(1)Existing law, the Charter Schools Act of 1992, provides for the establishment and operation of charter schools and provides that a charter school may operate as, or be operated by, a nonprofit public benefit corporation. Existing law provides that the governing board of a school district that grants a charter for the establishment of a charter school formed and organized as a nonprofit public benefit corporation is entitled to one representative on the board of directors of the nonprofit public benefit corporation.

This bill would instead require a charter school to operate as or by a nonprofit public benefit corporation or be operated by a school district or county office of education and would provide that an authority that grants a charter for the establishment of a charter school formed and organized as a nonprofit public benefit corporation is entitled to one representative on the board of directors of the nonprofit public benefit corporation. The bill would prohibit a charter school from operating as, or being operated by, a for-profit entity, as specified. The bill would prohibit a for-profit entity from engaging in certain activities as they relate to a charter school, including prohibiting a for-profit entity from participating in the candidate review or being involved in the appointment or selection of members of the nonprofit public benefit corporations board of directors and prohibiting more than 50% 25% of the full-time equivalent certificated employees serving pupils of the charter school from being employees of a for-profit entity. The bill would require a contract between a charter school and a for-profit entity to provide instructional services to be provided to any member of the public upon request and approval approved at a publicly noticed meeting of the governing body of the charter school. school and provided to any member of the public upon request. To the extent the bill would impose new duties on charter schools, the bill would impose a state-mandated local program.

(2)The Ralph M. Brown Act requires that all meetings of a legislative body, as defined, of a local agency be open and public and all persons be permitted to attend unless a closed session is authorized. The Bagley-Keene Open Meeting Act requires, with specified exceptions, that all meetings of a state body be open and public and all persons be permitted to attend.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the Ralph M. Brown Act, unless it is operated by an entity governed by the Bagley-Keene Open Meeting Act, in which case the charter school would be subject to the Bagley-Keene Open Meeting Act.

(3)The California Public Records Act requires state and local agencies to make their records available for public inspection and to make copies available upon request and payment of a fee unless the records are exempt from disclosure.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the California Public Records Act.

(4)Existing law prohibits certain public officials, including, but not limited to, members of governing boards of school districts and citizens oversight committees, from engaging in specified activities that are inconsistent or incompatible with, or inimical to, their duties as public officials, including, but not limited to, entering into a contract in which the official or the officials family member has a financial interest, as specified.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to these provisions unless the charter school is operated as, or operated by, a nonprofit public benefit corporation.

(5)The Nonprofit Public Benefit Corporation Law establishes the requirements for forming a nonprofit public benefit corporation.

This bill, with the respect to the operation of the charter school only, would clarify that the governing body of a charter school that is operated as a nonprofit public benefit corporation is subject to the Nonprofit Public Benefit Corporation Law.

(6)Existing law prohibits certain self-dealing transactions, as defined, in which a nonprofit public benefit corporation is a party and in which one or more of its directors has a material financial interest, as specified.

This bill, notwithstanding the self-dealing provision described above, would impose certain requirements on the governing body of a charter school and a member of the governing body of a charter school if the charter school and the member enter into a loan agreement, real property lease agreement, or a guarantor agreement for a line of credit or real property lease, as specified.

(7)The Political Reform Act of 1974 requires every state agency and local governmental agency to adopt a conflict-of-interest code, formulated at the most decentralized level possible, that requires designated employees of the agency to file statements of economic interest disclosing any investments, business positions, interests in real property, or sources of income that may foreseeably be affected materially by any governmental decision made or participated in by the designated employee by virtue of his or her position.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the Political Reform Act of 1974.

(8)This bill would state various exceptions and clarifications regarding the applicability of the acts described above in paragraphs (2) to (7), inclusive.

(9)This bill would make the provisions in paragraphs (2) to (7), (8), inclusive, operative on July 1, 2018 2019, as provided.

(11)The California Constitution requires the state to reimburse local governments for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. Existing law authorizes the governing board of a school district or a county board of education, on a districtwide or countywide basis or on behalf of one or more of its schools or programs, after a public hearing on the matter, to request the State Board of Education to waive all or part of any section of the Education Code or any regulation adopted by the state board that implements a provision of that code that may be waived, except as provided.

This bill would provide, for purposes of those provisions, that a charter school is considered a local government or school district, as applicable.

(12)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(13)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

(1)Existing law, the Charter Schools Act of 1992, provides for the establishment and operation of charter schools and provides that a charter school may operate as, or be operated by, a nonprofit public benefit corporation. Existing law provides that the governing board of a school district that grants a charter for the establishment of a charter school formed and organized as a nonprofit public benefit corporation is entitled to one representative on the board of directors of the nonprofit public benefit corporation.

This bill would instead require a charter school to operate as or by a nonprofit public benefit corporation or be operated by a school district or county office of education and would provide that an authority that grants a charter for the establishment of a charter school formed and organized as a nonprofit public benefit corporation is entitled to one representative on the board of directors of the nonprofit public benefit corporation. The bill would prohibit a for-profit entity from engaging in certain activities as they relate to a charter school, including prohibiting a for-profit entity from participating in the candidate review or being involved in the appointment or selection of members of the nonprofit public benefit corporations board of directors and prohibiting more than 50% of the full-time equivalent certificated employees serving pupils of the charter school from being employees of a for-profit entity. The bill would require a contract between a charter school and a for-profit entity to provide instructional services to be provided to any member of the public upon request and approval at a publicly noticed meeting of the governing body of the charter school. To the extent the bill would impose new duties on charter schools, the bill would impose a state-mandated local program.

(2)The Ralph M. Brown Act requires that all meetings of a legislative body, as defined, of a local agency be open and public and all persons be permitted to attend unless a closed session is authorized. The Bagley-Keene Open Meeting Act requires, with specified exceptions, that all meetings of a state body be open and public and all persons be permitted to attend.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the Ralph M. Brown Act, unless it is operated by an entity governed by the Bagley-Keene Open Meeting Act, in which case the charter school would be subject to the Bagley-Keene Open Meeting Act.

(3)The California Public Records Act requires state and local agencies to make their records available for public inspection and to make copies available upon request and payment of a fee unless the records are exempt from disclosure.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the California Public Records Act.

(4)Existing law prohibits certain public officials, including, but not limited to, members of governing boards of school districts and citizens oversight committees, from engaging in specified activities that are inconsistent or incompatible with, or inimical to, their duties as public officials, including, but not limited to, entering into a contract in which the official or the officials family member has a financial interest, as specified.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to these provisions unless the charter school is operated as, or operated by, a nonprofit public benefit corporation.

(6)Existing law prohibits certain self-dealing transactions, as defined, in which a nonprofit public benefit corporation is a party and in which one or more of its directors has a material financial interest, as specified.

This bill, notwithstanding the self-dealing provision described above, would impose certain requirements on the governing body of a charter school and a member of the governing body of a charter school if the charter school and the member enter into a loan agreement, real property lease agreement, or a guarantor agreement for a line of credit or real property lease, as specified.

