TITLE 19. EDUCATION

PART 2. TEXAS EDUCATION AGENCY

CHAPTER 109. BUDGETING, ACCOUNTING, AND AUDITING

SUBCHAPTER D. UNIFORM BANK BID OR REQUEST FOR PROPOSAL AND DEPOSITORY CONTRACT

19 TAC §109.51

The State Board of Education (SBOE) adopts an amendment to §109.51, concerning uniform depository bank bid or proposal form. The amendment is adopted without changes to the proposed text as published in the March 3, 2017, issue of the Texas Register (42 TexReg 859) and will not be republished. The adopted amendment facilitates the acquisition of a depository contract that is in compliance with current banking standards.

REASONED JUSTIFICATION. The rules in 19 TAC Chapter 109, Subchapter D, establish requirements related to a school district's selection of and contract with a bank to serve as the district's depository for all funds.

Specifically, §109.51 establishes the requirement that each school district, before the current depository contract expires, choose whether to select a depository bank through competitive bidding or through requests for proposals and then submit a blank uniform bid or proposal form to each bank in the district and, if desired, to other interested banks. Section 109.51 also establishes the requirement that a district file the selected form with the Texas Education Agency. The section includes the bid and proposal forms prescribed by the SBOE.

The adopted amendment to §109.51 updates the rule to comply with current banking standards by facilitating the acquisition of a depository contract that a school district must use with a depository bank.

Both the uniform bid blank form, adopted as Figure: 19 TAC §109.51(c), and the uniform proposal blank form, adopted as Figure: 19 TAC §109.51(d), were revised as follows.

The Definitions and Instructions section was revised to include the right to use a sub-depository bank other than the primary bank and specify that those deposits will be collateralized.

The Bank Compensation section was amended to specify that the district may pay for the bank's services by targeted balances or by fees and change the methodology when appropriate. The bank is required to detail any differences in related costs for either option.

The Compensation Based on a Targeted Balance section was amended to specify that a money market mutual fund used for excess collected balance daily investments must be one that strives to maintain a $1 NAV (Net Asset Value).

The District Investments section was modified to update the single maturity time deposits amount from more than $100,000 to more than $250,000.

The Collateral section was amended to remove language that requires the bank to specify whether it will use corporate surety bonds or pledged securities as collateral for the district's funds. Removing the language avoids duplication and contradiction with the section on Eligible Collateral.

The Collateral Conditions section was amended to remove language stating that the district may specify any limitations on its preferred custodial arrangement.

The Eligible Collateral section was revised to add language allowing the use of voluntary pooled collateral (if available) or a Federal Home Loan Bank Letter of Credit.

The Banking Services Fees section was modified to include language stating that all fees that may be charged to supply the services must be included or will not be eligible under the contract and that both the district and the bank reserve the right to mutually agree upon any change of contract terms or pricing during the contract extension periods.

The Depository Information section was amended to remove reference to the Uniform Bank Performance Report and add a requirement that audited financial statements will be required for each year of the contract.

The Consolidated Account Structure with Sweep Mechanism section was updated to add an option for the district to specify that it will not accept offshore investments as sweep investment vehicles; clarify that the district does not guarantee that it will maintain the account structure at the same level; and state that a money market fund used for the sweep proposal must strive to maintain a $1 NAV.

The Automated Cash Management Information section was amended to include language that the district is interested in online retention of cash management information. The amendment also makes optional the language relating to controlled disbursement presentment totals and the questions about controlled disbursements.

The Remote Deposit section was modified to clarify that the district is interested in using remote check deposit for certain locations.

The Standard Disbursing Services section was amended to update language to ask if the bank images all paid checks, deposit items, and deposit slips.

The Positive Pay section was modified to state that the district requires positive pay services if available at the bank for designated accounts on which checks are written. In addition, "payroll" was changed to "payee" in subsection g.

The Account Reconciliation section was amended to include a new subsection requesting that the bank provide references of customers who use the XX ledger system.

