The Charter Schools Act of 1992 provides for the establishment and operation of a charter school and authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, as specified.

This bill, on and after July 1, 2019, would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal or material revision application from operating as, or being operated by, as defined, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization.

The Charter Schools Act of 1992 provides for the establishment and operation of a charter school and authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, as specified.

This bill, on and after July 1, 2019, would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal or material revision application from operating as, or being operated by, as defined, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization.

The Charter Schools Act of 1992 provides for the establishment and operation of a charter school and authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, as specified.

This bill, on and after January July 1, 2019, would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal or material revision application from operating as, or being operated by, as defined, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization.

The Charter Schools Act of 1992 provides for the establishment and operation of a charter school and authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, as specified.

This bill, on and after January 1, 2019, would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal or material revision application from operating as, or being operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization.

The Charter Schools Act of 1992 provides for the establishment and operation of a charter school in accordance with specified requirements. school and authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, as specified.

The Charter Schools Act of 1992 provides for the establishment and operation of a charter school in accordance with specified requirements.

This bill would express the intent of the Legislature to enact legislation that would prohibit a charter school from entering into a contract or agreement with a for-profit entity to manage or operate a charter school.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 406

Author:(McCarty)

As Amended Ver:June 27, 2018

Majority vote

Original Committee Reference: ED.

SUMMARY: Prohibits a charter school from operating as or being operated by a for-profit corporation or a for-profit charter management organization, after July 1, 2019.

The Senate amendments:

1. Define "operate as, or be operated by," to mean services provided by a for-profit corporation to a charter school that include any of the following:
   1. Nominating, appointing, or removing board members or officers of the charter school.
   2. Employing, supervising, or dismissing employees of the charter school, including certificated and noncertificated school personnel.
   3. Managing the charter school's day-to-day operations as its administrative manager.
   4. Approving, denying, or managing the budget or any expenditures of the charter school that are not authorized by the governing body of the charter school.
   5. Providing services to a charter school before the governing body of the charter school has approved the contract for those services at a publicly noticed meeting.
2. Prohibit a charter school from entering into a subcontract to avoid the requirements of this prohibition.
3. Make the measure operative on July 1, 2019.

EXISTING LAW authorizes charter schools to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law. Specifies the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation. Specifies an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law, including, but not limited to, those required by Education Code Section 47604.32 and Section 47605(m). (Education Code 47604)

FISCAL EFFECT: This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS: This bill prohibits a charter school from being operated as, or operated by a for-profit corporation, including a for-profit charter management organization, as of July 1, 2019.

According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations (EMOs) and Charter Management Organizations (CMOs), establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability – taking public money away from students. This bill would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal application from operating as, or being operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization starting on and after July 1, 2019.

Definition of For-Profit Activity. This bill creates a new definition of what it means to be operated by a for-profit corporation or for-profit charter management organization. The bill specifies that if a for-profit is involved in certain activities at a charter school, then that constitutes being operated by a for-profit corporation. The author's intent is to prohibit all for-profit corporations from operating charter schools, as charter schools are public schools operated with taxpayer dollars. Public schools should not generate profits. The Assembly should consider whether this definition will encompass all the possible organizational structures that a for-profit corporation could adopt and whether this bill will eliminate all for-profit corporations from managing the day to day operations of charter schools in this State, as intended.

Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in California. California Virtual Academies (CAVA) is California's largest provider of online public K-12 education and a public charter school network that exists entirely online. Students take classes from home, communicating with teachers via computer. CAVA's primary vendor and manager is K12, Inc., a for-profit corporation.

