Carol A. Simpson Education Law Blog on Lawyers.com

By Dr. Carol Simpson - Schwartz & Eichelbaum Wardell Mehl and Hansen, P.C.
800.488.9045 | www.edlaw.com | information@edlaw.com

When economic times get tough, schools think about downsizing and economizing. Why duplicate effort and administrative costs when the expertise of state agencies and other local governments is available to provide services?  Purchasing services from other entities already successfully operating those functions can save   startup time, overhead costs, and operational aggravation.

Authority to Contract

The Government Code[1] permits local governments to contract with other local governments and state agencies (from Texas and other states) to study whether such cooperation would benefit the parties, or to actually perform governmental functions and services. Each party to the contract must be entitled to perform the services included. 

The types of agencies that may be potential parties to such an agreement include a department, board, bureau, commission, court, office, authority, council, or institution of state government; a state university or college, a junior college district, or any service or part of a state institution of higher education; a local workforce development board; and any statewide job or employment training program for disadvantaged youth that is substantially financed by federal funds. All parties need not be school districts. A school district may contract with entities such as the county, or the city, or the local community college to provide needed services the district has no ability or desire to administer.

An interlocal contract must:

• Be authorized by all the governing bodies involved (with one exception)[2];
• State the purpose, terms, rights, and duties of the parties;
• Specify that payments due under the contract must come from present revenues;
• Fairly compensate the party providing functions or services;
• Comply with the laws regarding historically underutilized businesses if purchasing is involved; and
• Not involve the purchase of engineering or architectural services.

Interlocal agreements may be renewed annually.  Because an interlocal agreement is a complex contract, school districts would be wise to involve the school attorney in the creation and approval process.

Statutory Encouragement to Form Interlocal Agreements

Texas Education Code § 11.003 gives districts a strong push toward cooperative shared services functions through the regional education service centers. The code mandates that each service center notify local districts of the types of shared services it coordinates.  The code also directs the service center to evaluate the need for other types of cooperative service agreements in the ESC area and consider organizing groups for those purposes. The ESCs are tasked to assist districts to form interlocal agreements with other districts, political subdivisions, ESCs, or institutions of higher learning to share administrative services such as transportation, food services, purchasing and payroll. Under § 8.053, regional education service centers have authority to contract with public and private entities for several types of services, including continuing education courses and other programs for educators.

The Commissioner may require districts to enter a cooperative shared services agreement for administrative services if the Commissioner decides the district does not meet a financial accountability requirement and the cooperative would assist the district to “enhance its performance on the financial accountability standard identified.” He may require the same of a charter school if an audit shows that shared administrative services would “promote efficient operation” of the charter school.        

Virtually any type of school function can be provided through an interlocal agreement, provided it is a function that the other party(ies) would have authority to perform, unless it is specifically prohibited in the law.  Cities commonly use these agreements to provide back-up (or even primary) emergency services, wastewater treatment, water supply, and purchasing.  Schools often use purchasing consortia, such as the Department of Information Resources (DIR); transportation cooperatives; and shared services agreements for alternative education placements (both disciplinary and for dropout recovery or acceleration) or special education services.  Use of an interlocal purchasing agreement or a state agency for purchasing satisfies the statutory requirement for using a competitive purchasing process. 

Are you buried in records that cannot yet be destroyed under the district’s  retention schedule?  The Government Code specifically authorizes cooperative ownership of a regional records center to store records, including those designated by the Texas State Library and Archive Commission (TSLAC) as “records of permanent value.”  TSLAC is available to provide assistance to set up such a center.

Once You Have It, Who Runs It?

To supervise an interlocal contract, the parties may create an agency, designate to one government the authority to supervise, or contract with a non-profit agency.  The supervising entity has all authority to perform necessary administrative functions such as purchasing supplies, hiring personnel, and signing leases.  Any property held for the purpose of the interlocal agreement is taxable or tax exempt as would be the respective participating entities.  For example, if two districts agree to form a kindergarten cooperative, and the cooperative builds a facility, the facility has the same tax status as the two districts - exempt.

Interlocal agreements are not just for large districts or the education service center.  Smaller districts can benefit as much, or more, than large ones because it allows them to provide services economically and locally.  Regional, county-wide or multi-district transportation or special education services agreements share the costs of providing needed services without duplication of administration that can eat away scarce services dollars.