Texas Administrative Code
Title 19 - EDUCATION
Part 2 - TEXAS EDUCATION AGENCY
Chapter 61 - SCHOOL DISTRICTS
Subchapter CC - COMMISSIONER'S RULES CONCERNING SCHOOL FACILITIES
Section 61.1039 - Open-Enrollment Charter School Bond Enhancement Program
Universal Citation: 19 TX Admin Code ยง 61.1039
Current through Reg. 49, No. 38; September 20, 2024
(a) Statutory provision. The commissioner of education must administer the open-enrollment charter school facilities credit enhancement program according to the provisions of the Texas Education Code (TEC), Chapter 45, Subchapter J.
(b) Definitions. The following definitions apply to the open-enrollment charter school facilities credit enhancement program.
(1) Amortization expense--The annual
expense of any debt and/or loan obligations.
(2) Annual debt service--Payments of
principal and interest on outstanding bonded debt scheduled to occur between
September 1 and August 31 during a fiscal year as reported by the Municipal
Advisory Council (MAC) of Texas or its successor, if the open-enrollment
charter holder is responsible for outstanding bonded indebtedness.
(A) The annual debt service will be
determined by the current report of the bonded indebtedness of the
open-enrollment charter holder as reported by the MAC of Texas or its successor
as of the date of the application deadline.
(B) The debt service amounts used in this
calculation for variable rate bonds will be those that are published in the
final official statement or final maturity schedule.
(C) Annual debt service includes required
payments into a sinking fund as authorized under the laws of Texas and the
United States of America, provided that the sinking fund is maintained by a
trustee or other entity approved by the commissioner that is not under the
control or common control of the charter holder.
(3) Application deadline--The last business
day of the month in which an application for a credit enhancement is filed.
Applications must be received by the Texas Education Agency (TEA) division
responsible for state funding by 5:00 p.m. on the last business day of the
month to be considered in that month's application processing.
(4) Average daily attendance (ADA)--Total
refined average daily attendance as defined by the TEC, §
48.005
(5) Board resolution--The resolution adopted
by the governing body of an open-enrollment charter holder that:
(A) requests credit enhancement of bonds
through the Open-Enrollment Charter School Bond Enhancement Program;
and
(B) authorizes the charter
holder's administration to pursue bond financing.
(6) Bond resolution--The resolution
authorizing the issuance of bonds adopted by the governing body of an issuer of
bonds for the benefit of an open-enrollment charter holder.
(7) Combination issue--An issuance of bonds
for which an application is filed for a credit enhancement that includes both a
new money portion and a refunding portion, as permitted by the TEC, Chapter 53,
or the Texas Government Code, Chapter 1207. The eligibility of combination
issues for the credit enhancement is limited by the eligibility of the new
money and refunding portions as defined in this subsection.
(8) Debt service coverage ratio--A measure of
an open-enrollment charter holder's ability to pay interest and principal with
cash generated from current operations. The debt service coverage ratio (total
debt service coverage on all long-term capital debt) equals the excess of
revenues over expenses plus interest expense plus depreciation expense plus
amortization expense, all divided by maximum annual debt service. The
calculation can be expressed as: (Excess of revenues over expenses + interest
expense + depreciation expense + amortization expense) / Maximum annual debt
service.
(9) Depreciation
expense--The audited amount of depreciation that was expensed during the fiscal
period.
(10) Foundation School
Program (FSP)--The program established under the TEC, Chapters 46, 48, and 49,
or any successor program of state appropriated funding for school districts in
the state of Texas.
(11) Maximum
annual debt service--As of any date of calculation, the highest annual debt
service requirements with respect to all outstanding debt for any succeeding
fiscal year.