According to the author, recently, there has been an increase in the number of for-profit EMOs and CMOs across the country. According to a report from the National Education Policy Center at the University of Colorado entitled, "Profiles of For-Profit and Non-Profit Education Management Organizations," since the 1995-96 school year, the number of for-profit EMOs has increased from five to 97, and the number of schools operated by them has increased from six to 840. It is estimated that there were approximately 462,926 students enrolled in charter schools managed by for-profit EMOs. In California, there are 34 charter schools run by for-profit EMOs or for-profit CMOs enrolling over 25,000 students. In 2016, the largest for-profit EMO, K-12 Inc., which has received over $310 million of taxpayer money over the last 12 years, settled a lawsuit filed by the state for $168.5 million over claims that the corporation manipulated attendance records and overstated students' success. This same for-profit EMO, which is publically traded on Wall Street, had estimated revenue of $708 million in 2012. The company estimated their profit at $87 million in the same year. They paid their top 6 executives $11 million in compensation while their average teacher salary was $36,000. At the same time, one of the charter schools managed by this for-profit corporation in California had a graduation rate of 36% compared to 78% statewide. In addition, every year since it began, except 2013, this school had more dropouts than graduates.

If the goal of a for-profit corporation is to maximize profit for the corporation's shareholders, then the Assembly should consider whether it is an appropriate use of state taxpayer dollars for for-profit corporations to operate public schools. Additionally, does this for-profit model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

Analysis Prepared by: Chelsea Kelley / ED. / (916) 319-2087 FN: 0003654

 THIRD READING  

Bill No: AB 406

Author:

: 6/27/18 Senate

Vote:

SENATE EDUCATION COMMITTEE: 7-0, 6/20/18

AYES: Allen, Wilk, Galgiani, Leyva, McGuire, Pan, Vidak

ASSEMBLY FLOOR: 50-24, 5/31/17 - See last page for vote

SUBJECT:

SOURCE: California Federation of Teachers

DIGEST:

This bill prohibits a charter school from operating as, or by, a for-profit corporation after July 1, 2019.

ANALYSIS:

Existing law:

1. Establishes the Charter Schools Act of 1992 which provides for the establishment of charter schools in California for the purpose, among other things, to improve student learning and expand learning experiences for pupils who are identified as academically low achieving. A charter school may be authorized by a school district, a county board of education, or the State Board of Education, as specified. Except where specifically noted otherwise, California law exempts charter schools from many of the statutes and regulations that apply to schools and school districts.
2. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
3. Specifies that the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation.
4. Specifies that an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law.

This bill:

1. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
2. Prohibits, on and after July 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application to operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization; and, specifies that an educational management organization and a charter management organization are for-profit entities that manage or operate a charter school.
3. Defines “operate as, or be operated by” to mean services provided by a for-profit corporation to a charter school that include any of the following:
   1. Nominating, appointing, or removing board members or officers of the charter school;
   2. Employing, supervising, or dismissing employees of the charter school, including certificated and noncertificated school personnel.
   3. Managing the school’s day-to-day operations as its administrative manager;
   4. Approving, denying, or managing the budget or any expenditures of the charter school not authorized by the board, and;
   5. Providing services to a charter school before the charter school board has approved the contract at a publicly noticed meeting of its governing board.
4. Specifies that a charter may not enter into a subcontract to avoid the above requirements.

Comments

1. Need for the bill. According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations and Charter Management Organizations, establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability–taking public money away from students.
2. Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in the state. California Virtual Academies (CAVA) is California’s largest provider of online public K-12 education and a public charter school network that may exist entirely online, serving approximately 15,000 students. Students take classes from home, primarily communicating with teachers via computer. CAVA’s primary vendor and manager is K-12, Inc., a for-profit corporation that operates virtual schools nationwide.