The Funds Transfer and Wire Services section was revised in subsection f to ask if templates and template storage are available for repetitive transfers.

The Optical Imaging section was amended to include new language in subsection a to ask how long certain items and reports are available online.

The Automated Clearinghouse (ACH) Services section was amended to state that the district requires ACH transactions for payable and receivable transactions. The section was also amended to include new subsections f and g that ask if ACH positive pay is available and if ACH debits the account on day of initiation or settlement.

The title of section 10 was changed to Safekeeping Services. Language in the section was amended to specify that the district may require the bank or another eligible offeror to provide book-entry safekeeping services for any securities the district owns and that the district will make all its investments and transmit instructions for clearing and safekeeping to the bank in writing or electronically. Language relating to the Federal Reserve or a Federal Home Loan Bank was updated.

The Collateral Requirements section was revised to state that the bank must meet all the requirements, including those beyond the Public Funds Collateral Act, as stated in the section. An update was also made to specify that authorized collateral includes only approved securities as specified by the Texas Government Code, Chapter 2257, Public Funds Collateral Act, and noted previously in the section.

The Account Analysis section was amended in subsection b to ask if account analysis is imaged monthly on electronic media.

The Monthly Statements section was modified to specify that the bank must state when monthly statements will be available online and on paper. In addition, language was amended to ask if statements are imaged and/or put on electronic media monthly.

Two new sections were added under Optional Services. Section 5 relates to check printing and asks if the bank offers check printing services, the deadline for same-day and next day printing, and where checks are printed and sent from. Section 6 relates to smart safes and asks if the bank offers smart safes and if smart safes are cost effective given the district's deposit history.

The amendment was approved by the SBOE for first reading and filing authorization at its February 3, 2017 meeting and for second reading and final adoption at its April 21, 2017 meeting.

In accordance with the TEC, §7.102(f), the SBOE approved the amendment for adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2017-2018 school year. The earlier effective date will allow school districts the opportunity to use the new forms in order to comply with banking standards.

SUMMARY OF COMMENTS AND RESPONSES. No public comments were received on the proposal.

STATUTORY AUTHORITY. The amendment is adopted under the Texas Education Code (TEC), §7.102(c)(34), which requires the State Board of Education (SBOE) to prescribe uniform bid blanks for school districts to use in selecting a depository bank; TEC, §45.206, which requires school districts to use the uniform bid blank and request for proposal forms prescribed by the SBOE when selecting a depository bank; and TEC, §45.208, which requires that a school district and a bank selected as a depository enter into a depository contract using the form prescribed by the SBOE.

CROSS REFERENCE TO STATUTE. The amendment implements the Texas Education Code, §§7.102(c)(34), 45.206, and 45.208.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 26, 2017.

TRD-201701687

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Effective date: May 16, 2017

Proposal publication date: March 3, 2017

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


SUBCHAPTER AA. COMMISSIONER'S RULES CONCERNING FINANCIAL ACCOUNTABILITY

19 TAC §109.1001

The Texas Education Agency (TEA) adopts an amendment to §109.1001, concerning financial accountability ratings. The amendment is adopted without changes to the proposed text as published in the January 20, 2017, issue of the Texas Register (42 TexReg 200) and will not be republished. The adopted amendment clarifies the financial accountability rating indicators used to determine each school district's and open-enrollment charter school's rating for the 2016-2017 rating year.

REASONED JUSTIFICATION. Chapter 109, Subchapter AA, establishes provisions that detail the purpose, ratings, types of ratings, criteria, reporting, and sanctions for the financial accountability rating system, in accordance with Senate Bill 218, 77th Texas Legislature, 2001, and House Bill (HB) 3, 81st Texas Legislature, 2009. HB 5, Section 49, 83rd Texas Legislature, Regular Session, 2013, amended the Texas Education Code (TEC), §39.082, requiring that the commissioner of education include in the financial accountability rating system processes for anticipating the future financial solvency of each school district and open-enrollment charter school, including analysis of district and school revenues and expenditures for preceding school years. The TEC, §39.082, also requires the commissioner to adopt rules by which to measure the financial management performance and future financial solvency of a school district or an open-enrollment charter school and sets forth specific requirements relating to indicators adopted by the commissioner and the assignment of ratings.

