Plan for Financial Solvency Reviews

Word Version

May 16, 2012

TO THE ADMINISTRATOR ADDRESSED:

Subject:Plan for Financial Solvency Reviews 

The Texas Education Agency (TEA) has developed a review process that will alert local educational agencies (LEAs), school districts and open-enrollment charter schools, to circumstances that could lead to their financial insolvency.

Background

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 the past two school years. TEA’s specific methodology is published online.

Notification to LEAs

TEA is currently analyzing fiscal year 2010 and 2011 financial indicators for all LEAs in accordance with the published methodology, and will create a preliminary list of LEAs whose financial indicators trigger the need for additional information or clarification. In June, the agency will notify the LEAs on the preliminary list that they have been identified as having circumstances that could lead to financial insolvency.

The notification to each LEA will describe the specific indicator that caused it to be placed on the preliminary list. Additional information may be requested from the LEA; the need for additional information will be determined by TEA on a case-by-case basis. The LEAs that are notified will be required to respond to TEA within 30 calendar days. No extensions will be granted to this deadline.

LEAs that do not receive notices in June 2012 can assume that their financial indicators did not indicate a potential for financial insolvency.

Once TEA has reviewed the responses and analyzed any additional information provided, it will make a final list of school districts and open-enrollment charter schools whose data points to circumstances that could lead to financial insolvency. The LEAs identified on the final list will be notified in writing and 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.”

More Information

Detailed information about the financial solvency review process is given in the relevant TEC statutes and TAC rule at the links provided above. Regional education services centers may also provide helpful information.

Thank you for your attention. If you need additional information, please contact the Division of Financial Audits at (512) 463-9095 or schoolaudits@tea.texas.gov.

Sincerely,

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