Is it an appropriate use of state taxpayer dollars for-profit corporations to operate public schools? Specifically, does this model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

1. Impact on students. Notwithstanding the issues regarding the appropriateness of using taxpayer dollars for charter schools operating as for-profit corporations, the Senate may wish to consider whether this bill contemplates what would happen to students attending these schools if this bill were to become law. Presumably, the operating entities could restructure or reorganize themselves as nonprofit corporations to comply. If not, would a charter school need to shut down its operations? This bill may also be interpreted to extend to nonprofit charter schools that contract with for-profit entities for instructional and instructional support services. To the extent that these entities are unable to enter into new contracts exclusively with nonprofit entities, similarly, would these charter schools be required to close? Additionally, as this bill would become operative commencing with the 2018-19 school year, it is not clear if this allows for a sufficient transition period for students that are displaced to find placement in a new school, particularly students that are disabled or have unique learning needs.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 6/27/18)

California Federation of Teachers (source)

American Federation of State, County and Municipal Employees

Association of California School Administrators

California Labor Federation

California School Boards Association

California School Employees Association

California State PTA

California Teachers Association

Public Advocates

United Educators of San Francisco

OPPOSITION: (Verified 6/27/18)

California Charter Schools Association

California Parents for Public Virtual Education

Charter Schools Development Center

K-12, Inc.

ASSEMBLY FLOOR: 50-24, 5/31/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bocanegra, Bonta, Burke, Calderon, Cervantes, Chau, Chiu, Chu, Cooper, Dababneh, Daly, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Caballero, Chávez, Chen, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Obernolte, Patterson, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Choi, Cooley, Eggman, Gipson, Melendez, Weber

Prepared by:

6/27/18 15:45:18

**** END ****

SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: Hearing Date: June 20, 2018

Subject: .

SUMMARY

This bill prohibits a charter school from operating as, or by, a for-profit corporation after January 1, 2019.

BACKGROUND

Existing law:

1. Establishes the Charter Schools Act of 1992 which provides for the establishment of charter schools in California for the purpose, among other things, to improve student learning and expand learning experiences for pupils who are identified as academically low achieving. A charter school may be authorized by a school district, a county board of education, or the State Board of Education, as specified. Except where specifically noted otherwise, California law exempts charter schools from many of the statutes and regulations that apply to schools and school districts.
2. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
3. Specifies that the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation.
4. Specifies that an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law.

ANALYSIS

This bill:

1. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
2. Prohibits, on and after January 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application to operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization; and, specifies that an educational management organization and a charter management organization are for-profit entities that manage or operate a charter school.

STAFF COMMENTS

1. Need for the bill. According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations and Charter Management Organizations, establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability–taking public money away from students.
2. Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in the state. California Virtual Academies (CAVA) is California’s largest provider of online public K-12 education and a public charter school network that may exist entirely online, serving approximately 15,000 students. Students take classes from home, primarily communicating with teachers via computer. CAVA’s primary vendor and manager is K-12, Inc., a for-profit corporation that operates virtual schools nationwide.

Is it an appropriate use of state taxpayer dollars for-profit corporations to operate public schools? Specifically, does this model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

1. Impact on students. Notwithstanding the issues regarding the appropriateness of using taxpayer dollars for charter schools operating as for-profit corporations, the Committee may wish to consider whether the bill contemplates what would happen to students attending these schools if the bill were to become law. Presumably, the operating entities could restructure or reorganize themselves as nonprofit corporations to comply. If not, would a charter school need to shut down its operations? The bill may also be interpreted to extend to nonprofit charter schools that contract with for-profit entities for instructional and instructional support services. To the extent that these entities are unable to enter into new contracts exclusively with nonprofit entities, similarly, would these charter schools be required to close? Additionally, as the bill would become operative commencing with the 2018-19 school year, it is not clear if this allows for a sufficient transition period for students that are displaced to find placement in a new school, particularly students that are disabled or have unique learning needs.
2. Similar bill vetoed in 2015. This bill is substantially similar to AB 787 (Hernandez, 2015) which would have prohibited a charter school from operating as, or being operated by, a for-profit corporation. AB 787 passed this Committee but was eventually vetoed by the Governor with the following message:

Under this bill, beginning January 1, 2017, a charter school could not "operate as" or be "operated by" a for-profit corporation.