(7)The Political Reform Act of 1974 requires every state agency and local governmental agency to adopt a conflict-of-interest code, formulated at the most decentralized level possible, that requires designated employees of the agency to file statements of economic interest disclosing any investments, business positions, interests in real property, or sources of income that may foreseeably be affected materially by any governmental decision made or participated in by the designated employee by virtue of his or her position.

This bill, with respect to the operation of the charter school only, would clarify that the governing body of a charter school is subject to the Political Reform Act of 1974.

(8)This bill would state various exceptions and clarifications regarding the applicability of the acts described above in paragraphs (2) to (6) (7), inclusive.

(9)This bill would make the provisions in paragraphs (2) to (6) (7), inclusive, operative on July 1, 2018. 2018, as provided.

(10)The California Constitution requires the state to reimburse local governments for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. Existing law authorizes the governing board of a school district or a county board of education, on a districtwide or countywide basis or on behalf of one or more of its schools or programs, after a public hearing on the matter, to request the State Board of Education to waive all or part of any section of the Education Code or any regulation adopted by the state board that implements a provision of that code that may be waived, except as provided.

This bill would provide, for purposes of those provisions, that a charter school is considered a local government or school district, as applicable.

(11)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(12)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Charter Schools Act of 1992, provides for the establishment and operation of charter schools, and exempts charter schools from the laws governing school districts, except as specified. Existing law separately establishes various open meeting and conflict-of-interest laws for local agencies and state bodies, including, but not limited to, the Ralph M. Brown Act, the Bagley-Keene Open Meeting Act, the California Public Records Act, and the Political Reform Act of 1974.

This bill would express the intent of the Legislature to enact legislation that would ensure that charter school governance is transparent, that monitoring and oversight of charter schools is conducted to protect the public interest, and that state law would occupy the field of open meeting, public records, and conflict-of-interest laws as they relate to the governing bodies of charter schools and preempts the application of additional requirements by chartering authorities.

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 806 (Author:Glazer)

Version: January 3, 2018

Hearing Date: January 9, 2018

Fiscal: Yes

Urgency: No

Consultant: MEC

SUBJECT

Charter schools: operation: for-profit entities

DESCRIPTION

It is the opinion of Legislative Counsel that under current law, a charter school is subject to the Ralph M. Brown Act (Brown Act), the California Public Records Act (CPRA), the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code Section 1090. It is also Legislative Counsel’s opinion that the conflict-of-interest provisions of the Political Reform Act of 1974 and Government Code Section 1090 apply concurrently with the conflict-of-interest provisions of Corporations Code section 5233 to a member of the governing body of a charter school, operated by a nonprofit public benefit corporation, who is also a director of that corporation. (Legislative Counsel Opinion #152326, p. 17, Aug. 14, 2015.)

This bill would limit the public’s access to the records of charter schools, weaken the public’s right to open meetings of charter schools, and weaken the application of the Political Reform Act of 1974 as applied to charter schools. This bill would exempt charter schools that are run by nonprofit public benefit corporations from the conflict of interest provisions of Government Code Section 1090 and instead apply the conflict of interest provisions that are applicable to non-profit corporations.

This bill failed in this Committee on April 25, 2017, and reconsideration was granted. The bill before this Committee reflects: amendments that had been agreed to in the April 19, 2017 Senate Education Committee and were agreed to prior to the first Judiciary Committee hearing; and the addition of Education Code Section 47604.2, reflected on pages 15 and 16 of the bill, which are provisions that relate to charter schools that are run by nonprofit public benefit corporations when they have formal relationships with certain organizations.

BACKGROUND

In 1992, the Legislature enacted the California Charter Schools Act in order to provide communities with the opportunity to establish schools that could operate freely from the structural programs of public school districts. (SB 1448 (Hart, Ch. 781, Stats. 1992).) Charter schools are intended to provide a unique learning environment, giving students a different approach to scholastic achievement. In the 2007-2008 State of California Education report, 675 charter schools were in operation, serving almost 250,000 students. (Education Data Partnership, May 22, 2009.) In the 25 years of charter school existence in California, many reports of widespread financial mismanagement of charter schools’ public funds have surfaced as well as violations of self-dealing.^[1]

In 2007, the Los Angeles Times reported that the Los Angeles County Office of Education hired an outside auditor to examine the Gorman Learning Center Charter School. The audit showed that for the three years audited, the Gorman Learning Center Charter School provided false information on State School Fund applications and received $7.7 million more than the school should have received. The audit further revealed that the school spent thousands of dollars on questionable items, such as a $14,000 board retreat that included helicopter and yacht rentals, and horseback riding and diving lessons for board members and their families. As reported, the school’s chief executive officer inappropriately hired family members and the director of human resources received $18,000 in school funds to pay for her rent. (Rubin, School misused funds, audit finds (Mar. 17, 2007) Los Angeles Times <http://articles.latimes.com/2007/mar/17/local/me-school17> [as of April 22, 2017].)

Another Los Angeles Times article reported that Charles Cox, head and founder of California Charter Academy, was indicted and charged with the misuse of over $5 million in school funds, using the money as compensation in the form of wages to himself, friends, and family members, and to make extravagant purchases unrelated to the charter school. Cox was also charged with inappropriately entering into school service contracts with a company he owned. (Reston and Landsberg, Charter schools’ founder indicted (Sept. 5, 2007) Los Angeles Times <http://articles.latimes.com/2007/

sep/05/local/me-charter5> [as of April 22, 2017].)

Over the years, the Legislature has made clear that public agency actions should be open to the scrutiny of the public. In 1961, the Legislature enacted the Ralph M. Brown Act, which provided public access to local public agency information. In 1967, the Legislature enacted the Bagley-Keene Act, which provided public access to state public agency information. In 1975, the Brown Act was amended to provide for disclosure of public agency acts taken during closed meetings. In 1986, the Brown Act, among other things, was amended to provide for the posting of public agency agendas. In 2004, Proposition 59 added to the California Constitution the people’s right of access to public body information. (Cal. Const., art. I, Sec. 3(b)(1).)

The California Legislative Counsel, this Legislature’s legal counsel, was asked to render an opinion with regard to the following question: whether charter schools are subject to the Brown Act, the CPRA, the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code Section 1090. The following is the opinion of the California Legislative Counsel:

In summary, it is our opinion that a charter school is subject to the Ralph M. Brown Act, the California Public Records Act, the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code section 1090. It is also our opinion that the conflict-of-interest provisions of the Political Reform Act of 1974 and Government Code section 1090 apply concurrently with the conflict-of-interest provisions of Corporations Code section 5233 to a member of the governing body of a charter school, operated by a nonprofit public benefit corporation, who is also a director of that corporation. (Legislative Counsel Opinion #152326, p. 17, Aug. 14, 2015.)

