TITLE 19. EDUCATION

PART 2. TEXAS EDUCATION AGENCY

CHAPTER 109. BUDGETING, ACCOUNTING, AND AUDITING

SUBCHAPTER AA. COMMISSIONER'S RULES CONCERNING FINANCIAL ACCOUNTABILITY

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 March 27, 2026 issue of the Texas Register (51 TexReg 1956) and will not be republished. The adopted amendment updates financial accountability rating information and rating worksheets for school districts and open-enrollment charter schools.

REASONED JUSTIFICATION: Section 109.1001 includes the financial accountability rating system and rating worksheets that explain the indicators that 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 or an open-enrollment charter school is to report to parents and taxpayers in the district.

The adopted amendment removes outdated rating worksheets and clarifies the financial accountability rating indicators terminology used to determine each school district's and charter school's rating for the 2025-2026 rating year by revising the rating worksheets in re-lettered §109.1001(e)(1) and (f)(1) and by adding a rating worksheet in §109.1001(g)(1). The adopted amendment also includes calculations and terminology clarifications for the 2026-2027 rating year and subsequent years by adding rating worksheets in §109.1001(e)(2), (f)(2), and (g)(2).

Adopted new subsection (e)(2) is added, including new Figure: 19 TAC §109.1001(e)(2), that clarifies terminology and calculations for School Financial Integrity Rating System of Texas (FIRST) indicators for years subsequent to the 2025-2026 rating year.

Adopted new subsection (f)(2) is added, including new Figure: 19 TAC §109.1001(f)(2), that clarifies terminology and calculations for Charter FIRST indicators for years subsequent to the 2025-2026 rating year.

Adopted new subsection (g)(1) is added, including new Figure: 19 TAC §109.1001(g)(1), that clarifies terminology and calculations for Charter FIRST indicators for institution of higher education (IHE) charter schools for the 2025-2026 rating year.

Adopted new subsection (g)(2) is added, including new Figure: 19 TAC §109.1001(g)(2), that clarifies terminology and calculations for Charter FIRST indicators for IHE charter schools for years subsequent to the 2025-2026 rating year.

Adopted new subsection (g)(3) is added to affirm calculations and scoring methods for charter schools operated by a public IHE adopted for prior rating years remains in effect for purposes with respect to those rating years.

The worksheets dated July 2026 differ from the worksheets dated June 2024 as follows.

Figure: 19 TAC §109.1001(e)(1)

The due date for the fiscal year 2025 annual financial report (AFR) and financial data to TEA for indicator 1 is revised for the 2025-2026 rating year primarily because the 2025 Compliance Supplement was released late in 2025 by the Office of Management and Budget (OMB).

The calculation for indicator 5 is revised to include premiums on capital appreciation bonds with accreted interest on capital appreciation bonds to increase the adjusted net position.

The average daily attendance (ADA) ranges are clarified for indicators 13 and 15.

The terminology for indicator 15 is clarified to align with data used in the calculation for the indicator.

Calculations for indicators 6, 7, 9, and 13 are adjusted to subtract recapture expenditures from total expenditures for school districts with local revenue in excess of entitlement, and indicator 9 is adjusted to reduce the revenue that was recaptured from these districts. For school districts that have a fiscal year end of June 30, calculations for indicators 7, 8, and 11 are adjusted to remove recapture amounts from cash and current liabilities, as applicable.

Figure: 19 TAC §109.1001(f)(1)

The due date for the fiscal year 2025 AFR and financial data to the agency for indicator 1 is revised for the 2025-2026 rating year primarily because the 2025 Compliance Supplement was released late in 2025 by the OMB.

The calculation for indicator 12 is revised to reflect changes in accounting principles. However, all charter schools will receive the maximum points for this indicator for the 2025-2026 rating year.

For indicator 14, ADA ranges are clarified, and terminology is clarified to exclude object code 6144 from the calculation.

SUMMARY OF COMMENTS AND AGENCY RESPONSES: The public comment period on the proposal began March 27, 2026, and ended April 27, 2026. Following is a summary of the public comments received and agency responses.

School FIRST and Charter FIRST

Comment: Concerning the proposed figures in subsections (e)(1) and (2), (f)(1) and (2), and (g)(1) and (2), a school district administrator commented that continual updates to rating systems and associated worksheets add complexity and administrative burden without clear evidence that these changes improve financial stewardship or student outcomes.