I don't believe the case has been made to eliminate for-profit charter schools in California. Moreover, the somewhat ambiguous terms used in this bill could be interpreted to restrict the ability of non-profit charter schools to continue using for-profit vendors.

1. Clarification is necessary. The concerns previously raised in the Governor’s veto message about the potential impact on non-profit charter schools remain under this bill. Can the bill’s prohibition on charters operating as, or being operated by, for-profit corporations be interpreted to limit their ability to contract for day-to-day operations such as payroll, human resources or janitorial services? Would this prohibition extend to contracts for other instructionally-related operations, such as assessments, instructional materials, classroom learning tools, professional development, or special education? Given the emphasis on for-profit management organizations, this does not appear to be the intent of the author.

Further, while the bill’s prohibition on charter schools operating under a for-profit tax status is clear, instances of nonprofit charter schools entering into “sweep” contracts—under which anywhere from 95 to 100 percent of the school’s public dollars are “swept” into a for-profit corporation—are not uncommon. Can the bill’s prohibition on charters operating as, or being operated by, for-profit corporations or management groups be interpreted to deem these types of contracts illegal? In which instances would nonprofit charter schools be determined to be “operated by” for-profit corporations?

The Committee should consider whether prohibiting specified activities being performed by for-profit corporations on behalf of charter schools would more effectively curb instances of for-profit corporations making money by controlling public charter schools.

1. Related legislation.

SB 806 (Glazer) would have prohibited the operation of for-profit charter schools, prohibited for-profit entities from engaging in certain activities related to charter school governance and instructional services, and subjected charter schools to a variety of the same open meeting, conflict-of-interest, and disclosure laws as traditional school districts. SB 806 passed this Committee on April 19, 2017, but failed passage in the Senate Judiciary Committee.

SUPPORT

California Federation of Teachers (Sponsor)

American Federation of State, County and Municipal Employees

Association of California School Administrators

California Labor Federation

California School Boards Association

California School Employees Association

California State PTA

California Teachers Association

Public Advocates

United Educators of San Francisco

OPPOSITION

California Charter Schools Association

California Parents for Public Virtual Education

Charter Schools Development Center

K-12, Inc.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: AB 406 Hearing Date: June 28, 2017

Subject: Charter schools: operation

SUMMARY

This bill prohibits a charter school from operating as, or by, a for-profit corporation after January 1, 2019.

BACKGROUND

Existing law:

1. Establishes the Charter Schools Act of 1992 which provides for the establishment of charter schools in California for the purpose, among other things, to improve student learning and expand learning experiences for pupils who are identified as academically low achieving. A charter school may be authorized by a school district, a county board of education, or the State Board of Education, as specified. Except where specifically noted otherwise, California law exempts charter schools from many of the statutes and regulations that apply to schools and school districts.
2. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
3. Specifies that the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation.
4. Specifies that an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law.

ANALYSIS

This bill:

1. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
2. Prohibits, on and after January 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application to operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization; and, specifies that an educational management organization and a charter management organization are for-profit entities that manage or operate a charter school.

STAFF COMMENTS

1. Need for the bill. According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations and Charter Management Organizations, establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability–taking public money away from students.
2. Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in the state. California Virtual Academies (CAVA) is California’s largest provider of online public K-12 education and a public charter school network that may exist entirely online, serving approximately 15,000 students. Students take classes from home, primarily communicating with teachers via computer. CAVA’s primary vendor and manager is K-12, Inc., a for-profit corporation that operates virtual schools nationwide.