In line with the Legislative Counsel opinion which had not yet been released, this Committee, on July 1, 2015, passed AB 709 (Gipson, 2016)^[2], which would have codified that a charter school is subject to all of the following without exceptions:

• the California Public Records Act;
• the Ralph M. Brown Act, except that a charter school operated by an entity governed by the Bagley-Keene Open Meeting Act is subject to the Bagley-Keene Open Meeting Act regardless of the authorizing entity;
• the Political Reform Act of 1974 (Title 9 (commencing with Section 81000) of the Government Code). For purposes of Section 87300 of the Government Code, a charter school shall be considered an agency; and
• Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of the Government Code.

The Senate Committee on Education heard a version of SB 806 on April 19, 2017, and approved it by a vote of 4-1 with amendments to be taken in the Senate Committee on Judiciary. The bill was heard by the Senate Committee on Judiciary on April 26, 2017 and failed passage by a vote of 2-1. Reconsideration was granted. Since the bill’s failure, the author amended the bill with the amendments that were agreed to in the Senate Education Committee plus the addition of a new Education Code Section 47604.2 reflected on pages 15 and 16 of the bill that relates to charter school transactions with affiliated entities sometimes referred to as Charter Management Organizations.

CHANGES TO EXISTING LAW

Existing law provides that the people have the right of access to information concerning the people’s business and requires meetings of public bodies and the writings of public officials and agencies to be open to public scrutiny. (Cal. Const., art. I, Sec. 3(b)(1).)

Existing law, the Brown Act, provides statutory requirements of local school districts to keep the public informed. (Gov. Code Sec. 54950 et seq.) Existing law requires a school district board to post notices and agendas of school district board meetings. (Gov. Code Secs. 54953, 54954.2, 54954.6, and 54956.) Existing law requires a school district board to publicly report any action taken in closed sessions. (Gov. Code Secs. 54957.1 and 54957.7.) Existing law requires a school district board to disclose in an open meeting the items to be discussed in closed sessions. (Gov. Code Sec. 54957.7.)

Existing law, the Bagley-Keene Act, provides statutory requirements of state school districts to keep the public informed. (Gov. Code Sec. 11120 et seq.) Existing law requires state school district boards to post notices and agendas of state public body meetings. (Gov. Code Secs. 11123, 11125, 11125.4, 11125.5, 11125.9, and 11126.) Existing law requires state school district boards to publicly report any action taken in closed sessions. (Gov. Code Secs. 11125.2, 11126, and 11126.3.)

Existing law provides that all meetings of the governing board of the school district and the county board of education at which the granting, revocation, appeal, or renewal of a charter petition is discussed shall comply with the Brown Act. (Gov. Code Sec. 47608.)

Existing law provides that a charter school is deemed to be a “school district” for purposes of appropriations, disbursements, and apportionment from state school and lottery funding. (Ed. Code Secs. 47612, 47638, and 47650.)

Existing law provides that a charter school is provided with local operational funding that is equal to the total funding that would be available to a similar school district serving a similar pupil population. (Ed. Code Sec. 47630.)

Existing law requires a local school district board to hold open meetings, unless otherwise exempt, as specified. (Ed. Code Sec. 35147.)

Existing law, the California Public Records Act (CPRA), governs the disclosure of information collected and maintained by public agencies, including school districts. (Gov. Code Sec. 6250 et seq.) Generally, all public records are accessible to the public upon request, unless the record requested is exempt from public disclosure. (Gov. Code Sec. 6254.) There are 30 general categories of documents or information that are exempt from disclosure, essentially due to the character of the information, and unless it is shown that the public’s interest in disclosure outweighs the public’s interest in non-disclosure of the information, the exempt information may be withheld by the public agency with custody of the information. (Id.)

Existing law authorizes the person whose request for a public record under the CPRA is denied to file an action in superior court for an order requiring disclosure. (Gov. Code Sec. 6258.) The test for a determination of whether a record may be withheld from public access is whether the public’s interest in disclosure is outweighed by the public’s interest in withholding disclosure of the record. (Gov. Code Sec. 6255.)

Existing law provides that a private person or organization can provide funding to assist in the establishment or operation of a charter school. (Ed. Code Sec. 47603.)

Existing law provides that a charter school may elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law. (Ed. Code Sec. 47604.)

Existing law provides that an authority that grants a charter to a charter school to be operated as, or operated by, a nonprofit public benefit corporation is not liable for the debts or obligations of the school, or for claims arising from the performance of acts, errors, or omissions by the school, if the authority has complied with all oversight responsibilities required by law. (Ed. Code Sec. 47604.)

Existing law provides that a state community college district or state university can establish an auxiliary organization to solicit funds for the benefit of the community college district, and the board members of such auxiliary organizations are subject to conflict of interest disclosure requirements. (Ed. Code Secs. 72670 et seq. and 89907 et seq.)

Existing law prohibits officers, board members, and employees of a school district from having a financial interest in any contract made by the officer, board member, or employee, in an official capacity on behalf of the school district. (Gov. Code Sec. 1091.)

Existing law provides that an officer will not be deemed to be interested in a contract entered into by a board or school district in which the officer, board member, or employee is a member if that individual has only a remote interest in the contract and that interest is disclosed to the board or district of which the individual is a member, as specified. Existing law provides numerous financial transactions that qualify as a “remote interest.” (Gov. Code Sec. 1091.)

Existing law, the Political Reform Act of 1974 (PRA), requires public officials to file annual statements of financial interest. (Gov. Code Sec. 81000.)

Existing law prohibits an employee of a school district from serving as a board member of the school district. (Ed. Code Sec. 35107(b).)

This bill would require a charter school and its board to comply with the open meeting requirements of the Brown Act or Bagley-Keene Act, with limitations, as specified.

This bill would require a charter school to comply with the public disclosure requirements under the California Public Records Act, with limitations, as specified.

This bill would require a charter school to comply with the restrictions on financial interests, and the financial interest disclosure requirements under the Political Reform Act, with limitations, as specified.

This bill would remove from charter schools the application of the conflict of interest code that applies to public schools (Government Code Sec. 1090) and instead only subject the charter school to the conflict of interest codes that apply to nonprofit corporations (Corporations Code Sec. 5233) when an officer of the nonprofit entity is also a board member of the charter school.

This bill would create “the Charter Schools Transparency and Standards of Governance Act of 2018.”

This bill would make legislative findings and declarations, as specified.

This bill would provide that a charter school shall operate as, or be operated by, a nonprofit public benefit corporation, or shall be operated by a school district or county office of education. This bill would provide that this prohibition shall not apply to any charter school that was operated by a for-profit entity on or before April 1, 2018, until the date the charter school submits its next renewal to its authorizer, as specified.

This bill would clarify that a charter school shall not operate as, or be operated by, a for-profit entity.

This bill would provide that a for-profit entity: shall not participate in the candidate review or be involved in any way or influence the appointment or selection of members of the board of directors of the nonprofit public benefit corporation operating a charter school; and shall not approve, validate, deny, or veto the annual budget or individual expenditures of a charter school.