Response: The agency disagrees that the updates do not improve financial stewardship. Periodic updates are a necessary component of maintaining a financial accountability system that reflects current accounting policies. Many of the indicators within the rating framework are designed to assess core elements of financial stewardship, such as liquidity, administrative efficiency, and budget-to-actual performance. The agency has maintained language as proposed in the figures in subsections (e)(1) and (2), (f)(1) and (2), and (g)(1) and (2).

Comment: Concerning the proposed figures in subsections (e)(1) and (2), (f)(1) and (2), and (g)(1) and (2), a school district administrator requested that the agency consider an amendment to exclude Teacher Incentive Allotment (TIA) expenditures from cash and current liabilities because the timing difference between the date TIA awards must be paid to teachers and the date that reimbursements are made to districts places districts with a fiscal year end of August 31 at a disadvantage in FIRST rating calculations for cash and current liabilities. TIA awards must be paid to teachers on or before August 31 and the reimbursements to districts are not made until after September 1.

Response: The agency disagrees with making a change at this time, as the agency's systems currently don't have the capability to make the updates, but will consider an adjustment to indicators impacted by TIA requirements to help ensure school systems' financial positions are more fairly represented. The agency will continue to review the impact of TIA expenditures within the FIRST system and incorporate necessary adjustments, as appropriate, to ensure fairness and integrity of the financial accountability system. The agency has maintained language as proposed in the figures in subsections (e)(1) and (2), (f)(1) and (2), and (g)(1) and (2).

School FIRST and Charter FIRST Indicator 10

Comment: Concerning the proposed figures in subsections (e)(1) and (2) and (f)(1) and (2), the Texas Public Charter Schools Association requested that the agency evaluate School FIRST indicator 10 and Charter FIRST indicator 10 to determine if these are still necessary measures that capture unique information not accounted for in other indicators. They requested the agency remove indicator 10 from the 2026-2027 rating year system and beyond if the evaluation determines the indicator is not necessary. If the evaluation determines the indicator is necessary, they further requested that the agency update the indicator to include a size-based methodology to ensure consistency with other indicators that acknowledge that school system size matters when considering percentage-based comparisons.

Response: The agency disagrees and has determined that School FIRST indicator 10 and Charter FIRST indicator 10 are necessary. The agency also disagrees that a size-based methodology is necessary for this indicator. Budget-to-actual revenue analysis is necessary to evaluate whether a school system's projected revenues align with actual revenue, ensuring that revenue estimates are reasonable and within an acceptable range. This comparison supports financial accountability by identifying significant deviations, promoting accurate forecasting, and reinforcing effective management of financial resources. The agency has maintained language as proposed concerning indicator 10 in the figures in subsections (e)(1) and (2) and (f)(1) and (2).

School FIRST Indicators 7 and 9

Comment: Concerning the proposed figures in subsection (e)(1) and (2), a school district administrator commented that districts with a fiscal year that begins on July 1 are at a disadvantage on School FIRST indicators 7 and 9 and suggested the agency consider foundation school program payments due to these districts at fiscal year end in the calculations for these indicators.

Response: The agency disagrees that districts with a fiscal year that begins on July 1 are at a disadvantage on School FIRST indicators 7 and 9. Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available when it is collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenue to be available if it is collectible within 60 days of the end of the current fiscal period. The agency has maintained language as proposed concerning School FIRST indicators 7 and 9 in the figures in subsection (e)(1) and (2).

Charter FIRST Indicator 5

Comment: Concerning the proposed figures in subsection (f)(1) and (2), the Texas Public Charter Schools Association requested that Charter FIRST indicator 5 be adjusted to be consistent with School FIRST indicator 5. Specifically, they requested the allowance for charter schools to pass the indicator based on the growth factor by 1,000 students or more in addition to the 7% growth factor and the allowance for charter schools that pass the indicator based on the membership growth calculation to receive up to 89 points for a B = Above Standard Achievement rating.