(12) New money
issue--An issuance of revenue bonds for the purposes of the purchase, repair,
or renovation of real property, including improvements to real property, for an
educational facility, as that term is defined in the TEC, §
53.02, of an
open-enrollment charter school and for purposes of equipping real property of
an open-enrollment charter school. Eligibility for the credit enhancement for
new money issues is limited to the issuance of bonds authorized under the TEC,
Chapter 53. A new money issue does not include the issuance of bonds to
purchase a facility from a public facility corporation created by the
open-enrollment charter holder or to purchase any property that is currently
under a lease-purchase contract under the Local Government Code, Chapter 271,
Subchapter A.
(13) Open-enrollment
charter--This term has the meaning assigned in §
100.1001
of this title (relating to Definitions).
(14) Open-enrollment charter holder--This
term has the meaning assigned to the term "charter holder" in the TEC, §
12.1012.
(15) Open-enrollment charter school--This
term has the meaning assigned to the term "charter school" in §
100.1001
of this title.
(16) Open-Enrollment
Charter School Bond Enhancement Program (CSBEP)--The program to provide credit
enhancement for open-enrollment charter school bonds that is described by this
section and established under the TEC, Chapter 45, Subchapter J.
(17) Open-enrollment charter school
campus--This term has the meaning assigned to the term "charter school campus"
in §
100.1001
of this title.
(18) Proposed annual
debt service--Payments of principal and interest on the outstanding bonded debt
for which the enhancement is sought scheduled to occur between September 1 and
August 31 during the fiscal year in which the credit enhancement is sought and
each fiscal year for which the credit enhancement is or would be in effect as
described in the amortization schedule for the bonded debt for which the
enhancement is sought. Proposed annual debt service includes required payments
into a sinking fund as authorized under the laws of Texas and the United States
of America, provided that the sinking fund is maintained by a trustee or other
entity approved by the commissioner that is not under the control or common
control of the charter holder.
(19)
Refunding issue--An issuance of bonds for the purpose of refunding bonds that
have previously been issued under the TEC, Chapter 53, or the Texas Government
Code, Chapter 1207, and have previously been approved by the Office of the
Attorney General.
(20) School
year--The period beginning the fourth Monday of August of the current calendar
year and ending the Sunday before the fourth Monday of August of the following
calendar year.
(c) Eligibility to apply for the credit enhancement.
(1) To have its application for the credit
enhancement considered, an open-enrollment charter holder must:
(A) have operated at least one
open-enrollment charter school in the state of Texas for at least three
years;
(B) identify in its
application for which open-enrollment charter school and, if applicable, for
which open-enrollment charter school campus the bond funds will be
used;
(C) in its application, agree
that the bonded indebtedness for which the credit enhancement is sought will be
undertaken as an obligation of all tax-exempt entities under common control of
the open-enrollment charter holder and agree that all such entities will be
liable for the obligation if the open-enrollment charter holder defaults on the
bonded indebtedness, provided that an entity that does not operate a charter
school in Texas is subject to this subparagraph only to the extent that it has
received state funds from the open-enrollment charter holder;
(D) not be considered a high-risk grantee by
the TEA office responsible for planning, grants, and evaluation; and
(E) not have an unresolved corrective action
that is more than one year old, unless the open-enrollment charter holder has
taken appropriate steps to begin resolving the action.
(2) For an open-enrollment charter holder to
have its application for the credit enhancement considered, each
open-enrollment charter school operated under the charter must not have an
accreditation rating of Not Accredited-Revoked and must have a rating of
acceptable or higher as its most recent state academic accountability rating.
However, if an open-enrollment charter school operated under the charter is not
yet rated because the school is in its first year of operation, that fact will
not impact the charter holder's eligibility to apply for the credit
enhancement.
(d) Criteria to be met for open-enrollment charter holder to receive initial approval.