This bill would provide that a for-profit entity providing direct instructional services to charter school pupils shall not supervise or direct any certificated employees of the charter school, and no more than 25 percent of the full-time equivalent certificated employees serving pupils of the charter schools may be employees of a for-profit entity.

This bill would provide that a contract between a charter school and a for-profit entity to provide instructional services shall be approved at a publicly noticed meeting of the governing body of the charter school and provided to any member of the public upon request.

This bill would prohibit a school district, county board of education, or the state board from imposing on a charter school any conflict-of-interest requirements other than those specified in this section.

This bill would provide limitations on the application of the Ralph M. Brown Act and the Bagley-Keene Act to charter schools. This bill would also provide that the Bagley-Keene Act would be the open meeting act the governing body of a charter school is subject to if the charter school is operated by an entity governed by the Bagley-Keene Act regardless of the authorizing entity.

This bill would provide limitations on the application of the California Public Records Act to charter schools and would only apply the California Public Records Act to the governing body of a charter school.

This bill would provide limitations on the application of the Political Reform Act of 1974 to charter schools. For purposes of the Political Reform Act, this bill would provide that a charter school shall be considered an agency and is the most decentralized level for purposes of adopting a conflict-of-interest code. This bill would provide that a statement of economic interest that is filed by a designated person at a charter school after the required deadline pursuant to the Political Reform Act shall not be the sole basis for revocation of a charter pursuant to Section 47607.

This bill would provide limitations on the application of the conflict of interest code Government Code Section 1090 to charter schools.

This bill would provide that for a charter school that is operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation, the governing body of the charter school, as to conflict-of-interest, only would have the Corporation Code conflict-of-interest provisions apply to it and not the Government Code Section 1090 conflict-of-interest provisions that apply to public schools.

This bill would provide that for all charter school governing bodies, a member of the governing body shall not provide a loan to the charter school or sign a guarantor agreement relative to a line of credit for the charter school unless all of the following are satisfied:

• the governing body of the charter school adopts a resolution at a public meeting declaring and describing the need for the loan or the line of credit. In the case of a line of credit, the funds from the line of credit shall not be accessed until the governing body of the charter school complies with this criteria;
• the interest rate for the loan or line of credit is below the fair market rate;
• the governing body of a charter school discloses and approves the loan agreement or line of credit, including the terms of the loan or the line of credit, during a public meeting; and
• the member of the governing body of the charter school who offers the loan or the guarantor agreement relative to a line of credit abstains from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding all matters affecting the loan agreement or the line of credit.

This bill would provide that for all charter school governing bodies, a member of the governing body of a charter school shall not lease real property or sign a guarantor agreement relative to a lease of real property to be occupied by a charter school unless the following are satisfied:

• the governing body of the charter school discloses and approves the real property lease agreement, including the terms of the lease and the guaranty, if applicable, during a public meeting;
• the lease rate for the real property lease agreement is below the fair market rate; and
• the member of the governing body of the charter school who is a lessor or guarantor of the real property to be occupied by the charter school abstains from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding all matters affecting the real property lease agreement.

This bill would provide that a member of the governing body of a charter school shall abstain from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding personnel matters that uniquely affect a relative of the member, as defined, but may vote on collective bargaining agreements and personnel matters that affect a class of employees to which the relative belongs.

This bill would provide that activities that are unrelated to the operation of the charter school that the governing body engages in are not subject to Section 1090 of the Government Code, the Ralph M. Brown Act, the Bagley-Keene Open Meeting Act, or the California Public Records Act.

This bill would further allow charter school’s governing boards to use procedures that are not in line with the Brown Act or Bagley-Keene Open Meeting Act that restrict public access to meetings by governing body members, as specified, including not applying the Brown Act or Bagley-Keene to committees of the charter school, unless the committee is comprised of a majority of the members of the governing body of the charter school.

This bill would clarify that the governing body of a charter school may hold closed sessions to consider a matter regarding pupil discipline, as specified.

This bill would allow the charter school to charge and obtain actual costs from a person making a California Public Records Act request before producing the records.

This bill would specify a process for pursuing violations of the conflict-of-interest provision that would apply to charter schools operated by or as a nonprofit public benefit corporation.

This bill would provide that notwithstanding any other law, the key provisions of this Act shall not apply to actions taken before July 1, 2019, the operative date of this section.

This bill would provide that any policies adopted by a charter school or its authorizer in accordance with the key provisions of this Act shall not constitute a material revision to the charter in operation on January 1, 2019.

This bill would require a charter school operated by or as a nonprofit public benefit corporation with a financial relationship with an organization, as specified, to list in the charter petition the name of the related organization and describe the related organization’s financial relationship, powers, and duties with respect to the school.

This bill would require the governing board of a charter school operated by a nonprofit public benefit corporation to take specified actions with respect to any contract, transaction, or other transfer of public funds, or transfers of assets acquired with public funds, in excess of $100,000, or multiple contracts, transactions, or other transfers that exceeds the aggregate amount of $100,000, as specified, to a related organization, described above. The bill would require all such contracts, transactions, and transfers to be subject to examination and audit by the State Auditor and the charter school’s authorizer, as specified.

This bill would make conforming changes.

COMMENT

1. Stated need for the bill

According to the author:

It is long overdue for the Legislature to pass a robust conflict of interest law for charter schools that effectively serves the best interests of the public, charter schools, and their students—and that can become law.

In addition, current law does not clearly state that charter schools cannot be run by for-profit businesses and does not define those functions of a charter school that are off limits to a for-profit entity under contract to the charter school. Even though only 5 out of 1,253 charter schools in the state are for profit, it is critical to declare California off limits to for-profit operators.

While substantial portions of both of these policy objectives have been widely supported for years and a consensus has formed around a comprehensive array of governance and conflict of interest revisions, no legislation has yet become law.

This bill lays out in detail a package of revisions that (1) achieves the right balance between public transparency, conflict of interest controls, and sensitivity to the singular needs of a charter school, and (2) provides limitations on for-profit contractors.

1. Subjecting charter school’s use of public funds to public disclosure

Existing law provides that the people have the right of access to information concerning the people’s business and requires meetings of public bodies and the writings of public officials and agencies to be open to public scrutiny. (Cal. Const., art. I, Sec. 3(b)(1).) The Legislature has declared a charter school to be a school district, and thus a public agency, for purposes of state and local funding. (Ed. Code Secs. 47612, 47630, 47638, 47650.) When public agencies receive state and local funds, it becomes necessary to provide public access and scrutiny over the use of these funds to ensure that the public’s business is being properly conducted.

1. Open Meetings Requirement

Existing law, the Brown Act, provides statutory requirements for local school districts to keep the public informed by holding properly noticed public meetings and requiring disclosure of certain information before and after closed meetings. (Gov. Code Sec. 54950 et seq.) The Brown Act generally requires that the meetings of a legislative body of a local agency be open and public and that all persons be permitted to attend. (Gov. Code Sec. 54953.) Existing law, the Bagley-Keene Act, provides similar statutory requirements for a state agency. (Gov. Code Sec. 11120 et seq.)