Section 109.1001 includes the financial accountability rating system and rating worksheets that explain the indicators that the TEA will analyze to assign financial accountability ratings for school districts and open-enrollment charter schools. The rule also specifies the minimum financial accountability rating information that a school district and an open-enrollment charter school is to report to parents and taxpayers in the district.

The adopted amendment clarifies the financial accountability rating indicators used to determine each school district's rating for the 2016-2017 rating year and subsequent years by revising the ratings worksheet calculations in Figure: 19 TAC §109.1001(e)(3). The adopted worksheet, dated December 2016, differs from the current worksheet, dated August 2015, as follows.

The Determination of School District Rating table was revised to disclose the point range applicable for each rating for the 2016-2017 School FIRST rating year. The ranges are A = Superior, 90 through 100; B = Above Standard, 80 through 89; C = Meets Standard, 60 through 79; and F = Substandard Achievement, 0 through 59.

Indicator 5 was revised to amend variable F by removing pension expense from the calculation since the amount is not applicable to the indicator calculation.

Indicator 5 was also revised by removing the phrases net asset and net assets and replacing them with the phrase net position.

Indicator 10 was revised by amending variables A, B, and C to specify that the governmental fund that the data is derived from is the General Fund and Debt Service Fund.

Indicator 10 was also revised by adding the word "Ending" to variable D to disclose that the Debt Service Fund ending fund balance will be used in the calculation.

Finally, Indicator 10 was revised by amending variable E to specify that the governmental fund that the data is derived from is the General Fund.

SUMMARY OF COMMENTS AND AGENCY RESPONSES. The public comment period on the proposal began January 20, 2017, and ended February 21, 2017. Following is a summary of public comments received and corresponding agency responses.

Comment: A representative from a financial services firm requested that Indicator 5 be revised "to exclude an increase in negative net assets that results solely from an increase in bonds payable liability resulting from a bond refinancing when that refunding generates annual and present value savings or from accounting treatment for a loss due to extinguishment of debt."

Agency Response: The agency disagrees and maintains language as published as proposed. Indicator 5 requires a school district or charter school to have a total unrestricted net position or net assets balance greater than zero to pass this indicator. A positive total unrestricted net position balance or net asset balance does not always demonstrate that there is equity on the balance sheet; however, one of the things it does demonstrate is that the school district or charter school received more revenues than it expended. Increases or decreases in unrestricted net position or net assets allow the agency to determine how a school district or charter school is performing financially and assess the overall financial health of the school district or charter school.

Comment: A school district administrator recommended either keeping the language in Indicator 8 the same and changing the calculation or keeping the calculation the same and changing the language for the indicator.

Agency Response: The agency disagrees and has determined that the indicator meets the intended goal. However, the agency appreciates the commenter's response and will consider the recommended changes during the next evaluation of the existing School FIRST indicators.

STATUTORY AUTHORITY. The amendment is adopted under the Texas Education Code (TEC), §39.082, which requires the commissioner to develop and implement a financial accountability rating system for school districts and open-enrollment charter schools, establishes certain requirements, including procedures, to enable the commissioner and administrators to provide meaningful financial oversight and improvement along with transparency to the public, and provides additional requirements and rulemaking authority for the commissioner; and the TEC, §39.085, which provides the commissioner rulemaking authority for the implementation and administration of the financial accountability subchapter of the TEC, Chapter 39.

CROSS REFERENCE TO STATUTE. The amendment implements the Texas Education Code, §39.082 and §39.085.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 25, 2017.

TRD-201701677

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Effective date: May 15, 2017

Proposal publication date: January 20, 2017

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