VATRE and Efficiency Audits

This article defines VATRE and examines efficiency audits and their scope.

Due to property tax rate compression along with increasing operational expenditures brought by current economic factors, some school districts are facing limited funding for maintenance and operations – some to the extent of a budget deficit. Therefore, school districts have recently been looking to increase their maintenance and operations (M&O) tax rate above the amount prescribed by state statute. State law requires taxing entities to conduct an efficiency audit (exceptions apply) and to hold a voter-approval tax rate election (VATRE) to increase their M&O tax rate.

What is a VATRE?

A VATRE allows voters to decide whether to increase the governing entity’s M&O property tax rate, thereby increasing property tax revenues to be used for the entity’s maintenance and operations. The election requires a majority vote to adopt the increased M&O rate.

What is an Efficiency Audit?

An efficiency audit is an investigation of the operations of a governing entity regarding fiscal management, efficiency, and utilization or resources. This provides voters information to aid with making an informed decision during the VATRE.

Note: A school district may be exempted from conducting an efficiency audit prior to holding a VATRE if

  • the District is in an area wherein the governor has declared a disaster and the VATRE is held during the year following the year in which the disaster occurs; or
  • the District conducts pollution control efforts as determined by the Texas Commission on Environmental Quality.

During COVID-19, Districts were exempt from an efficiency audit, but that exemption is no longer applicable. We suggest you consult with your attorney if you would like to apply an exemption.

The Legislative Budget Board has established mandatory guidelines identifying the scope and areas of investigation of an efficiency audit.

What are the scope and areas of investigation of an efficiency audit?

  1. District data on accountability, students, staffing and finances, with peer and state comparison.
    1. The auditor selects five to ten peer districts for comparison. Peer districts can be identified by using either Texas Smart Schools or the TEA Snapshot: School District Profiles.
    2. Criteria for comparison may include the following:
      1. Accountability rating – A-to-F rating assigned by TEA and a corresponding scaled score (1 to 100) to each district and campus
      2. Financial rating – A-to-F rating of the School Financial Integrity Rating System of Texas (FIRST)
      3. Student characteristics – economically disadvantaged, English learners, special education, bilingual/ESL education, career and technical education
      4. Attendance rate
      5. Enrollment
      6. Revenue – M&O tax, state, federal, other local and intermediate
      7. Operating expenditures per function
      8. Payroll expenditures
      9. Staff ratios per personnel category – teaching, support, administrative, paraprofessional, auxiliary
      10. Teacher turnover rates
    3. Other criteria to be evaluated independent of peer districts include:
      1. General fund operating fund balance of the District for the past 5 years
      2. Special programs characteristics – number and percentage of students served, program budget per student served, program budget as a percentage of district budget, total staff for program, and students per total staff for program
  2. Additional financial, operational, and academic information
    1. Information is disclosed regarding the district’s efficiency and effectiveness in using financial resources for the following areas:
    2. Financial
      1. State and regional resources
      2. Reporting
      3. Oversight
      4. Budget process
      5. Self-funded programs
    3. Operational
      1. Staffing
      2. Compensation system
      3. Planning
    4. Academic
      1. Programs

The timeline is important. The Board of Trustees must select an auditor to conduct the efficiency audit no later than four months before the date of the VATRE. Your Certified Public Accountant (CPA) firm has to complete all of its work within three months of being selected. The District also has to hold an open meeting to discuss the results of the efficiency audit and post the results of the efficiency audit on the District’s website no later than 30 days before the VATRE. In practice, most of our clients begin discussions with their board through board workshops or audit committee meetings by early August and present to the full board by the end of August/early September. As such, the month of July is critical to complete these engagements. Note that while there are 18 figures presented in the results of the efficiency audit, 13 of those come from the Texas Education Agency’s PEIMS financial and student databases, the remaining five figures (figures #14 through #18) come from the District’s records and are the most time consuming for Districts. We recommend that District’s begin working on those figures upon engaging a CPA firm.

The efficiency audit does not conclude whether the district is eligible to call a VATRE or to increase the M&O tax rate. The engagement is conducted to provide voters a resource in the decision making of whether to approve the proposed modified tax rate.

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