Charter schools, like public schools, receive public funds. Students of the charter schools, as well as the parents of those students, have a stake in all discussions and decisions of the charter school governing boards. Since the charter schools are also publicly funded, the taxpayers also have a strong interest in all discussions and decisions of the charter school governing boards. Students, parents, communities, and taxpayers have a strong interest in attending to observe and participate in the meetings of the charter school governing boards.

Legislative Counsel’s opinion is that a charter school is a local agency for purposes of the Brown Act, thus the governing body of a charter school is the legislative body of a local agency, and is, therefore, subject to the Brown Act. (Legislative Counsel Opinion #152326, p. 5, Aug. 14, 2015.)

This bill contains deviations from the requirements of the Brown Act, all of which would result in less transparency and meaningful public participation. As an example, the bill would exempt committees of the charter school from the requirements of the Brown Act unless the committee is comprised of a majority of the members of the governing body of the charter school. This provision would allow the charter school to conduct their business in the dark. Under the Brown Act, a commission, committee, board, or other body of a local agency is subject to the requirements of the act. As pointed out by the California Newspaper Publishers Association in opposition to this bill, the “provision exempting committees from the Brown Act would allow a charter school governing body to delegate much of or all of its work to committees” that will be operating in the dark.

According to the California Charter Schools Association, the sponsor:

Because many charter schools operate in multiple counties, SB 806 allows a charter school board to meet anywhere in the state provided that teleconference capacity is made available in every county in which the charter operates a school. Teleconferencing allows parents in every county served to fully participate in real time with the charter school’s governing board.

According to the California Teachers Association, an opponent of the bill:

The bill carves out areas of the Brown Act with which charter schools will not have to comply, permitting a governing board meeting to occur anywhere in California provided there is a teleconference location within the authorizing county. Charter schools are defined in California law as public schools; the business they conduct is the business of the public. Having private and secret meetings to discuss how tax dollars will be spent is not acceptable. [. . . ] There is no substitute for a meeting that the public can sit in and engage, and a teleconference diminishes participation.

The California Newspaper Publishers Association (CNPA) is opposed to the portions of the bill which would weaken the requirements of the Brown Act and the California Public Records Act as they apply to charter schools in California. According to the CNPA, the bill would create an environment of secrecy within which charter schools would be allowed to operate. The CNPA notes that “[t]aken as a whole, these provisions would construct a secret system that allows charter schools to operate entirely outside of public view.” According to the CNPA:

On p. 11, beginning with line 37, the provision limits the application of the open meeting and open record laws in situations where the charter school “engages in activities that are not related to the operation of the charter school.” This term is undefined and unnecessarily limits the scope of the open meeting and open record laws as applied to these bodies. This restriction would deny the public the opportunity to participate in the decision-making process as well as prevent access to the information used to reach a decision by the board about an issue that may impact the charter school but does not affect the operation of the charter school.

Consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying the Brown Act and Bagley-Keene Act, without exception, to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the Brown Act and Bagley-Keene Act apply to charter schools.

Suggested Amendment:

Strike out the provisions that are inconsistent with the Brown Act and Bagley-Keene Act, including the provisions: allowing the charter school governing body to meet at a teleconference location and exempting committees of the charter school from the requirements of the Brown Act unless the committee is comprised of a majority of the members of the governing body of the charter school. Strike out the provision that states that the Brown Act and Bagley-Keene Act only apply with respect to the operation of a charter school and to the governing body of a charter school.

Insert the following instead: “A charter school is subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5 of the Government Code), except that a charter school operated by an entity governed by the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) is subject to the Bagley-Keene Open Meeting Act regardless of the authorizing entity.”

The author has agreed to amend the bill to reflect that charter schools are subject to the Brown Act and Bagley-Keene Act without exception. However, the author’s office has not agreed to remove the provision that would allow the board of charter schools that operate in multiple counties to meet anywhere in the state provided that teleconference capacity is made available in every county in which the charter operates a school.

1. Public disclosure of information pursuant to the California Public Records Act (CPRA)

Existing law, the CPRA, governs the disclosure of information collected and maintained by public agencies, including school districts. (Gov. Code Sec. 6250 et seq.) Generally, all public records are accessible to the public upon request, unless the record requested is exempt from public disclosure. (Gov. Code Sec. 6254.)

Charter schools, financed by the State School Fund, are deemed school districts for purposes of funding, but are free from many of the constrictions placed on school districts in order to increase the learning opportunities for all students, according to the Legislative intent language contained in the Charter Schools Act of 1992. (Ed. Code Secs. 47601, 47650.) Although charter schools are able to operate independently from school district construction, charter schools are still considered to be members of the public school system and under the control of the officers of the public school system. (Ed. Code Sec. 47615.)

Because charter schools are funded by taxpayer money, the public should have access to information that would allow them to evaluate charter schools. The bill in print contains provisions that undermine the CPRA. For example, Section 47604.1(j) of the bill would provide that a charter school may require payment of actual costs from the person making the request before producing the records. Under the CPRA, an agency may only charge the direct cost of duplication or a statutory fee, if any, for copies of records. Subjecting charter schools to the CPRA would increase accountability and public scrutiny required to prevent misconduct and misappropriation of public funds. According to the Los Angeles Times, a recent report concluded that “at least 253 California charter schools, more than 20 percent of the state total, had enrollment policies that illegally excluded some students or discouraged them from applying, such as those with poor academic scores, limited English-speaking skills or disabilities.” (“Charter schools are growing in number where they are not needed, new report says,” Los Angeles Times, April 10, 2017, Howard Blume) <http://www.latimes.com/local/lanow/la-me-edu-california-charter-laws-criticized-20170409-story.html> (as of April 22, 2017).

The California Charter Schools Association, a supporter of the bill, justifies the actual cost provision because “many charter schools are small with limited administrative staff[.]”

Legislative Counsel’s opinion is that charter schools are subject to the California Public Records Act. (Legislative Counsel Opinion #152326, p. 6, Aug. 14, 2015.) As currently drafted, this bill would make it more difficult and more expensive for the public to inspect charter school records than is required by the CPRA.

Consistent with the history of this Committee in passing AB 709 (Gipson, 2015) with regard to applying the CPRA without exception to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the CPRA applies to charter schools.

Suggested amendment:

Strike out the provisions that are inconsistent with the California Public Records Act, including the provisions: allowing charter schools to require payment of actual costs from the public before producing records and the provision limiting the application of the California Public Records Act in situations where the charter school engages in activities that are not related to the operation of the charter school. Strike out the provision that states that the California Public Records Act only applies with respect to the operation of a charter school and to the governing body of a charter school.

Insert the following instead: “A charter school is subject to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).”

The author has agreed to amend the bill to reflect that charter schools are subject to the California Public Records Act without exception.

