or International Baccalaureate [Baccaulareate] (IB) mathematics course in accordance with §74.11(h) of this title (relating to High School Graduation Requirements);

(I) AP Computer Science;

(J) Engineering Mathematics;

(K) Statistics and Business Decision Making;

(L) Mathematics for Medical Professionals;

[(K) Statistics and Risk Management]

(M) [(L)] Discrete Mathematics for Computer Science;

(N) [(M)] pursuant to the Texas Education Code (TEC), §28.025(b-5), after the successful completion of Algebra II, a mathematics course endorsed by an institution of higher education as a course for which the institution would award course credit or as a prerequisite for a course for which the institution would award course credit. The Texas Education Agency (TEA) shall maintain a current list of courses offered under this subparagraph; and

(O) [(N)] after the successful completion of Algebra I and Geometry, a locally developed mathematics course or other activity, including an apprenticeship or training hours needed to obtain an industry-recognized credential or certificate that is developed pursuant to the TEC, §28.002(g-1).

(3) A student may complete a course listed in paragraph (2) of this subsection before or after completing a course listed in §74.12(b)(2)(A) of this title.

(4) The fourth mathematics credit may be a college preparatory mathematics course that is developed and offered pursuant to the TEC, §28.014.

(5) An additional credit in science that may be selected from one full credit or a combination of two half credits from two different courses, subject to prerequisite requirements, from the following courses:

(A) Chemistry;

(B) Physics;

(C) Aquatic Science;

(D) Astronomy;

(E) Earth and Space Science;

(F) Environmental Systems;

(G) an AP or IB science course in accordance with §74.11(h) of this title;

(H) Advanced Animal Science;

(I) Advanced Plant and Soil Science;

(J) Anatomy and Physiology;

(K) Medical Microbiology;

(L) Pathophysiology;

(M) Food Science;

(N) Forensic Science;

(O) Biotechnology I;

(P) Biotechnology II;

[(O) Advanced Biotechnology;]

(Q) [(P)] Principles of Technology;

(R) [(Q)] Scientific Research and Design;

(S) [(R)] Engineering Design and Problem Solving;

(T) Engineering Science;

[(S) Principles of Engineering;]

(U) [(T)] pursuant to the TEC, §28.025(b-5), after the successful completion of physics, a science course endorsed by an institution of higher education as a course for which the institution would award course credit or as a prerequisite for a course for which the institution would award course credit. The TEA shall maintain a current list of courses offered under this subparagraph;

(V) [(U)] a locally developed science course or other activity, including an apprenticeship or training hours needed to obtain an industry-recognized credential or certificate that is developed pursuant to the TEC, §28.002(g-1);

(W) [(V)] pursuant to the TEC, §28.025(c-3), a student pursuing an arts and humanities endorsement who has the written permission of the student's parent or a person standing in parental relation to the student may substitute a course that is not being used to satisfy another specific graduation requirement selected from:

(i) Chapter 110 of this title (relating to Texas Essential Knowledge and Skills for English Language Arts and Reading);

(ii) Chapter 113 of this title (relating to Texas Essential Knowledge and Skills for Social Studies) or Chapter 118 of this title (relating to Texas Essential Knowledge and Skills for Economics with Emphasis on the Free Enterprise System and Its Benefits);

(iii) Chapter 114 of this title (relating to Texas Essential Knowledge and Skills for Languages Other Than English); or

(iv) Chapter 117 of this title (relating to Texas Essential Knowledge and Skills for Fine Arts); and

(X) [(W)] credit may not be earned for both physics and Principles of Technology to satisfy science credit requirements.

(6) Two additional elective credits that may be selected from the list of courses specified in §74.11(g), (h), or (i) of this title (relating to High School Graduation Requirements).

(f) A student may earn any of the following endorsements.

(1) Science, technology, engineering, and mathematics (STEM). A student may earn a STEM endorsement by completing the requirements specified in subsection (e) of this section, including Algebra II, chemistry, and physics or Principles of Technology and:

(A) a coherent sequence of courses for four or more credits in career and technical education (CTE) that consists of at least two courses in the same career cluster and at least one advanced CTE course. The courses may be selected from Chapter 130 of this title (relating to Texas Essential Knowledge and Skills for Career and Technical Education), Chapter 127 of this title (relating to Texas Essential Knowledge and Skills for Career Development), or CTE innovative courses approved by the commissioner of education. The final course in the sequence must be selected from Chapter 130, Subchapter O, of this title (relating to Science, Technology, Engineering, and Mathematics) or Career Preparation I or II and Problems and Solutions in Chapter 127, Subchapter B, of this title if the course addresses a STEM-related field; or

(B) a coherent sequence of four credits in computer science selected from the following:

(i) Fundamentals of Computer Science; or

(ii) Computer Science I; or

(iii) Computer Science II; or

(iv) Computer Science III; or

(v) Digital Forensics; or

(vi) Discrete Mathematics for Computer Science; or

(vii) Game Programming and Design; or

(viii) Mobile Application Development; or

(ix) Robotics Programming and Design; or

(x) Independent Studies in Technology Applications; or

(xi) AP Computer Science; or

(xii) AP Computer Science Principles; or

(xiii) [(xii)] IB Computer Science, Standard Level; or

(xiv) [(xiii)] IB Computer Science, Higher Level; or

(C) three credits in mathematics by successfully completing Algebra II and two additional mathematics courses for which Algebra II is a prerequisite by selecting courses from subsection (e)(2) of this section; or

(D) four credits in science by successfully completing chemistry, physics, and two additional science courses by selecting courses from subsection (e)(5) of this section; or

(E) in addition to Algebra II, chemistry, and physics, a coherent sequence of three additional credits from no more than two of the categories or disciplines represented by subparagraphs (A), (B), (C), and (D) of this paragraph.