(1) In determining whether an open-enrollment
charter holder applicant is eligible to receive initial approval for the credit
enhancement, the commissioner will investigate the financial status of the
applicant open-enrollment charter holder and the accreditation status of all
open-enrollment charter schools operated under the charter. For the
open-enrollment charter holder's application to be eligible for initial
approval by the commissioner, each open-enrollment charter school operated
under the charter must be accredited and the open-enrollment charter holder
must be financially sound. The commissioner's review will include review of the
following:
(A) the purpose of the bond
issue;
(B) the accreditation
status, as defined by §
97.1055 of
this title (relating to Accreditation Status), of all open-enrollment charter
schools operated under the charter in accordance with the following, except
that, if an open-enrollment charter school operated under the charter has not
yet received an accreditation rating because it is in its first year of
operation, that fact will not impact the charter holder's eligibility for
consideration for the credit enhancement:
(i)
if the accreditation status of all open-enrollment charter schools operated
under the charter is Accredited, the open-enrollment charter holder will be
eligible for consideration for the credit enhancement;
(ii) if the accreditation status of any
open-enrollment charter school operated under the charter is Accredited-Warned
or Accredited-Probation, the commissioner will investigate the underlying
reason for the accreditation rating to determine whether the accreditation
rating is related to the open-enrollment charter school's financial soundness.
If the accreditation rating is related to the open-enrollment charter school's
financial soundness, the open-enrollment charter holder will not be eligible
for consideration for the credit enhancement; or
(iii) if the accreditation status of any
open-enrollment charter school operated under the charter is Not
Accredited-Revoked, the open-enrollment charter holder will not be eligible for
consideration for the credit enhancement;
(C) the open-enrollment charter holder's
financial status and stability, regardless of each open-enrollment charter
school's accreditation rating, including approval of the bonds by the Office of
the Attorney General under the provisions of the TEC, §
53.40;
(D) the audit history of the open-enrollment
charter holder and of all open-enrollment charter schools operated under the
charter;
(E) the open-enrollment
charter holder's compliance with statutes and rules of the TEA and with
applicable state and federal program requirements and the compliance of all
open-enrollment charter schools operated under the charter with these statutes,
rules, and requirements;
(F) any
interventions and sanctions to which the open-enrollment charter holder has
been subject; to which any of the open-enrollment charter schools operated
under the charter has been subject; and, if applicable, to which any of the
open-enrollment charter school campuses operated under the charter has been
subject;
(G) formal complaints made
against the open-enrollment charter holder, against any of the open-enrollment
charter schools operated under the charter, or against any of the
open-enrollment charter school campuses operated under the charter;
(H) the state academic accountability rating
of all open-enrollment charter schools operated under the charter and the
campus ratings of all open-enrollment charter school campuses operated under
the charter; and
(I) any unresolved
corrective actions that are less than one year old.
(2) For an open-enrollment charter holder to
receive initial approval for credit enhancement:
(A) the applicant open-enrollment charter
holder's lowest credit rating from any credit rating agency may not be the same
as or higher than that of the CSBEP;
(B) the bonded debt for which the credit
enhancement is sought must be structured so that no single annual debt service
payment exceeds two times the quotient produced by dividing the total proposed
annual debt service, as defined in subsection (b)(18) of this section, for the
term of the bonds by the number of years in the amortization schedule;
and
(C) the open-enrollment charter
holder must agree, in its application, that payments of all of the principal of
the bonds will be scheduled during the first six months of the state fiscal
year.
(3) To receive
initial approval for credit enhancement of bonds to be issued for the purchase,
repair, or renovation of real property, the open-enrollment charter holder must
agree, in its application, to execute a lien or require the owner of the
property, if different, to execute a lien on that real property in a form
prescribed by the commissioner and approved by the Office of the Attorney
General to secure repayment of all amounts due to the state from the
open-enrollment charter holder, including reimbursement of any private funds
paid on behalf of an open-enrollment charter school under this section. The
lien must be filed in the real property records of each county in which the
real property is located. In accordance with the TEC, §
45.306, the lien has
priority over any other claim against the real property except a lien granted
to the holders of obligations issued to finance the acquisition of the real
property and any security interest or lien existing before credit enhancement
is provided under this section. The open-enrollment charter holder must
disclose all existing liens, security interests, or other encumbrances on the
real property to be purchased, renovated, or improved and on any improvements
proposed for the real property in the application and confirm that no
additional liens or encumbrances have been placed on the property before the
signing and filing of the lien under this subsection. On the payment or
defeasance of the enhanced bonds, the lien will terminate and be released
insofar as the paid or defeased bonds are concerned. Property purchased with
the bond proceeds is presumed to be public property under the TEC, §
12.128, and remains
public property in accordance with that section.
