Schools Face Tough New Rules on Financial Hardship

The Texas Education Agency has released new guidelines that set tough thresholds for school districts hoping to take advantage of special legal exemptions passed by the Legislature and intended to help schools cope with significant budget cuts.

A school district's declaration of  “financial exigency” is necessary to trigger many provisions of Senate Bill 8, including those that allow districts to streamline mid-contract employee terminations and avoid seniority-based layoffs in certain circumstances. The law, passed during the special session, left it up to the Commissioner of Education to establish a minimum standard for such declarations, which were previously largely in the hands of local school boards.

The rules released Wednesday give several scenarios that allow districts to claim financial exigency — but they are so rigorous that it’s likely that only a small number of districts will actually meet the any of the standards, says Jackie Lain, an associate executive director at the Texas Association of School Boards.  The conditions include a funding reduction of more than 10 percent per student or more than a 20 percent decrease in its fund balance.

To put that in perspective, the $4 billion reduction to public education funding during the past legislative session has most districts seeing a 6 percent cut during the first year of the biennium and not more than a 9 percent cut in the second year. Districts vary widely in how much they've used of their fund balances, which amount to emergency savings accounts.

"Before SB8 there weren’t any standards for declaring financial exigency and the bill required the commissioner to adopt minimum standards," says Janice Hollingsworth, who is the interim director of the agency's financial audit division.

Among the other conditions are a decline in enrollment by more than 10 percent over the past two years, an unforeseen natural disaster requiring significant expenditures in excess of 15 percent of a district’s yearly budget, and “any other circumstances approved in writing” by the commissioner of education. Hollingsworth says the commissioner maintained some discretion to anticipate any unforeseen circumstances the other conditions didn't account for.  

What the new guidelines mean in practice, says Lain, is that districts may be forced to go through more expensive processes to lay off employees, whose salaries typically make up about 80 percent of their annual budgets, instead of being able to take advantage of the more efficient practices lawmakers approved during the session.

“The thresholds seem to be overly high without any explanations,” Lain says. “How the commissioner uses the discretion will determine if the rules are overly prescriptive, or properly restrictive.”

The TEA will have a period of public comment on the rules. Hollingsworth says they are "subject to change" depending on the feedback the agency receives.