(2) Business and industry. A student may earn a business and industry endorsement by completing the requirements specified in subsection (e) of this section and:

(A) a coherent sequence of courses for four or more credits in CTE that consists of at least two courses in the same career cluster and at least one advanced CTE course. The courses may be selected from Chapter 130 of this title, Chapter 127 of this title, or CTE innovative courses approved by the commissioner. The final course in the sequence must be selected from one of the following:

(i) Chapter 130, Subchapter A, of this title (relating to Agriculture, Food, and Natural Resources); or

(ii) Chapter 130, Subchapter B, of this title (relating to Architecture and Construction); or

(iii) Chapter 130, Subchapter C, of this title (relating to Arts, Audio/Video Technology, and Communications); or

(iv) Chapter 130, Subchapter D, of this title (relating to Business Management and Administration); or

(v) Chapter 130, Subchapter F, of this title (relating to Finance); or

(vi) Chapter 130, Subchapter I, of this title (relating to Hospitality and Tourism); or

(vii) Chapter 130, Subchapter K, of this title (relating to Information Technology); or

(viii) Chapter 130, Subchapter M, of this title (relating to Manufacturing); or

(ix) Chapter 130, Subchapter N, of this title (relating to Marketing); or

(x) Chapter 130, Subchapter P, of this title (relating to Transportation, Distribution, and Logistics); or

(xi) Career Preparation I or II and Problems and Solutions in Chapter 127, Subchapter B, of this title if the course addresses a career from a field listed in clauses (i) - (x) of this subparagraph; or

(B) four English credits by selecting courses from Chapter 110 of this title to include three levels in one of the following areas:

(i) public speaking; or

(ii) debate; or

(iii) advanced broadcast journalism; or

(iv) advanced journalism: newspaper; or

(v) advanced journalism: yearbook; or

(vi) advanced journalism: literary magazine; or

(C) four technology applications credits by selecting from the following:

(i) Digital Design and Media Production; or

(ii) Digital Art and Animation; or

(iii) 3-D Modeling and Animation; or

(iv) Digital Communications in the 21st Century; or

(v) Digital Video and Audio Design; or

(vi) Web Communications; or

(vii) Web Design; or

(viii) Web Game Development; or

(ix) Independent Study in Evolving/Emerging Technologies; or

(D) a coherent sequence of four credits from subparagraph (A), (B), or (C) of this paragraph.

(3) Public services. A student may earn a public services endorsement by completing the requirements specified in subsection (e) of this section and:

(A) a coherent sequence of courses for four or more credits in CTE that consists of at least two courses in the same career cluster and at least one advanced CTE course. The courses may be selected from Chapter 130 of this title, Chapter 127 of this title, or CTE innovative courses approved by the commissioner. The final course in the sequence must be selected from one of the following:

(i) Chapter 130, Subchapter E, of this title (relating to Education and Training); or

(ii) Chapter 130, Subchapter G, of this title (relating to Government and Public Administration); or

(iii) Chapter 130, Subchapter H, of this title (relating to Health Science); or

(iv) Chapter 130, Subchapter J, of this title (relating to Human Services); or

(v) Chapter 130, Subchapter L, of this title (relating to Law, Public Safety, Corrections, and Security); or

(vi) Career Preparation I or II and Problems and Solutions in Chapter 127, Subchapter B, of this title if the course addresses a field from a cluster listed in clauses (i)-(v) of this subparagraph; or

(B) four courses in Junior Reserve Officer Training Corps (JROTC).

(4) Arts and humanities. A student may earn an arts and humanities endorsement by completing the requirements specified in subsection (e) of this section and:

(A) five social studies credits by selecting courses from Chapter 113 of this title or Chapter 118 of this title (relating to Texas Essential Knowledge and Skills for Economics with Emphasis on the Free Enterprise System and Its Benefits); or

(B) four levels of the same language in a language other than English by selecting courses in accordance with Chapter 114 of this title; or

(C) two levels of the same language in a language other than English and two levels of a different language in a language other than English by selecting courses in accordance with Chapter 114 of this title; or

(D) four levels of American sign language by selecting courses in accordance with Chapter 114 of this title; or

(E) a coherent sequence of four credits by selecting courses from one or two categories or disciplines in fine arts from Chapter 117 of this title or innovative courses approved by the commissioner; or

(F) four English credits by selecting from the following:

(i) English IV; or

(ii) Independent Study in English; or

(iii) Literary Genres; or

(iv) Creative Writing; or

(v) Research and Technical Writing; or

(vi) Humanities; or

(vii) Communication Applications; or

(viii) AP English Literature and Composition; or

(ix) AP English Language and Composition; or

(x) IB Language Studies A1 Higher Level.

(5) Multidisciplinary studies. A student may earn a multidisciplinary studies endorsement by completing the requirements specified in subsection (e) of this section and:

(A) four advanced courses that prepare a student to enter the workforce successfully or postsecondary education without remediation from within one endorsement area or among endorsement areas that are not in a coherent sequence; or

(B) four credits in each of the four foundation subject areas to include English IV and chemistry and/or physics; or

(C) four credits in Advanced Placement, International Baccalaureate, or dual credit selected from English, mathematics, science, social studies, economics, languages other than English, or fine arts.

(g) A course completed as part of the set of four courses needed to satisfy an endorsement requirement may also satisfy a requirement under §74.12(b) and (c) of this title and subsection (e)(2), (4), (5), and (6) of this section, including an elective requirement. The same course may count as part of the set of four courses for more than one endorsement.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 5, 2016.

TRD-201606146

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Earliest possible date of adoption: January 15, 2107

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