(e) Limitations on access to the credit enhancement.
(1) The commissioner will limit
approval of the credit enhancement to an open-enrollment charter holder with a
historical debt service coverage ratio of at least 1.1 and a projected debt
service coverage ratio of at least 1.20.
(2) The eligibility of bonds to receive the
credit enhancement is limited to those new money, refunding, and combination
issues as defined in subsection (b)(12), (19), and (7), respectively, of this
section.
(3) To be eligible to
receive the credit enhancement, bonds may not provide for acceleration of
amounts of principal or interest not yet matured by virtue of a charter
holder's failure to make payments or for any other reason.
(f) Application processing. To facilitate prioritization of applications for the credit enhancement, all applications received during a calendar month will be held until the twentieth business day of the subsequent month. On the twentieth business day of each month, the commissioner will announce the results of the prioritization described in paragraph (6) of this subsection, if prioritization was necessary, and process applications for initial approval of the credit enhancement up to the available capacity as of the application deadline, subject to the requirements of this subsection.
(1) The open-enrollment charter
holder may not submit an application for a credit enhancement before the
governing body of the open-enrollment charter holder adopts a board resolution
as defined in subsection (b)(5) of this section.
(2) The actual credit enhancement of the
bonds is subject to the initial approval process and the final approval process
prescribed in subsection (g) of this section.
(3) Refunding issues must comply with the
following requirements to retain eligibility for the credit enhancement for the
refunding bonds.
(A) The open-enrollment
charter holder must demonstrate that issuing the refunding bond(s) will result
in a net present value savings to the open-enrollment charter holder and that
the refunding bond or bonds will not have a maturity date later than the final
maturity date of the bonds being refunded. Net present value savings is
determined by computing the net present value of the difference between each
scheduled payment on the original bonds and each scheduled payment on the
refunding bonds. Net present value savings must be computed at the true
interest cost of the refunding bonds.
(B) If an open-enrollment charter holder
files an application for a combination issue, the application will be treated
as a single issue for the purposes of eligibility for the credit enhancement. A
credit enhancement for the combination issue will be awarded only if both the
new money portion and the refunding portion meet all of the eligibility
requirements described in this subsection. The open-enrollment charter holder
making the application must present data to the commissioner that demonstrate
compliance for both the new money portion of the issue and the refunding
portion of the issue.
(C) The
refunding transaction must comply with the provisions of paragraphs (8) and
(10) of this subsection.
(4) The commissioner in each month of each
fiscal year will estimate the amount of funds available to make payments under
the CSBEP from the FSP through the end of the fiscal year for purposes of
providing initial approval to the credit enhancement of bonds issued for the
benefit of open-enrollment charter holders under this section. The commissioner
will confirm that a sufficient amount of these funds exists to enhance the
credit of the bonds before the issuance of the final approval for the credit
enhancement in accordance with subsection (g)(4) of this section.
(5) Before approving the credit enhancement
of bonds issued by open-enrollment charter holders under the CSBEP, the
commissioner must:
(A) allocate not more than
1.0% of the amount appropriated for the FSP for purposes of the CSBEP;
and
(B) make the determination
described in paragraph (4) of this subsection.
(6) If prioritization of applications is
necessary because of limited program capacity, the commissioner will prioritize
applications for the credit enhancement in the following way.
(A) Applications from open-enrollment charter
holders that have not had bonds issued previously will be considered before
applications from open-enrollment charter holders that have had bonds issued
previously.