Is it an appropriate use of state taxpayer dollars for-profit corporations to operate public schools? Specifically, does this model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

1. Impact on students. Notwithstanding the issues regarding the appropriateness of using taxpayer dollars for charter schools operating as for-profit corporations, the Committee may wish to consider whether the bill contemplates what would happen to students attending these schools if the bill were to become law. Presumably, the operating entities could restructure or reorganize themselves as nonprofit corporations to comply. If not, would a charter school need to shut down its operations? The bill may also be interpreted to extend to nonprofit charter schools that contract with for-profit entities for instructional and instructional support services. To the extent that these entities are unable to enter into new contracts exclusively with nonprofit entities, similarly, would these charter schools be required to close? Additionally, as the bill would become operative commencing with the 2018-19 school year, it is not clear if this allows for a sufficient transition period for students that are displaced to find placement in a new school, particularly students that are disabled or have unique learning needs.
2. Similar bill vetoed in 2015. This bill is substantially similar to AB 787 (Hernandez, 2015) which would have prohibited a charter school from operating as, or being operated by, a for-profit corporation. AB 787 passed this Committee but was eventually vetoed by the Governor with the following message:

Under this bill, beginning January 1, 2017, a charter school could not "operate as" or be "operated by" a for-profit corporation.

I don't believe the case has been made to eliminate for-profit charter schools in California. Moreover, the somewhat ambiguous terms used in this bill could be interpreted to restrict the ability of non-profit charter schools to continue using for-profit vendors.

1. Clarification is necessary. The concerns previously raised in the Governor’s veto message about the potential impact on non-profit charter schools remain under this bill. Can the bill’s prohibition on charters operating as, or being operated by, for-profit corporations be interpreted to limit their ability to contract for day-to-day operations such as payroll, human resources or janitorial services? Would this prohibition extend to contracts for other instructionally-related operations, such as assessments, instructional materials, classroom learning tools, professional development, or special education? Given the emphasis on for-profit management organizations, this does not appear to be the intent of the author.

Further, while the bill’s prohibition on charter schools operating under a for-profit tax status is clear, instances of nonprofit charter schools entering into “sweep” contracts—under which anywhere from 95 to 100 percent of the school’s public dollars are “swept” into a for-profit corporation—are not uncommon. Can the bill’s prohibition on charters operating as, or being operated by, for-profit corporations or management groups be interpreted to deem these types of contracts illegal? In which instances would nonprofit charter schools be determined to be “operated by” for-profit corporations?

The Committee should consider whether prohibiting specified activities being performed by for-profit corporations on behalf of charter schools would more effectively curb instances of for-profit corporations making money by controlling public charter schools. If it is the desire of the Committee to pass this bill, staff recommends that the bill be amended to specify that for-profit entities shall not: (1) be involved in any way in the selection of governing board members of a charter school, (2) supervise or direct the certificated employees of a charter school, (3) have the authority to approve or deny the budget or any expenditures of a charter school, and (4) contract with a charter school before the charter school has approved the contract at a publicly noticed meeting of its governing board.

1. Related legislation.

SB 806 (Glazer) would have prohibited the operation of for-profit charter schools, prohibited for-profit entities from engaging in certain activities related to charter school governance and instructional services, and subjected charter schools to a variety of the same open meeting, conflict-of-interest, and disclosure laws as traditional school districts. SB 806 passed this Committee on April 19, 2017, but failed passage in the Senate Judiciary Committee.

SUPPORT

California Federation of Teachers (co-sponsor)

California Teachers Association (co-sponsor)

American Federation of State, County and Municipal Employees

Association of California School Administrators

California Labor Federation

California School Boards Association

California School Employees Association

California State PTA

Public Advocates

OPPOSITION

California Charter Schools Association

California Parents for Public Virtual Education

K-12, Inc.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 406

Author:(McCarty)

As Amended Ver:May 17, 2017

Majority vote

SUMMARY: Prohibits a charter school from operating as or being operated by a for-profit corporation or a for-profit charter management organization, after January 1, 2019. Specifically, this bill:

1. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
2. Prohibits, on and after January 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application to operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization; and, specifies that a for-profit educational management organization and a for-profit charter management organization are entities that manage or operate a charter school.