1. Disclosure of conflicts of interest pursuant to the Political Reform Act of 1974 (PRA)

Existing law, the PRA, requires public officials to file annual statements of financial interest. (Gov. Code Sec. 81000.) The Legislature declared this necessary because “[p]ublic officials, whether elected or appointed, should perform their duties in an impartial manner, free from bias caused by their own financial interests or the financial interests of persons who have supported them.” (Gov. Code Sec. 81001.)

Having charter school boards subject to the PRA protects funding for public education by applying requirements that have proven to be effective in minimizing conflicts of interest in traditional public schools. Charter school boards have the responsibility to ensure that the public’s money is used appropriately. In order to ensure that charter school board members are not receiving inappropriate gifts for the purpose of compromising the board member’s decisions relating to the charter school, a charter school and its board members should be required to comply with financial interest disclosure requirements under the PRA.

There is no justification to exempt charter schools and their board members, in any way, from the conflict-of-interest provisions of the PRA. Legislative Counsel’s opinion is that charter schools are subject to the California Political Reform Act and that the PRA conflict-of-interest provisions apply to members of the governing body of a charter school. (Legislative Counsel Opinion #152326, p. 7, Aug. 14, 2015.) As currently drafted, this bill is inconsistent with the objective of the Political Reform Act, which is the promotion of impartial and ethical conduct of public affairs by state and local government officials.

The California School Employees Association, writing in opposition to the measure explains:

SB 806 states that charter schools are subject to the Political Reform Act (PRA) and then limits what can be done when violations of the PRA have occurred.

Shockingly, the bill provides that if the violation was so pervasive to constitute a systemic problem that suggests a high risk to the continued successful and transparent operations and governance of the charter school, the charter authorizer may, for a period not exceeding 5 years, prohibit board members or officers from having “material financial interests” in the operations or contracts. This is unacceptable. SB 806 is tying the hands of charter school authorizers in excluding board members and officers from having financial interests in charter schools.

Consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying the Political Reform Act without exception to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the Political Reform Act applies to charter schools.

Suggested amendment:

Strike out the provisions that are inconsistent with the California Political Reform Act completely applying to charter schools and their board members, and insert the following instead: “A charter school is subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000) of the Government Code). For purposes of Section 87300 of the Government Code, a charter school shall be considered an agency.”

The author has agreed to amend the bill to reflect that charter schools are subject to the California Political Reform Act without exception.

1. Conflict-of-interest provisions: Government Code Section 1090 and Corporation Code Section 5233

Existing law prohibits officers, board members, and employees of a school district from having a financial interest in any contract made by the officer, board member, or employee, in an official capacity on behalf of the school district. (Gov. Code Sec. 1091.)

Government Code Section 1090 prohibits an officer or employee of the enumerated entities from being financially interested in a contract made by the officer or employee in his or her official capacity or by a body or board of which the officer or employee is a member. Section 1090 also prohibits an officer or employee of the enumerated entities from making, in their official capacity, either a purchase from the entity or a sale to the entity. As used here, the term “financially interested” refers to any financial interest that might interfere with the officer or employee’s unqualified devotion to their public duty. However, an officer is not deemed to be interested in a contract entered into by a board or school district in which the officer, board member, or employee is a member if that individual has only a remote interest in the contract and that interest is disclosed to the board or district of which the individual is a member, as specified. (Id.) Under existing law, a contract in which a public officer is interested is void, not merely voidable. (Thomson v. Call (1985) 38 Cal.3d 633, 646, fn. 15; Gov. Code Sec. 1092.)

In 2011, the Los Angeles Unified School District reported that its Inspector General identified a number of conflict of interest situations in Los Angeles charter schools:

• a charter school director transferred public funds in excess of $230,000 to a private corporation in which the director had a financial interest;
• a husband and wife team served together as board members for a charter and then conducted a lease transaction for the charter with another organization of which they were officers; and
• charter board directors wearing additional hats as officers and employees of the same charter school.

Under conflict-of-interest laws in the Corporations Code, the board of directors of a nonprofit organization may have up to 49 percent interested directors. (Corp. Code Sec. 5227.) The board may enter into transactions where its members are financially interested, as long as each member’s financial interest is disclosed to the board and the member does not participate in the decision making. (Corp. Code Sec. 5233.) In comparison, under Government Code Section 1091, which governs public school districts, no director may have a material financial interest in a decision made by the Board.

This bill would provide limitations on the application of the conflict-of-interest code Government Code Section 1090 to charter schools by applying Government Code Section 1090 to the governing body of a charter school only if the charter school is not operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation. If the charter school is operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation, this bill would provide that the governing body of the charter school, as to conflict-of-interest, only has the Corporation Code conflict-of-interest provisions apply to it and not the Government Code Section 1090 conflict-of-interest provisions.

Although some charter schools are non-profit corporations, they are ultimately funded by taxpayer dollars and should be held to the most protective standard to ensure the interests of the students, parents, and the public are placed above financial interests of board members. The purpose of Government Code Section 1090 is to protect a public agency’s interests and those of its constituency by assuring undivided loyalty and allegiance, removing direct and indirect influence of an interested officer and discouraging dishonesty. (Chapman v. Superior Court (2005) 130 Cal.App.4th 261, 266.)

According to Legislative Counsel, “the conflict-of-interest provisions of section 1090, like the conflict of interest provisions set forth in the PRA, would be deemed to apply to the directors of a nonprofit public benefit corporation, in addition to the conflict-of-interest provisions of Corporations Code section 5233, where those directors take on the additional responsibilities of public officers in acting as members of the governing body of a charter school operated by the corporation.” (Legislative Counsel Opinion #152326, p. 15, Aug. 14, 2015.) Legislative Counsel concluded that the conflict-of interest provisions of Corporations Code Section 5233 apply concurrently to the members of the governing board of a charter school operated by a nonprofit public benefit corporation, who are also directors of that corporation. (Id.)

The California Charter Schools Association (CCSA), in support, asserts:

Government Code 1090 would apply to a charter school that is run by a school district or county office of education but not by a nonprofit corporation for the following reasons:

GC 1090 would prohibit a board member or executive staff from making any kind of loan or lease arrangement with a charter school, thereby completely shutting off an important avenue the school has for securing urgently needed resources.

Unlike traditional public schools, nonprofit charter public schools do not have the authority to tax or bond in order to secure financial resources to acquire appropriate facilities or to weather fiscal challenges.

Charter schools often turn to board members for loans and leases that the charter school cannot access on its own.

At the same time, CCSA agrees that the law must include consequences for charter school board members and executive staff who violate the law and must allow the authorizer to pursue those consequences. SB 806 does all of the following:

Affirms that charter schools are subject to the Corporations Code, including those provisions that prevent a board member from engaging in any financial interest that does not first and foremost benefit the charter school. It also strengthens the protections for the charter school when a board member offers to provide a loan or lease for the school.

Grants school district authorizers explicit standing to bring action against the charter school in court for violating the Corporations Code.

Requires the charter school to implement any consequences outlined in the court’s ruling.

Directs the charter school also to remove any board member or dismiss any staff that was the subject of the complaint and found to have violated the law.