(B) The commissioner
first will prioritize by lottery all applications received from open-enrollment
charter holders that have not had bonds issued previously.
(C) The commissioner then will prioritize by
lottery all applications received from open-enrollment charter holders that
have had bonds issued previously.
(7) An application received after the
application deadline will be considered a valid application for the subsequent
month, unless withdrawn by the submitting open-enrollment charter holder before
the end of the subsequent month.
(8) Each open-enrollment charter holder that
submits a valid application will be notified of the application status within
20 business days of the end of the month following the application deadline. If
an open-enrollment charter holder is awarded initial approval for the credit
enhancement as described in subsection (g)(3) of this section, the following
requirements must be met.
(A) The
open-enrollment charter holder must comply with the provisions for final
approval described in subsection (g)(4) of this section to maintain approval
for the credit enhancement.
(B) The
bonds must be approved by the Office of the Attorney General within 270 days of
the date of the letter granting the approval of the credit enhancement. The
initial approval for the credit enhancement will expire at the end of the
270-day period. The commissioner may extend the 270-day period, based on
extraordinary circumstances, on receiving a written request from the
open-enrollment charter holder before the expiration of the 270-day
period.
(9) If an
open-enrollment charter holder does not receive a credit enhancement or for any
reason does not receive approval of the bonds from the Office of the Attorney
General within the specified time period, the open-enrollment charter holder
may reapply in a subsequent month. Applications that were denied a credit
enhancement will not be retained for consideration in subsequent
months.
(10) If the bonds are not
approved by the Office of the Attorney General within 270 days of the date of
the letter granting the approval of the credit enhancement, the commissioner
will consider the application withdrawn, and the open-enrollment charter holder
must reapply for a credit enhancement.
(11) An open-enrollment charter holder may
not represent bonds as approved for credit enhancement for the purposes of
pricing or marketing the bonds before the date of the letter granting approval
of the credit enhancement.
(g) Application for the credit enhancement.
(1) Application process. Open-enrollment
charter holders must apply to the commissioner for the credit enhancement of
eligible bonds. The open-enrollment charter holder must submit, in a form
specified by the commissioner, the information required under this section and
any additional information the commissioner may require. The application and
all additional information required by the commissioner must be received before
the application will be processed. The application must be accompanied by a fee
to be set by the commissioner.
(A) The fee is
due at the time the application for the credit enhancement is submitted. An
application will not be processed until the fee has been received in accordance
with the process prescribed by the commissioner for remitting the fee on the
application form.
(B) The fee will
not be refunded to an open-enrollment charter holder that:
(i) is not approved for the credit
enhancement; or
(ii) does not sell
its bonds before the expiration of its approval for the credit
enhancement.
(C) The fee
may be transferred to a subsequent application for the credit enhancement by
the open-enrollment charter holder if the open-enrollment charter holder
withdraws its application and submits the subsequent application for the same
charter school before the expiration of its initial approval for the credit
enhancement.
(2)
Application for the credit enhancement and charter renewal or amendment.
(A) If an open-enrollment charter holder
applies for the credit enhancement during the school year in which the
open-enrollment charter holder's charter is due to expire, application approval
will be contingent on successful renewal of the charter, and the bonds for
which the open-enrollment charter holder is applying for the credit enhancement
may not be issued before the successful renewal of the charter.
(B) If an open-enrollment charter holder
proposes to use the proceeds of the bonds for which it is applying for the
credit enhancement for an expansion that requires a charter amendment,
application approval will be contingent on approval of the amendment, and the
bonds may not be issued before approval of the amendment.
(3) Initial approval; denial. The TEA will
notify an applicant in writing of initial approval for or of denial for the
credit enhancement on the TEA's determination of whether the applicant has met
all applicable requirements. Notification of denial will include the reasons
for denial.
(4) Final approval. An
open-enrollment charter holder must receive final approval before completing
the sale of the bonds for which the open-enrollment charter holder has received
notification of initial approval.