EXISTING LAW authorizes charter schools to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law. Specifies the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation. Specifies an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law, including, but not limited to, those required by Education Code Section 47604.32 and Education Code Section 47605(m).

FISCAL EFFECT: None. This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS: This bill prohibits a charter school from being operated as, or operated by a for-profit corporation, including a for-profit charter management organization, as of January 1, 2019.

According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations (EMOs) and Charter Management Organizations (CMOs), establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability – taking public money away from students. This bill would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal application from operating as, or being operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization starting on and after January 1, 2019.

Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in California. California Virtual Academies (CAVA) is California's largest provider of online public K-12 education and a public charter school network that exists entirely online. Students take classes from home, communicating with teachers via computer. CAVAs primary vendor and manager is K12, Inc., a for-profit corporation.

According to the author, recently, there has been an increase in the number of for-profit EMOs and CMOs across the country. According to a report from the National Education Policy Center at the University of Colorado entitled, "Profiles of For-Profit and Non-Profit Education Management Organizations," since the 1995-96 school year, the number of for-profit EMOs has increased from 5 to 97, and the number of schools operated by them has increased from 6 to 840. It is estimated that there were approximately 462,926 students enrolled in charter schools managed by for-profit EMOs. In California, there are 34 charter schools run by for-profit EMOs or for-profit CMOs enrolling over 25,000 students. In 2016, the largest for-profit EMO, K-12 Inc., which has received over $310 million of taxpayer money over the last 12 years, settled a lawsuit filed by the state for $168.5 million over claims that the corporation manipulated attendance records and overstated students' success. This same for-profit EMO, which is publically traded on Wall Street, had estimated revenue of $708 million in 2012. The company estimated their profit at $87 million in the same year. They paid their top six executives $11 million in compensation while their average teacher salary was $36,000. At the same time, one of the charter schools managed by this for-profit corporation in California had a graduation rate of 36% compared to 78% statewide. In addition, every year since it began, except 2013, this school had more dropouts than graduates.

If the goal of a for-profit corporation is to maximize profit for the corporation's shareholders, then the Assembly should consider whether it is an appropriate use of state taxpayer dollars for for-profit corporations to operate public schools. Additionally, does this for-profit model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

Analysis Prepared by: Chelsea Kelley / ED. / (916) 319-2087 FN: 0000449

Date of Hearing: May 10, 2017

ASSEMBLY COMMITTEE ON EDUCATION

Patrick O'Donnell, Chair

ABPCA Bill Id:AB 406 (

Author:McCarty) – As Amended Ver:March 23, 2017

SUBJECT: Charter schools: operation

SUMMARY: Prohibits a charter school from operating as or being operated by a for-profit corporation or a for-profit charter management organization, after January 1, 2019. Specifically, this bill:

1. Authorizes a charter school to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law.
2. Prohibits, on and after January 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application to operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization; and, specifies that an educational management organization and a charter management organization are for-profit entities that manage or operate a charter school.

EXISTING LAW authorizes charter schools to elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law. Specifies the governing board of a school district that grants a charter for the establishment of a charter school shall be entitled to a single representative on the board of directors of the nonprofit public benefit corporation. Specifies an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation is not liable for the debts or obligations of the charter school, or for claims arising from the performance of acts, errors, or omissions by the charter school, if the authority has complied with all oversight responsibilities required by law, including, but not limited to, those required by Section 47604.32 and subdivision (m) of Section 47605. (Education Code 47604)

FISCAL EFFECT: This bill is keyed non-fiscal.

COMMENTS: This bill prohibits a charter school from being operated as, or operated by a for-profit corporation, including a for-profit charter management organization, as of January 1, 2019.