Allows the school district, upon a finding that the violation(s) are symptomatic of a more systemic problem, to prohibit any board members or officers of the charter school from having a material financial interest in the charter school for up to 5 years.

Cases detailed in the Background demonstrate why it is not appropriate to allow even a nonprofit charter school to follow the more lenient conflict-of-interest laws under the Corporations Code. Opponents of this bill argue that these cases and others demonstrate that giving charter school board members more flexibility in the management of finances has led to the misappropriation of funds and unethical personal gain, resulting in the closing of some charter schools.

The California Teachers Association, in opposition, writes:

[T]he bill would permit some “self-dealing” transactions at charter schools wherein a governing board member could have a financial stake in a loan agreement, real property lease agreement, or a guarantor agreement for a line of credit or real property lease for the charter school.

[. . .]

While the Public Benefit Corporations Code contains some proscriptions regarding self-dealing, they are less rigorous than, and hence lack the prophylactic benefit of Government Code 1090. In addition, the Corporation Code imposes an obligation that corporate officers discharge their duties in a manner that best serve the corporation’s interest and hence includes relief that inures to the benefit of the corporation, as opposed to the public. Thus, the obligations imposed under the Non-Profit Public Benefit Corporations Code do not provide the same functional protections or purpose of Government Code 1090. If, arguendo, Charter schools were deemed to be excluded from Government Code 1090, then Charter School Board members would be charged with serving only the interests of the corporation. Since Charter Schools are in fact serving an important public service, it is important that the law be clarified to affirm that Charter School Board members are mandated, under Government Code 1090, to perform their duties in a manner that serves and protects the Public’s interest.

In order to expose potential conflicts-of-interest for the personal gain of a board member and consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying Government Code Section 1090 without exception to charter schools, the Committee may wish to amend the bill to make it clear that there will be no exceptions to how Government Code Section 1090 applies to charter schools. The Committee may wish to amend the bill to make it clear that the conflict-of-interest provisions of Government Code Section 1090 and Corporations Code Section 5233 apply concurrently to the members of the charter school governing board operated by a nonprofit public benefit corporation, who are also directors of that corporation.

Suggested Amendment:

Strike out the provisions of the bill that would have the Corporations Code Section 5233 be the only conflict-of-interest provision applying to charter school board members.

Insert the following language that would prohibit a charter school board member from being a party to a contract with a charter school in which the board member has a financial interest: “A charter school is subject to Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of the Government Code.”

The author does not agree to apply Government Code Section 1090 to all charter schools without exception. The author writes:

GC 1090 prohibits a public entity board member (e.g. city council member) from having any financial interest in the entity on whose board the person sits, regardless of whether that financial interest accrues to the benefit of the entity.

Charter public schools have far less flexibility than traditional public schools to secure financial resources to acquire appropriate facilities and to weather fiscal challenges. For example, charter schools cannot assess local taxes, initiate eminent domain or access low interest loans available to school districts. Charter schools often turn to board members, who are passionately committed to the success of the school, for below-market loans and leases that the charter school cannot access on its own. GC 1090 would prohibit a board member or executive staff from making any kind of loan or lease arrangement with a charter school, thereby completely shutting off an important avenue for the school to secure helpful and often urgent resources.

A board member who takes out a second mortgage on his home to help keep a charter school’s doors open, for example, would be suddenly guilty of a criminal offense. Section 1090 does not allow that person to recuse himself or for the charter school board to accept the arrangement. It shuts out of the process entirely the committed passionate advocate for public education who is invested in the success of his/her school.

When all public schools faced deferrals of state payment resulting from the Great Recession, many charter schools did not have access to the same short-term affordable financing available to traditional schools. As a result, charters turned to supporters, like their board members, to keep them afloat until the economy recovered. If GC 1090 had been the law, some of those schools would not have survived.

In addition, nearly all independent charter schools are, and have been, nonprofit corporations and as a result, operate within that statutory milieu. The Corporations Code ensures transparency and limitations in the financial activities of board members without undermining the kind of committed financial support that ideally should be available to all public schools.

In addition, it is critical to note that the imposition of Government Code 1090 would impact the dollars that go into the classroom to teach charter public school students. To the extent that Section 1090 would prevent charter school board members and officials from providing often desperately needed resources, many costs that keep the doors open will have to be paid with funds that would otherwise be spent in the classroom.

1. New provision in the bill since it was last heard in this Committee

According to the California Charter School Association (CCSA):

Since this bill was last heard in [the Senate Committee on Judiciary], CCSA has engaged stakeholders to address increasing concerns about charter school interactions with affiliated nonprofit entities, sometime referred to as Charter Management Organizations (CMOs). While the corporation code clearly applies to these transactions, CCSA believes that additional transparency should apply to charter schools that have transactions with affiliated entities. Therefore, we are proposing new amendments to SB 806 that will provide clarity and ensure transactions between charter school entities are publicly transparent and clearly entered into for the benefit of the public charter school.

The bill’s amendment would require a charter school, operated by or as a nonprofit public benefit corporation with a financial relationship with related organizations, to list in the charter petition the name of the related organization, and describe the related organization’s financial relationship, powers, and duties with respect to the charter school. The bill’s amendment would also require the governing board of a charter school operated by a nonprofit public benefit corporation to take specified actions with respect to any contract, transaction, or other transfer of public funds, or transfers of assets acquired with public fund, in excess of $100,000, or multiple contracts, transactions, or other transfers that exceeds the aggregate amount of $100,000, as specified, to a related organization. The bill’s amendment would require all such contracts, transactions, and transfers to be subject to examination and audit by the State Auditor and the charter school’s authorizer.

1. Additional opposition concerns

California Association of Clerks and Election Officials (Association), writing in opposition, highlight their concern with a provision of the bill that would require counties to adopt a conflict of interest code for each charter school. The Association asserts that the “impact of boards of supervisors having to individually review and approve the conflict-of-interest codes of most of those 1,200 charter schools would be significant [and] requests an amendment to remove the provision dealing with conflict of interest code adoption with respect to charter schools.”

K-12, Inc. and the California Virtual Academies, in opposition to the bill, writes:

Our first objection is that all of these changes would force a ‘material revision’ in a charter school’s petition. This would send them back before their authorizer to have all of the changes in SB 806 approved in their charter creating an unnecessary workload for both charter schools and their authorizers.

Additionally, the provisions around for-profit companies could have unintended consequences. Many charter schools use ‘for-profit’ companies to provide instructional materials, professional development services, supplemental services, business management services and accounting services. The business and accounting services have a significant impact for many charter schools since they do not all have central offices, human resources departments or administrative departments. We believe limiting the scope of what types of areas these companies can work on is short sighted. For instance accounting firms are for-profit and it would make sense for them to point out flaws in a schools budget, if mistakes or errors are made, and be able to ‘pull that budget back’ to correct those errors. SB 806 seems to restrict that type of oversight which we believe is necessary.

