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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Notes to Schedule of Expenditures for Federal Awards For the Year Ended August 31, 2013

(1) Summary of Significant Accounting Policies

(a) Reporting Entity

The state of Texas Schedule of Expenditures of Federal Awards (Schedule) includes the activity of all federal award programs administered by the primary government except for the federal activity of the Texas A&M Research Foundation (TAMRF), a blended component unit of the Texas A&M University System. TAMRF is excluded from the Schedule and is subject to a separate audit in compliance with OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations.

The Schedule does not include the federal activity of discrete component units. These entities are legally separate from the state and are responsible for undergoing separate audits as needed to comply with OMB Circular A-133. The federal activity of the following discrete component units is excluded from the Schedule:

(b) Basis of Presentation

The Schedule presents total federal awards expended for each individual federal program in accordance with OMB Circular A-133. Federal award program titles are reported as presented in the Catalog of Federal Domestic Assistance (CFDA). Federal award program titles not presented in the CFDA are identified by federal agency number followed by (.XXX). Federal award programs include expenditures, pass-throughs to non-state agencies (i.e. payments to subrecipients), non-monetary assistance and loan programs.

(c) Basis of Accounting

The expenditures for each of the federal financial assistance programs are presented in the Schedule on the accounting basis as presented on the fund financial statements. For entities with governmental funds, expenditures are presented on a modified accrual basis. For entities with proprietary or fiduciary funds, expenditures are presented on the accrual basis.

Both the modified accrual and accrual basis of accounting incorporate an estimation approach to determine the amount of expenditures incurred if not yet billed by a vendor. Thus, those federal programs presenting negative amounts on the Schedule are the result of prior year estimates being overstated and/or reimbursements due back to the grantor.

(d) Matching Costs

Matching costs, the nonfederal share of certain program costs, are not included in the Schedule, except for the state’s share of unemployment insurance (See Note 4).

(2) Relationship to Federal Financial Reports

The regulations and guidelines governing the preparation of federal financial reports vary by federal agency and among programs administered by the same agency. Accordingly, the amounts reported in the federal financial reports do not necessarily agree with the amounts reported in the accompanying Schedule which is prepared on the basis explained in Note 1(c).

(3) Relations to Revenues in the State of Texas’ Fund Financial Statements

The following is a reconciliation of total federal awards expended as reported in the Schedule to federal revenues reported in the fund financial statements.

* This amount includes deductions of $3,549,533 for fixed fee contracts; deductions of $20,743,522 for vendor transactions; additions of $11,501,450 for Credit Enhancement for Charter School Facilities; and additions of $7,873,439 for other transactions; and $125 for rounding in the schedule.

Federal Revenues

Statement of Revenues, Expenditures,
and Changes in Fund Balances – Governmental
Funds, Federal Revenue
$ 38,015,959,988
Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds,
Federal Revenue

4,591,418,188

Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds, Capital
Contributions- Federal
3,016,522
Statement of Changes in Fiduciary Net Position 64,217,278
Total Federal Revenue per Fund Financial Statements 42,674,611,976

Reconciling Items

Non-Cash Federal Commodities/Vaccines/Surplus
Property/Other (Note 6)
563,267,605
Various Loans Processed by
Universities and Agencies (Note 5)
3,078,422,595
State Unemployment Funds (Note 4) 2,343,586,106
Cash rebates to participants in the Special Supplemental
Food Program for Women, Infants and Children (WIC) (Note 7)
251,961,307
Programs Not Subject to OMB A-133 Reporting Requirements (Note 8) (155,754,500)
Other * (4,918,041)
Blended Component Unit not included in the Schedule of
Expenditures of Federal Awards (Note 1(a))
(134,233,595)
Expenditures per Schedule of Expenditures of Federal Awards $ 48,616,943,453

(4) Unemployment Insurance Funds

State unemployment tax revenues and the government and non-profit contributions in lieu of state taxes (State UI funds) must be deposited into the Unemployment Trust Fund in the U.S. Treasury. Use of these funds is restricted to pay benefits under the federally approved State Unemployment Law. State UI funds as well as federal funds are reported in the Schedule under CFDA 17.225. The state portion in the amount of $2.3 billion is a reconciling item in the reconciliation of the Schedule to revenues in the fund financial statements (See Note 3).

(5) Federally Funded Loan/Credit Enhancement Programs

The state participates in various federally funded loan and credit enhancement programs. The programs can be grouped into three broad categories:

a) Federally Funded Student Loan Programs

The state participates in student loan programs on which the federal government imposes continuing compliance requirements. Additionally, the state participates in other student loan programs that do not require continuing compliance. The charts below summarize activity by the state for federally funded student loan programs:

CFDA Number Program Name Ending Balances of Previous Year’s Loans New Loans Processed

Student Loan Programs with Continuing Compliance Requirements

84.038
Federal Perkins Loan Program (Perkins)
$ 125,488,954 $ 17,881,330
93.108
Health Education Assistance Loan Program (HEAL)
8,722,113
93.264
Nursing Faculty Loan Program (NFLP)
1,486,274 447,063
93.342
Health Professions Student Loans (HPSL)
19,103,455 2,360,365
93.364
Nursing Student Loans
3,337,685 641,198
93.408
ARRA - Nursing Faculty Loan Program
153,764 9,534
Total for Student Loan Programs with Continuing Compliance Requirements $ 158,292,245 $ 21,339,490

Other Student Loan Programs

84.032
Federal Family Education Loans
$ (1,023)
84.268
Federal Direct Student Loans (Direct Loans)
3,057,084,128
Total Other Student Loan Programs $ 3,057,083,105

New student loans processed totaling $3.1 billion are included in the Schedule and are part of a reconciling item on Note 3.

The Federal Family Education Loan Program (FFELP, CFDA 84.032) and the Federal Direct Student Loans Program (Direct Loans, CFDA 84.268) do not require universities to disburse funds. The proceeds are disbursed by lending institutions for FFELP and by the federal government for Direct Loans. For the FFELP program, loan guarantees were issued by the Texas Guaranteed Student Loan Corporation or other guarantee agencies. The federal government reinsures these guarantee agencies.

The Texas Higher Education Coordinating Board (THECB) participates in the Federal Family Education Loan Program (FFELP, CFDA 84.032L) as a servicer of the loans. During fiscal 2013 THECB received $118.8 thousand in net interest subsidy payments that are included in the Schedule. As of Aug. 31, 2013, THECB services approximately $39.7 million of FFELP loans. During fiscal 2013, zero new loans were processed by THECB under the FFELP.

b) Other Federally Funded Loan Programs

Clean Water State Revolving Funds (CWSRF, CFDA 66.458)

The Texas Water Development Board receives capitalization grants to create and maintain Clean Water State Revolving Funds programs (CWSRF, CFDA 66.458). The state can use capitalization grant funds to provide a long-term source of state financing for construction of wastewater treatment facilities and implementation of other water quality management activities.

The CWSRF provides loans at interest rates lower than what can be obtained through commercial markets. Mainstream funds offer a net long-term fixed interest rate of 1.30 percent below market rate for those applicants financing the origination fee. The maximum repayment period for most CWSRF loans is 30 years from completion of construction. Capitalization loans processed for CWSRF for the year ended Aug. 31, 2013, were approximately $59.5 million and are included in the Schedule. CWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2013, were approximately $2.7 billion. Capitalization loans processed under American Recovery and Reinvestment Act (ARRA) funding for CWSRF for the year ended Aug. 31, 2013 were approximately $4.1 million and are included in the Schedule. For the year ended Aug. 31, 2013, outstanding CWSRF loan balances utilizing ARRA funding were approximately $74 million.

Drinking Water State Revolving Funds (DWSRF, CFDA 66.468)

The Texas Water Development Board receives capitalization grants to create and maintain Drinking Water State Revolving Funds programs (DWSRF, CFDA 66.468). The state can use capitalization grant funds to establish a revolving loan fund. The revolving loan fund can assist public water systems in financing the costs of infrastructure needed to achieve or maintain compliance with the Safe Drinking Water Act. These compliance requirements ensure the public health objectives of the Safe Drinking Water Act.

The DWSRF can provide loans at interest rates lower than the market or provide other types of financial assistance for qualified communities, local agencies and private entities. Mainstream funds offer a net long-term fixed interest rate of 1.25 percent below market rate for those applicants financing the origination fee. The maximum repayment period for most DWSRF loans is 20 years from the completion of construction. Capitalization loans processed for DWSRF for the year ended Aug. 31, 2013, were approximately $35.4 million and are included in the Schedule. DWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2013, were approximately $562.1 million. Capitalization loans processed under ARRA funding for DWSRF for the year ended Aug. 31, 2013 were approximately $5.5 million and are included in the Schedule. For the year ended Aug. 31, 2013, outstanding DWSRF loan balances utilizing ARRA funding were approximately $64.5 million.

The chart below summarizes activity by the state for the two revolving loan programs.

CFDA Number Program Name New Loans Processed
66.458
Clean Water State Revolving Funds (CWSRF)
$ 59,510,868
66.458 - ARRA
Clean Water State Revolving Funds (CWSRF)
4,111,047
66.468
Drinking Water State Revolving Funds (DWSRF)
35,362,044
66.468 - ARRA
Drinking Water State Revolving Funds (DWSRF)
5,537,138
Total New Loans Processed $ 104,521,097

Transportation Infrastructure Finance and Innovation Act (TIFIA, CFDA 20.223)