Response: The agency disagrees that Charter FIRST indicator 5 should be consistent with School FIRST indicator 5. The criteria, scoring, and ceilings for School FIRST indicator 5 were implemented because of the impact of Governmental Accounting Standards Board accounting policies that do not affect non-profit charter schools. The agency has maintained language as proposed concerning Charter FIRST indicator 5 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 6

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a governmental charter school administrator suggested that Charter FIRST indicator 6 be revised to exclude the effect of other post-employment benefits (OPEB) and net pension liabilities (NPL) since these amounts are based on actuarial estimates that can have a significant impact on net position. The charter school administrator further stated that when OPEB and NPL are included in these indicators, the year over year changes in net position are less meaningful.

Response: The agency disagrees that the calculation for Charter FIRST indicator 6 should exclude the effect of OPEB and NPL on total net assets. Indicator 6 is a calculation of the average change in total net assets over three years, not a single year, so the impact of OPEB and NPL are comparable per year. The agency has maintained language as proposed concerning Charter FIRST indicator 6 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 7

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a charter school administrator and the Charter Growth Fund recommended that Charter FIRST indicator 7 be amended to exclude all non-cash expenses from the days of cash on hand calculation, particularly, lease interest and right-of-use asset amortization expenses.

Response: The agency disagrees that a change should be made at this time. Non-cash expenses have an impact on the days of cash on hand calculation, however, there is no measurable impact on the scoring for the present rating year. The agency intends to amend Charter FIRST indicator 7 to exclude non-cash expenses for future rating years. The agency has maintained language as proposed concerning Charter FIRST indicator 7 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 10

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a governmental charter school administrator suggested that Charter FIRST indicator 10 be revised to allow a 15% variance when comparing budgeted revenues to actual revenues for the last three fiscal years. The charter school administrator stated that a small change in enrollment for smaller schools serving students in correctional facilities or residential treatment centers with enrollment less than 1,000 students could produce a significant change in revenues. Additionally, the charter school administrator stated that these schools do not have control over which students enroll and face daily enrollment fluctuations and by allowing a larger variance in their revenue forecasts, these schools have a more reasonable measure to achieve.

Response: The agency disagrees that a change needs to be made at this time. There may be challenges with budgeting revenues for certain charter schools with student enrollment that is based on circumstances outside of the control of the charter school. The agency will review information related to this indicator as it impacts charter schools with student populations from correctional facilities and residential treatment centers. The agency is willing to make adjustments that are deemed necessary if a charter school submits an appeal for the indicator after the preliminary rating is released. The agency has maintained language as proposed concerning Charter FIRST indicator 10 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 12

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a charter school board president, a charter school administrator, a municipal advisor, an education services provider, and two bond underwriters recommended revising the calculation for Charter FIRST indicator 12 to exclude from the denominator debt service paid from clearly identified, restricted, non-operating funds. The commenters stated that these expenses should be excluded because they do not represent a claim on current operating revenues and that this method is consistent with standard industry practice.

Response: The agency disagrees with making this change at this time, as time is needed to adjust agency systems to collect the appropriate data. The agency supports the idea of excluding debt service payments made with clearly identifiable restricted, non-operating sources from the denominator for Charter FIRST indicator 12. As a result, all charter schools will receive the maximum of 10 points for indicator 12 for rating year 2025-2026. The agency has maintained language as proposed concerning indicator 12 in the figures in subsection (f)(1) and (2).

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a governmental charter school administrator commented that the calculation for indicator 12 produces an undefined result since the denominator is zero and that language should be added to indicate the school should automatically pass the indicator if the school has no debt.

Response: The agency disagrees that an undefined result is produced in the financial accountability rating system for Charter FIRST indicator 12 when the denominator is zero. Charter schools with no principal or interest have received the maximum points for this indicator. The agency has maintained language as proposed concerning Charter FIRST indicator 12 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 13

Comment: Concerning the proposed figures in subsection (f)(1) and (2), a governmental charter school administrator commented that Charter FIRST indicator 13 appears to measure the impact of long-term debt on a school's operations and that the indicator should be revised to divide long-term indebtedness (bonds and loans), excluding OPEB and NPL, by total assets to determine a ratio. Additionally, the administrator provided a point scale for the ratio and added that a charter school should automatically pass indicator 13 if the charter school's change of students in membership over five years is 7% or more. The administrator also commented that School FIRST indicator 11 for independent school districts uses the ratio of long-term liabilities to total assets to determine long-term solvency and that by adopting the proposed revision, Charter FIRST indicator 13 would be comparable to the indicator independent school districts use to measure the impact of long-term borrowings on long-term solvency.

