Revised Plan for Financial Solvency Reviews

Word Version

August 15, 2012

TO THE ADMINISTRATOR ADDRESSED:

Subject: Revised Plan for Financial Solvency Reviews

This letter supersedes the previous letter regarding the Texas Education Agency’s (TEA’s) plan for financial solvency reviews, which was published on May 16, 2012. TEA has made a few changes to the plan. TEA’s analysis will focus on financial information for one fiscal year only (fiscal year 2011). The timeframe for preliminary and final notification to local educational agencies (LEAs) has changed also, and LEAs that receive preliminary notification will be required to submit additional financial information. Details of the changes are given below.

Background

TEA has developed a new review process that will alert LEAs, school districts and open-enrollment charter schools, to circumstances that could lead to their financial insolvency.

The financial solvency review process was developed in accordance with the requirements of House Bill (HB) 3, passed by the 81st Texas Legislature in 2009. This bill added Section 39.0822, Financial Solvency Review Required, and Section 39.0823, Projected Deficit, to the Texas Education Code (TEC). Both statutes are published online.

In response to the requirements of HB 3, TEA adopted 19 Texas Administrative Code (TAC) §109.1101, Financial Solvency Review. This rule describes how TEA will use financial indicators, including financial data, student counts, and staffing information to identify LEAs with circumstances that could lead to financial insolvency.

TEA will analyze financial indicators that are available through existing data sources, such as the Public Education Information Management System (PEIMS). The analysis will focus on information for fiscal year 2011 only. TEA’s specific methodology is published online.

Notification to LEAs

TEA is currently analyzing fiscal year 2011 financial indicators for all LEAs in accordance with the published methodology, and will create a preliminary list of LEAs who have been identified as having circumstances that could lead to financial insolvency. In August 2012, the agency will notify the LEAs on the preliminary list in writing.

The notification to each LEA will describe the specific indicator that caused it to be placed on the preliminary list. The LEAs that are notified will be required to submit additional financial data to TEA within 30 calendar days from the date of the notification. No extensions will be granted to this deadline.

Once TEA has reviewed and analyzed the additional information provided, it will make a final list of LEAs whose information and data still points to circumstances that could lead to financial insolvency. The LEAs identified on the final list will be notified in writing in October 2012 and will be required to develop and submit a financial plan designed to prevent the projected insolvency. This requirement is in accordance with TEC Section 39.0823, which states that if the information provided by the LEA “substantiates the projected deficit, the school district shall develop a financial plan and submit the plan to the agency for approval.”

This timeframe allows LEAs to use the financial solvency determination to take corrective action as soon as October 2012, if necessary, or to help them plan and finalize their budgets for the 2013–2014 school year.

We apologize for any inconvenience these changes may have caused. Thank you for your attention. If you need additional information, please contact the Division of Financial Audits at (512) 463-9095.

Sincerely,

Nora Ibáñez Hancock, EdD
Associate Commissioner
Office for Grants and Fiscal Compliance