By Denise Pierce, TCSA General Counsel

The new Charter FIRST rules, which went into effect August 6, establish the financial rating indicators for the 2015, 2016 and 2017 school years. The Texas Education Agency is to be applauded for its diligence. Since the TEA was required to revamp the charter financial accountability system in 2013 by HB5, the TEA has spent the last two years seeking and incorporating input from charter school operators through phone calls, face-to-face meetings, webinars and public hearings. Our members’ input was valued and incorporated, which is a hallmark of good rulemaking.

However, the timing of the rule adoption leaves less than 30 days in the 2014-15 fiscal period for charter schools with a September 1 fiscal year start dates to react or change their financial practices in order to pass or excel under the new scoring rubric for the 2015-16 rating year. Yet, for 2014-2015 rating, which is based on the 2013-2014 fiscal year data, a large number (92 percent) of schools are expected to pass.

TEA made a number of strong improvements to the 2015 financial indicators, based on suggested changes from TCSA and its member schools, such as:

• Rating system is fairly familiar to our schools this year because it contained only seven indicators, all of which essentially are holdovers from the prior ratings system;
• Revised the thresholds for administrative cost ratio, presumably out of recognition that most charters have small enrollment and yet need ample administrative support to capably carry the compliance burden of state and federal regulations;
• Excluded pension expense, other post-employment benefits (OPED), and net pension liability from the total net asset balance.

As for the 15 particular indicators adopted for the 2016 and 2017 rating years, the TEA also responded positively to the concerns raised by charter operators. Chief among those, the new indicators allow charters to appeal their FIRST ratings based on errors made by the charter school. These appeals will continue to be disfavored by the agency, but at least they will not dismissed outright. Consideration will be given only to appeals that would result in a changed rating. The appeal must be submitted within 30 days after release of the preliminary ratings and must include “adequate evidence and additional information.” The rules add the specification that the appeals process is not for correcting data that has been incorrectly submitted to TEA by the charter school.

Charters should watch out for the aggressively graduated point scale between the 2016 and 2017 rating years. As seen in the graph below, the point system will make it harder to get an "A" or Superior rating in the later period. Similarly, it will be harder to receive a standard rating. Any school that receives an "F" or Substandard Achievement score will receive a strike for revocation and non-renewal purposes.

I’m also pleased the TEA altogether removed some of the least effective indicators from the former system, such as whether the school had a monitor assigned, the ratio of students-to-teachers, and investment earnings. And I’m looking forward to strong charter performance in future years as our schools become familiar with and match their financial practices to coincide with these new targets.

A more in-depth summary of Charter FIRST indicators will be released later this year as a legal advisory for TCSA member schools.