Response: The agency disagrees that Charter FIRST indicator 13 should be revised to divide long-term indebtedness, excluding OPEB and NPL, by total assets. The calculation for indicator 11 for Charter FIRST already determines the long-term liabilities to total assets ratio with the point scale that was suggested by the administrator and allows a charter school to automatically pass the indicator if the charter school's change of students in membership over five years is 7% or more. The agency has maintained language as proposed concerning Charter FIRST indicator 13 in the figures in subsection (f)(1) and (2).

Charter FIRST Indicator 16

Comment: Concerning proposed Figure: 19 TAC §109.1001(f)(1), the Texas Public Charter Schools Association recommended that the 2025-2026 rating year be used as a transition year between the current 10% threshold and the size-based methodology proposed for the 2026-2027 rating year for Charter FIRST indicator 16 to allow school systems with less than 500 students to pass the indicator if they stay within a 20% variance. The commenter recommended specific methodology.

Response: The agency disagrees with adjusting the scoring system for one year prior to the implementation of the scoring based on multiple ADA groups. There is not a significant variation in the results of the indicator since before the pandemic. The agency has maintained language as proposed concerning Charter FIRST indicator 16 in Figure: 19 TAC §109.1001(f)(1).

Comment: Concerning proposed figures in subsection 19 TAC §109.1001 (f)(1) and (2), a governmental charter school administrator suggested that Charter FIRST indicator 16 be revised to allow wider fluctuations in enrollment and attendance impacting schools with a smaller number of students. The charter school administrator stated that charter schools serving students in residential correctional facilities and residential treatment centers experience fluctuations in daily enrollment that can be greater than 10%. The charter school administrator suggested that points be assigned in a way that is more comparable to School FIRST indicator 15.

Response: The agency disagrees that a change should be made at this time. There may be challenges with estimating ADA for certain charter schools. Charter FIRST indicator 16 for the 2026-2027 rating year in Figure 19 TAC §109.1001(f)(2) reflects variations for points based on four groups of ADA. The agency will review information related to this indicator as it relates charter schools with student populations from correctional facilities and residential treatment centers. The agency is willing to make adjustments that are deemed necessary if a charter school submits an appeal for the indicator after the preliminary rating is released. The agency has maintained language as proposed concerning Charter FIRST indicator 16 in the figures in subsection (f)(1) and (2).

STATUTORY AUTHORITY. The amendment is adopted under TEC, §12.104(b)(3)(M), which subjects open-enrollment charter schools to the prohibitions, restrictions, or requirements relating to public school accountability and special investigations under TEC, Chapter 39, Subchapters A, B, C, D, F, G, and J, and TEC, Chapter 39A; TEC, §39.082, which requires the commissioner of education to develop and implement a financial accountability rating system for public schools and establishes certain minimum requirements for the system, including an appeals process; TEC, §39.083, which requires the commissioner to include in the financial accountability system procedures for public schools to report and receive public comment on an annual financial management report; TEC, §39.085, which requires the commissioner to adopt rules to implement TEC, Chapter 39, Subchapter D, which addresses financial accountability for public schools; and TEC, §39.151, as amended by House Bill (HB) 8, 89th Texas Legislature, 2nd Called Session, 2025, which requires the commissioner to provide a process by which a school district or an open-enrollment charter school can challenge an agency decision related to academic or financial accountability under TEC, Chapter 39, including a determination of consecutive school years of unacceptable performance ratings. This process must include a committee to make recommendations to the commissioner. These provisions collectively authorize and require the commissioner to adopt the financial accountability system rules, which implement each requirement of statute applicable to school districts and open-enrollment charter schools.

CROSS REFERENCE TO STATUTE. The amendment implements TEC, §§12.104(b)(3)(M); 39.082; 39.083; 39.085; and 39.151, as amended by HB 8, 89th Texas Legislature, 2nd Called Session, 2025.

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 June 25, 2026.

TRD-202602609

Cristina De La Fuente-Valadez

Director, Rulemaking

Texas Education Agency

Effective date: July 15, 2026

Proposal publication date: March 27, 2026

For further information, please call: (512) 463-9526