NOTICE IS HEREBY GIVEN That pursuant to ss. 119.23 (7) (am) 2. and (d) 2., (10) (a) 3., and (11), Stats., and 227.11 (2) (a), Stats., and interpreting s. 119.23 (7) and (10), Stats., the Department of Public Instruction will hold a public hearing as follows to consider the amending of ch. PI 35, relating to financial reporting requirements under the Milwaukee Parental Choice Program. The hearing will be held as follows:

September 13, 2004

3:30 p.m. - 5:30 p.m.

Milwaukee

Milwaukee Public Schools District Office

5225 W. Vliet Street

Auditorium

The hearing site is fully accessible to people with disabilities. If you require reasonable accommodation to access any meeting, please contact Tricia Collins, Consultant, Milwaukee Parental Choice Program, tricia.collins@dpi.state.wi.us, (608) 266-2853, or leave a message with the Teletypewriter (TTY), (608) 267-2427 at least 10 days prior to the hearing date. Reasonable accommodation includes materials prepared in an alternative format, as provided under the Americans with Disabilities Act.

The administrative rule and fiscal note are available on the internet at:
http://www.dpi.state.wi.us/dpi/dfm/pb/mpcprptpm.html and http://www.dpi.state.wi.us/dpi/dfm/pb/mpcprptfn.html, respectively. A copy of the proposed rule and the fiscal estimate also may be obtained by sending an email request to lori.slauson@dpi.state.wi.us or by writing to:

Lori Slauson, Administrative Rules and Federal Grants Coordinator

Department of Public Instruction

125 South Webster Street

P.O. Box 7841

Madison, WI 53707

Written comments on the proposed rules received by Ms. Slauson at the above mailing or email address no later than September 17, 2004, will be given the same consideration as testimony presented at the hearing.

Statute interpreted: s. 119.23 (7) and (10), Stats.

Statutory authority: s. 119.23 (7) (am) 2. and (d) 2., (10) (a) 3., and (11), Stats.

Explanation of agency authority: Section 119.23 (7) (am) 2. and (d) 2., Stats., requires private schools participating in the Milwaukee Parental Choice Program (MPCP) to provide evidence of sound fiscal practices and financial viability as prescribed by the department by rule.

Section 119.23 (10) (a) 3., Stats., allows the department to specify by rule the date by which a participating private school must refund the department of any overpayment made to it.

Section 119.23 (11), Stats., gives the department authority to promulgate rules to implement and administer the entire program.

Court Decisions Directly Relevant: There are pending civil and criminal cases in Milwaukee county related to financial issues addressed in this rule.

Related statute or rule: None.

Plain language analysis: 2003 Wisconsin Act 155 made a number of changes to the Milwaukee Parental Choice Program (MPCP), under which certain low-income pupils who reside in the city of Milwaukee may attend participating private schools in the city at state expense. The Act requires participating private schools to:

Provide the department with evidence of financial viability.

Provide the department with evidence of sound fiscal practices.

Provide proof that the administrator has participated in a fiscal management training program approved by the department.

The Act also gives the state superintendent the authority to:

Withhold aid if a participating private school is not in compliance with program requirements.

Under certain circumstances, issue an order prohibiting a private school from participating in the program in the current year.

Immediately terminate a private school's participation in the program if conditions at the school present an imminent threat to the health and safety of pupils.

Whenever the state superintendent issues an order terminating a school's participation, he or she must notify the parent or guardian of each pupil.

The proposed rules set forth the process by which the department will implement the provisions under the Act, which is effective starting in the 2004-05 school year. The proposed rules also specify the responsibilities of auditors and the department in determining if the school is meeting the requirements under the Act.

Summary of, and comparison with, existing or proposed federal regulations: None.

Comparison with rules in adjacent states: None.

Summary of factual data and analytical methodologies: The rule was developed based on a review of fiscal practices contained in policy manuals for non-governmental organizations affiliated with MPCP private schools, recommended practices by national organizations, requirements that other state agencies have for private and non-profit organizations, and internal control practices contained in professional accounting and auditing literature. Financial practices and audit requirements included in the rule are similar to those required for school districts, charter schools, other state agency requirements for non-profit and for-profit organizations, and are consistent with generally accepted national standards. An overview of rule items was provided to interested parties, but discussion was limited due to the short implementation timeframe imposed under 2003 Wisconsin Act 155.

Analysis and supporting documents used to determine effect on small business or in preparation of economic impact report: N/A

Anticipated costs incurred by private sector: The proposed rules establish how private schools participating in the MPCP program will meet the new financial reporting requirements established under 2003 Wisconsin Act 155.

In January 2004, there were 106 private schools participating in the MPCP, with a total enrollment of 12,231 students in the program. It is anticipated that the private school financial audit requirements will have a slight fiscal effect since many of the participating schools currently have limited audit procedures in place. Auditing costs for small public school districts range from $2,000 - $5,000 annually. It is assumed that auditing costs to participating private schools will fall within the higher end of the $2,000 - $5,000 range and are not considered significant. The actual costs will vary depending on the number of financial transactions and expertise of the private school's accounting staff. The status of the financial records maintained by the private school staff will directly affect the time involved in auditing those records.