(A) An
open-enrollment charter holder that has received initial approval must provide
a written notice to the TEA two business days before issuing a preliminary
official statement (POS) for the bonds that are eligible for the credit
enhancement or two business days before soliciting investment offers, if the
bonds will be privately placed without the use of a POS.
(i) The open-enrollment charter holder must
receive written confirmation from the TEA that the available capacity of money
allocated for the credit enhancement under this section continues to be
available and must continue to meet the requirements of subsection (c) of this
section before proceeding with the public or private offer to sell
bonds.
(ii) The TEA will provide
this notification within one business day of receiving the notice of the POS or
notice of other solicitation offers to sell the bonds.
(B) An open-enrollment charter holder that
received confirmation from the TEA in accordance with subparagraph (A) of this
paragraph must provide written notice to the TEA of the placement of an agenda
item on a meeting of the bond issuer's board of directors to approve the bond
sale no later than two business days before the meeting. If the bond sale is
completed pursuant to a delegation by the issuer to a pricing officer or
committee, notice must be given to the TEA no later than two business days
before the execution of a bond purchase agreement by such pricing officer or
committee.
(i) The open-enrollment charter
holder must receive written confirmation from the TEA that the capacity
continues to be available for the bond sale before the approval of the sale by
the bond issuer or by the pricing officer or committee.
(ii) The TEA will provide this notification
within one business day before the date that the bond issuer expects to
complete the sale by official action of the bond issuer or of a pricing officer
or committee.
(C) The TEA
will process requests for final approval from open-enrollment charter holders
that have received initial approval on a first come, first served basis.
Requests for final approval must be received before the expiration of the
initial approval.
(D) An
open-enrollment charter holder may provide written notification as required by
this paragraph by facsimile transmission or by electronic mail in a manner
prescribed by the commissioner.
(h) Defeasance. The credit enhancement will be completely removed when bonds approved for credit enhancement by this CSBEP are defeased, and such a provision must be specifically stated in the bond resolution. If bonds approved for credit enhancement by this CSBEP are defeased, the open-enrollment charter holder must notify the commissioner in writing within ten calendar days of the action.
(i) Payments. For purposes of the provisions of the TEC, Chapter 45, Subchapter J, matured principal and interest payments are limited to amounts due on bonds approved for credit enhancement at scheduled maturity, at scheduled interest payment dates, and at dates when bonds are subject to mandatory redemption, including extraordinary mandatory redemption, in accordance with their terms. All such payment dates, including mandatory redemption dates, must be specified in the bond order or other document pursuant to which the bonds initially are issued. Without limiting the provisions of this subsection, payments attributable to an optional redemption or a right granted to a bondholder to demand payment on a tender of such bonds according to the terms of the bonds do not constitute matured principal and interest payments.
(j) Credit enhancement restrictions. The credit enhancement provided for eligible bonds under the provisions of the TEC, Chapter 45, Subchapter J, is restricted to matured bond principal and interest. The credit enhancement does not extend to any obligation of an open-enrollment charter holder under any agreement with a third party relating to bonds that is defined or described in state law as a "bond enhancement agreement" or a "credit agreement," unless the right to payment of such third party is directly as a result of such third party being a bondholder.
(k) Report on the use of funds and confirmation of use of funds by independent auditor. An open-enrollment charter holder that issues bonds approved for credit enhancement by the CSBEP must report to the TEA annually in a form prescribed by the commissioner on the use of the bond funds until all bond proceeds have been spent. The open-enrollment charter holder's independent auditor must confirm in the open-enrollment charter holder's annual financial report that bond funds have been used in accordance with the purpose specified in the application for the credit enhancement.
(l) Failure to comply with statute or this section. An open-enrollment charter holder's failure to comply with the requirements of the TEC, Chapter 45, Subchapter J, or with the requirements of this section, including by making any misrepresentations in the open-enrollment charter holder's application for the credit enhancement, constitutes a material violation of the open-enrollment charter holder's charter.
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