According to the author, there is a growing movement in the United States to privatize our public schools. Corporations see the public education sector as an untapped market for increasing their profits. A disturbing trend in this effort to privatize our public schools has been in the charter school arena. Corporations and wealthy individuals have established businesses that start and manage charter schools. These businesses, known as Education Management Organizations (EMOs) and Charter Management Organizations (CMOs), establish charter schools across the country and require them to contract with the for-profit company for all their services. These corporations take public taxpayer dollars and use a percentage of those dollars for corporate profits and excessive salaries for their executives with little or no transparency and accountability – taking public money away from students. AB 406 would prohibit a petitioner that submits a charter petition for the establishment of a charter school or a charter school that submits a charter renewal application from operating as, or being operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization starting on and after January 1, 2019.

Appropriate use of taxpayer dollars? While current law explicitly authorizes a charter school to operate as a nonprofit corporation, statute is silent on whether a charter school is permitted to operate as a for-profit corporation. Because of the permissive nature of the Education Code and absent a clear prohibition, several charter schools are currently operating as for-profit corporations. The California Charter School Association indicates there are six for-profit charter schools in California. California Virtual Academies (CAVA) is California’s largest provider of online public K-12 education and a public charter school network that exists entirely online. Students take classes from home, communicating with teachers via computer. CAVAs primary vendor and manager is K12, Inc., a for-profit corporation.

According to the author, recently, there has been an increase in the number of for-profit EMOs and CMOs across the country. According to a report from the National Education Policy Center at the University of Colorado entitled, “Profiles of For-Profit and Non-Profit Education Management Organizations,” since the 1995-96 school year, the number of for-profit EMOs has increased from 5 to 97, and the number of schools operated by them has increased from 6 to 840. It is estimated that there were approximately 462,926 students enrolled in charter schools managed by for-profit EMOs. In California, there are 34 charter schools run by for-profit EMOs or for-profit CMOs enrolling over 25,000 students. In 2016, the largest for-profit EMO, K-12 Inc., which has received over $310 million of taxpayer money over the last 12 years, settled a lawsuit filed by the state for $168.5 million over claims that the corporation manipulated attendance records and overstated students’ success. This same for-profit EMO, which is publically traded on Wall Street, had estimated revenue of $708 million in 2012. The company estimated their profit at $87 million in the same year. They paid their top 6 executives $11 million in compensation while their average teacher salary was $36,000. At the same time, one of the charter schools managed by this for-profit corporation in California had a graduation rate of 36% compared to 78% statewide. In addition, every year since it began, except 2013, this school had more dropouts than graduates.

If the goal of a for-profit corporation is to maximize profit for the corporation's shareholders, then the Committee should consider whether it is an appropriate use of state taxpayer dollars for for-profit corporations to operate public schools. Additionally, does this for-profit model provide a perverse incentive for these charter schools to limit services for students in order to increase profits?

Committee Amendment: Staff recommends the bill be amended to clarify that some educational management organizations are non-profit corporations, and as such, may continue to operate charter schools.

Previous legislation. AB 1084 (Bonilla) from 2016, which died on the Senate Inactive File, would have required that charter schools only operate as, or be operated by, a nonprofit public benefit corporation, school district, county board of education, or University of California.

AB 787 (Hernández) from 2015, would have prohibited a charter school from operating as, or being operated by, a for-profit corporation. This bill was vetoed by the Governor with the following message:

"Under this bill, beginning January 1, 2017, a charter school could not "operate as" or be "operated by" a for-profit corporation. I don't believe the case has been made to eliminate for-profit charter schools in California. Moreover, the somewhat ambiguous terms used in this bill could be interpreted to restrict the ability of non-profit charter schools to continue using for-profit vendors."

REGISTERED SUPPORT / OPPOSITION:

Support

American Federation of State, County and Municipal Employees

California Federation of Teachers

California Labor Federation

California School Boards Association

California School Employees Association

California State PTA

California Teachers Association

Opposition

California Charter Schools Association

California Parents for Public Virtual Education

K-12, Inc.

Analysis Prepared by: Chelsea Kelley / ED. / (916) 319-2087