Effect on small business: See “Anticipated costs incurred by private sector."

Dennis Hanson, School Finance Auditor

(608) 267-1291

dennis.hanson@dpi.state.wi.us

Tricia Collins, Consultant

Milwaukee Parental Choice Program

(608) 266-2853

tricia.collins@dpi.state.wi.us

Description of any forms (attach copies if available): Milwaukee Parental Choice Program Budget and Anticipated Cash Flow Form.

The proposed rules establish how private schools participating in the MPCP program will meet the new financial reporting requirements established under 2003 Wisconsin Act 155.

In January 2004, there were 106 private schools participating in the MPCP, with a total enrollment of 12,231 students in the program. It is anticipated that the private school financial audit requirements will have a fiscal effect since many of the participating schools currently have limited audit procedures in place. Auditing costs for small public school districts range from $2,000 - $5,000 annually. It is assumed that auditing costs to participating private schools will fall within the higher end of the $2,000 - $5,000 range and are not considered significant. The actual costs will vary depending on the number of financial transactions and expertise of the private school's accounting staff. The status of the financial records maintained by the private school staff will directly affect the time involved in auditing those records.

The Act and the rules have additional administration requirements for the program that will have a fiscal effect on the department. It is assumed such costs could be absorbed within the agency's operating budget.

The rules will not have a fiscal effect on the Milwaukee Public Schools.

The proposed rules are not anticipated to have a significant fiscal effect on small businesses as defined under s. 227.114 (1) (a), Stats.

Notice is hereby given that, pursuant to s. 71.80 (1) (c), Stats., and interpreting ss. 71.04 (4) (e), (8) (c), and (11) and 71.25 (6) (e), (10) (c), and (12), Stats., the Department of Revenue will hold a public hearing at the time and place indicated below, to consider the repeal and recreation and creation of rules relating to the apportionment of net business incomes of interstate financial organizations.

The hearing will be held at 9:00 A.M. on Friday, October 1, 2004, in Conference Room 6S-02 (6th floor) of the State Revenue Building, located at 2135 Rimrock Road, Madison, Wisconsin.

Handicap access is available at the hearing location.

Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person shown below no later than October 8, 2004, and will be given the same consideration as testimony presented at the hearing.

Dale Kleven

Department of Revenue

Mail Stop 6-40

2135 Rimrock Road

P.O. Box 8933

Madison, WI 53708-8933

Telephone (608) 266-8253

E-mail dkleven@dor.state.wi.us

Statutes interpreted: ss. 71.04 (4) (e), (8) (c), and (11) and 71.25 (6) (e), (10) (c), and (12), Stats.

Statutory authority: s. 71.80 (1) (c), Stats.

Explanation of agency authority: Under s. 71.80 (1) (c), Stats., the department may make such regulations as it shall deem necessary in order to carry out chapter 71 of the Wisconsin Statutes, relating to income and franchise taxes. Additionally, section 33, 2003 Wisconsin Act 37, requires the department to promulgate a rule requiring financial organizations to use an apportionment formula consisting solely of a sales factor.

Related statute or rule: ss. 71.04 (4) (e), (8) (c), and (11) and 71.25 (6) (e), (10) (c), and (12), Stats.

Plain language analysis: SECTION 1. Tax 2.49 is repealed and recreated to prescribe the method of apportioning the net business income of interstate financial organizations, other than brokerage houses, investment companies, and insurance companies, as required by ss. 71.04 (4) (e) and (8) (c) and 71.25 (6) (e) and (10) (c), Stats. This section of the rule order does all of the following:

a. Defines "financial institution" and other terms used in the rule.

b. Extends the application of Tax 2.49 to mortgage bankers, as authorized by ss. 71.04 (11) and 71.25 (12), Stats. Sections 71.04 (8) (a) and 71.25 (10) (a), Stats., exclude mortgage bankers from the definition of “financial organization."

c. Phases in the use of an apportionment formula consisting solely of a receipts factor:

•For taxable years beginning after December 31, 2004, and before January 1, 2006, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 50% of the fraction and a payroll factor representing 50% of the fraction.

• For taxable years beginning after December 31, 2005, and before January 1, 2007, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 60% of the fraction and a payroll factor representing 40% of the fraction.

•For taxable years beginning after December 31, 2006, and before January 1, 2008, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 80% of the fraction and a payroll factor representing 20% of the fraction.

•For taxable years beginning after December 31, 2007, net business income is apportioned using an apportionment fraction consisting of the receipts factor.

d. Expands the types of income included in the receipts factor. In the existing rule, "gross receipts" includes all business income associated with the lending of money in the normal course of business, such as interest, discounts, finance charges or fees, and service charges or fees. In the proposed rule, receipts also include the following: