Business Manager and CFO Roundtable Discussion - Updates on Recent TEA Correspondence and Texas Commission on Public Sch

1. Business Manager and CFO Roundtable Discussion February 6, 2019 Hank Johnson Consultant

2. Agenda • Introductions • Upcoming Events • Updates on Recent TEA Correspondence • Reminder: Changes to FIRST and others • Texas Commission on Public School Finance • Group Discussion • Questions and Comments

3. Sponsor

4. Chance Allen - Mortgage Lending

5. Upcoming Events • May 21, 2019 - Public Funds Investment Training • The ESC Region 11 Business Center is hosting a Public Funds Investment Training presented by guest speaker Patrick Shinkle, Associate Director for the Center for Public Management at the University of North Texas. CPAs will receive 5 hours of CPE credit.

6. Recent TEA Correspondence: New Guidance on Micro-Purchase Flexibility - EDGAR • Micro-purchase threshold of $10,000 is an aggregate amount: • applied to all of the LEA’s federal grants throughout the fiscal year

7. Recent TEA Correspondence: New Guidance on Micro-Purchase Flexibility - EDGAR • LEAs’ micro-purchase flexibility guidance: • The $10,000 “aggregate amount” threshold applies to purchases of “like-types” of items. • LEA must define what like-types of items may be micro-purchased in its local policies and procedures. • The $10,000 threshold applies to each like-type that the LEA defines. • Once the LEA reaches the $10,000 threshold: • Must follow small purchase procedures and collect at least two price quotes for additional purchases of items for that like-type.

8. Recent TEA Correspondence: New Guidance on Micro-Purchase Flexibility - EDGAR • LEAs’ micro-purchase flexibility guidance (continued): • A like-type may correlate to a subcategory of a commodity code (not to the commodity code itself). • Like-type may not be defined as a single purchase order or a single vendor. • For each like-type that the LEA defines in its local policies and procedures, it may expend up to the $10,000 threshold across all its federal grant funds for the entire fiscal year. • TEA does not limit the number of like-types that the LEA may define, nor does TEA limit the cost of the items categorized as like-types.

9. Recent TEA Correspondence: New Guidance on Micro-Purchase Flexibility - EDGAR BEWARE • LEAs “like-type” definitions are subject to monitoring and audit. • LEAs must be prepared to submit their “like-type” definitions to TEA monitors and auditors. How will you document “like-type” definitions?

10. Reminder: FIRST Rating Changes • New 2020-2021 Ratings (Based on FY 2020 data) • Adopted July 27, 2018 (See Texas Register) • Point scales and ratings are different with these new rules • School FIRST: 20 indicators (Proposed 21) • Charter FIRST: 21 indicators • New: “Ceiling Indicators”

11. Reminder: SCHOOL FIRST RATINGS2020–2021 RATING YEAR (BASED ON FY 2020 DATA)

12. Reminder: FIRST Rating Changes • Considerations to address the changes: • Compare current financial position and practices to new indicators • Identify areas of strengths and weaknesses • Consider FIRST rating changes in the 2019-2020 budget process

13. Reminder: Other Items • National School Lunch Program (NSLP) – Financial Report • Due April 1 • Opens March 1 • Depository Contract Extensions: • Effective September 1, 2017, • Can be extended a total of three (3) two-year terms • Contact can be modified for each two-year extension, • If the school district and the district's depository bank agree to the terms.

14. Texas Commission on Public School Finance – Final Report • Dated December 31, 2018 • Includes a summary of major recommendations • The report includes 35 detailed recommendations • Also, includes a section on additional revenue sources for consideration • Provides significant amount of background Information

15. Texas Commission on Public School Finance – Final Report • Can this statement be a significant driver for school finance reform? • “If current formulas and structure not addressed, recapture will become an even larger burden, exceeding the state’s share of funding in a decade.” Hank’s Opinion • 1. Identifies a looming problem with the lack of State’s share of funding. • 2. Points to the major reason for property tax growth.

16. Texas Commission on Public School Finance – Final Report Source: Texas Commission on Public School Finance – Final Report

17. Texas Commission on Public School Finance

18. Texas Commission on Public School Finance – State and Local Who benefits from taxable property value growth?

19. Funding Elements – 2016 & 2019 $.04 of $1.04; $32 or approximately 2.4% increase

20. Texas Commission on Public School Finance – Final Report • Summary of major recommendations: • The Commission has made a series of recommendations to fundamentally restructure the Texas school finance system. • The recommendations are both extensive and build upon one another. • Report quote: “When taken in their totality, we believe that they will”:

21. Texas Commission on Public School Finance – Final Report • “When taken in their totality, we believe that they will”: • Create a long-term systemic balance between the state and local share of district foundation funding for public education. • Restructure the Texas school finance system by reallocating outdated or otherwise inefficient allotments, weights, and programs.

22. Texas Commission on Public School Finance – Final Report • “When taken in their totality, we believe that they will”: • Substantially increase the level of equity in the system with greater investment: • In low-income student groups, and • in other historically underperforming student groups, to • markedly grow their educational outcomes by the year 2030.

23. Texas Commission on Public School Finance – Final Report • “When taken in their totality, we believe that they will”: • Significantly reduce the growth rate of property taxes and reliance on recapture as a method of finance for the state, while simultaneously substantially reducing the growth in recapture. • Encourage widespread adoption of data-informed best practices that deliver improved results for students.

24. Texas Commission on Public School Finance – Final Report • Immediately infuse, net of property tax relief and new funding needed for student growth, significant additional state resources to fund the data-informed strategies that will improve student outcomes. • Formulaically increase per pupil funding in the future (relative to current law) as outcomes-based funding grows from the successful investments: • In early learning, • Teacher effectiveness, and • High school supports • Made possible by the implementation of these recommendations.

25. Texas Commission on Public School Finance – Final Report • Additional revenue items for consideration • Expand sales tax base and eliminate exclusions for certain Business and Professional Services (~$4.8 billion per biennium). • Legal Services • Accounting and Auditing Services • Architectural and Engineering Services • Management Consulting and PR • Contract Computer Programming • Marketing Research and Public Opinion Polling • Outdoors Display Advertising • Financial Services Brokerages • Other Financial Services • Airplanes and Motor Boats at 6%

26. Texas Commission on Public School Finance – Final Report • Additional revenue items for consideration • Increase motor fuel tax to $0.30, an increase of $0.10, for gas and diesel fuel (~$900 million per biennium). • 25 percent of the fuel tax going to the Available School Fund in 2020 and $470 million dedicated to the ASF in 2021 • Dedicate interest income and $1 billion from Economic Stabilization Fund to "hard costs" in education • School safety, Existing Debt Allotment, New Instructional Facility Allotment, Instructional Facilities Allotment) ~$130 million in 2018. • Comptroller: Expected interest income is $135.9 million in 2018 and $204.9 million in 2019. • Replace high-cost gas tax rate with natural gas production rate ~$600 million per biennium. • Estimates given in 2017 were around $360 million per year.

27. Texas Commission on Public School Finance – Final Report • Additional revenue items for consideration • Dedicate any additional revenue offset from a property tax value increase to state contribution to public education ~$3 billion per biennium. • Not new money, but ensure dedication by the state to not decrease support to public schools (according to TEA this would be $3.7 billion dollars per biennium). • Increase the alcoholic beverage tax by 50 percent ~$100 million per biennium. • Estimates based on Comptroller 2018 tax exemptions and tax incidence report. • Provide a local option sales tax of one percent for school districts to provide property tax relief. • Potential revenue would be dependent upon each locality.

28. Texas Commission on Public School Finance – Final Report • Other ideas for additional revenue items (no numbers provided) • 1. Expand sales tax base to include additional other goods. • 2. Consider an annual registration fee for hybrid vehicles. • 3. Transfer a portion of the Rainy Day fund into the Permanent School Fund (PSF) and place into slightly higher yield investments to increase distributions. • 4. Allow schools/appropriate personnel to be an "in-network provider" so that ISDs can provide and bill for health and mental health services.

29. Texas Commission on Public School Finance – Final Report • Other ideas for additional revenue items (No numbers provided) • 5. Consider a "mobility fee" for large employers to replace the 25-percent sales tax diversion to the State Highway Fund and reallocate dedicated sales tax to public education. • 6. Ask the legislature to work collaboratively with the State Board of Education and School Land Board to work towards maximizing the availability of funding allocated to the Available School Fund (ASF).

30. Texas Commission on Public School Finance – Final Report • Other ideas for additional revenue items (No numbers provided) • 7. Reduce the state’s use of recapture as a method of finance for the state to reduce tax burden and the overreliance on property taxes by the state. Options could include: • Reducing assessment caps for residential homeowners from ten percent to five to seven percent. • Replacing recapture as a method of finance for the state with a one-percent increase in sales tax.

31. Texas Commission on Public School Finance – Final Report • Other ideas for additional revenue items (No numbers provided) • 7. Reduce the state’s use of recapture as a method of finance for the state to reduce tax burden and the overreliance on property taxes by the state. Options could include (continued): • Limiting the Chapter 41 liability of a school district, not to exceed 35 percent of total maintenance and operations (M&O) tax collections. • Decoupling the basic allotment and equalized wealth levels and update them to ensure that the system is equalized at the 85th percentile. • Consolidating the two equalized wealth levels and update/index to reflect new property value growth. • Applying the Cost of Education Index (CEI) weight at 100 percent when calculating weighted average daily attendance (WADA). • Updating the CEI and applying as a credit against recapture. • Provide transportation allotment to Chapter 41 districts as a credit against recapture.

32. Texas Commission on Public School Finance – Final Report • Other ideas for additional revenue items (No numbers provided) • 7. Reduce the state’s use of recapture as a method of finance for the state to reduce tax burden and the overreliance on property taxes by the state. Options could include (continued): • Providing school districts with the authority to provide property tax exemption for teachers and other school staff (food service workers, bus drivers, etc.). • Authorizing circuit breakers program to mitigate the property tax burden on middle and low-income households. • Providing school districts with the flexibility to lower M&O tax rates after successful passage of a tax ratification election to take advantage of changing market conditions.

33. Texas Commission on Public School Finance – Final Report • Questions: • What is the financial impact of each recommendation on your District or Charter? • How do you review each recommendation? • When and where do you address the recommendations? • How will the recommendations impact student performance?

34. Upcoming Legislative Session • Questions? • Will the Legislature address funding for outcomes? • Formula change? • Will the Legislature increase funding? • On top of increased property tax?

35. Questions and Comments