The United States Department of Transportation has agreed to lend the Texas Department of Transportation up to $900 million under a secured loan agreement to pay or reimburse a portion of the costs of the Central Texas Turnpike System. The secured loan agreement was entered into pursuant to the provisions of TIFIA. As of Aug. 31, 2013, $1.1 billion of the TIFIA note payable was outstanding. This TIFIA loan program is not subject to OMB A-133 reporting and is not included in the Schedule since the TIFIA loan was drawn in 2007 and 2008, prior to TIFIA loans being subject to OMB A-133.

c) Federally Funded Credit Enhancement Program

Credit Enhancement for Charter School Facilities (CFDA 84.354)

In 2005, the Texas Public Finance Authority Charter School Finance Corporation formed a consortium with the Texas Education Agency and the Texas Charter School Resource Center to apply for a federal grant to assist charter schools. In November 2006, the consortium received $10.1 million in federal grants to establish the Texas Credit Enhancement Program (“TCEP”). The $11.5 million of federal grants received are subject to continuing audit requirements and are included in the Schedule. In addition, approximately $47.4 thousand of interest earned on the federal grant monies drawn down in fiscal 2013 is also included in the Schedule.

The TCEP provides credit enhancement to eligible charter schools by funding debt service reserve funds for bonds issued on behalf of the schools to finance education facilities. As of Aug. 31, 2013, $10.5 million of the federal grant funds had been allocated to various charter schools.

(6) Non-Monetary Assistance

The state is the recipient of federal financial assistance programs that do not result in cash receipts or disbursements and are therefore not recorded in the state’s fund financial statements. Awards received by the state which includes cash and non-cash amounts are included in the Schedule as follows:

CFDA Number Program Name Grant Awards
10.555
National School Lunch Program
$ 128,137,231
10.565
Commodity Supplemental Food Program
8,574,274
10.569
Emergency Food Assistance Program
53,391,999
39.003
Donation of Federal Surplus Personal Property
7,606,939
93.268
Immunization Grants
365,557,162
Total $ 563,267,605

(7) Rebates from the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)

During fiscal 2013, the state received cash rebates from infant formula manufacturers in the amount of approximately $252.0 million on sales of formula to participants in the WIC program (CFDA 10.557), which are netted against total expenditures included in the Schedule. Rebate contracts with infant formula manufacturers are authorized by Code of Federal Regulations, Title 7: Agriculture, Chapter II, Subchapter A, Part 246.16(m) as a cost containment measure. Rebates represent a reduction of expenditures previously incurred for WIC food benefit costs. Applying the rebates received to such costs enabled the state to extend program benefits to more participants than could have been serviced this fiscal year in the absence of the rebate contract.

(8) Programs Not Subject to OMB A-133 Reporting Requirements

The fund financial statements include federal funding received from certain programs which are not subject to continuing compliance requirements. For the year ended Aug. 31, 2013, the fund financial statements include $155.8 million of federal funds which are not subject to the continuing compliance requirements of OMB A-133, and are not included in the Schedule.

The Medicare portion of Part D is not subject to OMB A-133 because it does not include any Medicaid funds. Reimbursements of $26.5 million were received related to the Medicare Part D program by the administrators of postemployment health care plans. Administrators include the Employee Retirement System, University of Texas System and Texas A&M University System.

The Early Retirement Reinsurance Program (ERRP) provides reimbursement to sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents. The state recognized $37.3 million of federal revenue related to the ERRP.

The Build America Bonds are taxable municipal bonds that carry special tax credits and federal subsidies for either the bond issuer or the bondholder. The revenue generated is excluded from the Schedule. The state recognized federal revenues of $92.0 million related to the program.

(9) Depository Libraries for Government Publications

Several state agencies and universities participate as depository libraries in the Government Printing Office’s Depository Libraries for Government Publications program (CFDA 40.001). The state agencies and universities are the legal custodian of government publications, which remain the property of the federal government. The publications are not assigned value by the Government Printing Office.

(10) Supplemental Nutrition Assistance Program (SNAP)

The reported expenditures for benefits under the Supplemental Nutrition Assistance Program (SNAP) (CFDA No. 10.551) are supported by both regularly appropriated funds and incremental funding made available under section 101 of the American Recovery and Reinvestment Act of 2009. The portion of total expenditures for SNAP benefits that is supported by Recovery Act funds varies according to fluctuations in the cost of the Thrifty Food Plan, and to changes in participating households’ income, deductions, and assets. This condition prevents USDA from obtaining the regular and Recovery Act components of SNAP benefits expenditures through normal program reporting processes. As an alternative, USDA has computed a weighted average percentage to be applied to the national aggregate SNAP benefits provided to households in order to allocate an appropriate portion thereof to Recovery Act funds. This methodology generates valid results at the national aggregate level but not at the individual State level. Therefore, we cannot validly disaggregate the regular and Recovery Act components of our reported expenditures for SNAP benefits. At the national aggregate level, however, Recovery Act funds account for 7.79 percent of USDA’s total expenditures for SNAP benefits in the Federal fiscal year ended Sept. 30, 2013.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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