Finally, SB 806 creates a number of new mandates on charter schools. The measure hits directly at the flexibility and freedoms that charter schools are supposed to enjoy under the current statute. It is a highly regulatory measure that includes a mandate reimbursement clause. Unfortunately, charter schools cannot apply for mandate reimbursements on their own so this provision will not grant any funding to many charter schools thus creating unfunded mandates.

Support: California Charter Schools Association; Pacoima Charter Elementary School

Opposition: California Association of Clerks and Election Officials; Californians Aware; California Federation of Teachers; California Labor Federation; California School Employees Association; California Newspaper Publishers Association; California Teachers Association; California Virtual Academies; Charter Schools Development Center; K-12, Inc., LIUNA Local 777

HISTORY

Source: Author

Related Pending Legislation:

AB 406 (McCarty, 2017) would clarify that charter schools cannot operate as or be operated by a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization. This bill is currently in the Senate Education Committee.

AB 1478 (Jones-Sawyer, 2017) would require charter schools to comply with the open meeting and public disclosure requirements under the Ralph M. Brown Act, Bagley-Keene Open Meeting Act, the California Public Records Act, and the conflict of interest disclosure requirements under the Political Reform Act. This bill is currently on the Assembly Floor.

Prior Legislation:

AB 709 (Gipson, 2015) would have required charter schools to comply with the open meeting and public disclosure requirements under the Ralph M. Brown Act (Brown Act), Bagley-Keene Open Meeting Act (Bagley-Keene Act), the California Public Records Act (CPRA), and the conflict-of-interest disclosure requirements under the Political Reform Act (PRA). The bill was vetoed by the Governor.^[3]

AB 1057 (Medina, 2015); AB 913 (Chau, 2014); AB 360 (Brownley, 2011); and AB 572 (Brownley, 2010) all would have required charter schools to comply with the open meeting requirements of the Brown Act, or Bagley-Keene Open Meeting Act, the Public Records Act, and conflict-of-interest laws. These bills were vetoed by the Governor.

SB 1317 (Huff, 2014) would have required that charter schools be subject to a variety of the same open meeting, conflict-of-interest, and disclosure laws as school districts, including the Ralph M. Brown Act (Brown Act), the California Public Records Act (CPRA), and the Political Reform Act of 1974 (PRA). Under this measure, the charter school did not have to adhere fully to Government Code Section 1090. The bill died in the Senate Appropriations Committee.

AB 2115 (Mullin, 2008) would have required charter schools to adopt and comply with a conflict-of-interest policy and require that members of the governing board of a charter school comply with current conflict-of-interest laws that apply to school district governing boards. This bill would have required charter school governing boards to comply with open meeting requirements of the Brown Act, or in the case of state agency operated charter schools, the Bagley-Keene Open Meeting Act. This bill was vetoed by the Governor.

AB 1197 (Wiggins, 2004) would have required individuals who govern charter schools to file statements of economic interest under the Political Reform Act. The bill failed passage on the Senate Floor.

SB 1448 (Hart, Ch. 781, Stats. 1992) See Background.

Prior Vote:

Senate Judiciary Committee (Ayes 7, Noes 0)

Senate Judiciary Committee (Ayes 2, Noes 1) (Failed, Reconsideration Granted)

Senate Education Committee (Ayes 4, Noes 1)

**************

1. See Inside Celerity Charter School Network, Questionable Spending and Potential Conflicts of Interest Abound,” March 6, 2017 Los Angeles Times <http://www.latimes.com/local/education/la-me-edu-celerity-beginnings-20170306-story.html> (as of April 22, 2017); Ex-Oakland charter schools director charged with grant application fraud, money laundering, March 31, 2017 East Bay Times <http://www.eastbaytimes.com/2017/03/30/former-oakland-charter-schools-director-charged-with-grant-application-fraud-money-laundering-scheme/> (as of April 22, 2017); (Cleeland, Audit Faults Chain of Charter Schools, Aug. 10, 2006, Los Angeles Times <http://articles. latimes.com/2006/aug/10/local/me-audit10> (as of April 22, 2017); Blume, L.A. Unified says PUC Schools should have unearthed Rodriguez’s alleged conflict three years ago, Oct. 31, 2017, Los Angeles Times <http://www.latimes.com/local/lanow/la-me-edu-la-unified-faults-puc-and-rodriguez-20171030-story.html> [as of Jan. 8, 2018]. ↑

2. AB 709 (Gipson, 2016) was vetoed by the Governor. ↑

3. The Governor wrote the following in his veto message: “Starting a charter school requires the strong commitment of dedicated individuals willing to serve on a governing board. While I support transparency, this bill goes further than simply addressing issues of potential conflicts of interest and goes too far in prescribing how these boards must operate.” ↑

SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: 806 Hearing Date: April 19, 2017

Subject:

NOTE: This bill has been referred to the Committees on Education and Judiciary. A "do pass" motion should include referral to the Committee on Judiciary.

SUMMARY

This bill prohibits the operation of for-profit charter schools, prohibits for-profit entities from engaging in certain activities related to charter school governance and instructional services, and subjects charter schools to a variety of the same open meeting, conflict-of-interest, and disclosure laws as traditional school districts. The bill also allows charter school authorizers to correct violations of current self-dealing laws through court, as prescribed by the corporations code. Lastly, the bill authorizes charter schools to seek reimbursement for state-mandated activities and waivers from the State Board of Education from various provisions of the Education Code.

BACKGROUND

Existing law, the Charter Schools Act of 1992, provides for the establishment of charter schools in California for the purpose, among other things, of improving student learning and expanding learning experiences for pupils who are identified as academically low achieving. Existing law declares that charter schools are part of the public school system as defined in Article IX of the California Constitution and are “under the exclusive control of the officers of the public schools.” A charter school is required to comply with statutes governing charter schools and all of the provisions set forth in its charter, but is otherwise exempt from most laws governing school districts except where specifically noted. (Education Code § 47601 et seq.)

Existing law:

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. 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.
3. 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, including, but not limited to, those required by Education Code Sections 47604.32 and 47605(m). (EC § 47604)

Existing law requires state and local agencies to conduct business in meetings that are open to the public:

1. The Brown Act requires meetings of a local agency’s board of directors to be open to the public. (Government Code § 54950 et seq.)
   
2. The Bagley-Keene Open Meeting Act requires meetings of state bodies to be open to the public. (GC § 11120)
   

The California Public Records Act declares that the public has a right to access information that concerns the people’s business and provides that public records shall be available for inspection, except as provided by an express provision of law.

(GC § 6250 and § 6253)

Existing law prohibits members of the Legislature, state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by anybody or board of which they are members.

(GC § 1090 et seq.)

The Political Reform Act of 1974, established by the voters through Proposition 9 in June 1974, requires public officials to carry out their duties in an unbiased manner, free from influence by outside interests, and to follow regulations during elections, as defined. The Political Reform Act also requires government agencies to adopt a conflict-of-interest code that requires designated employees of the agency to file an annual statement of economic interest disclosing any investments, business positions, interests in real property, or sources of income that may be affected materially by a decision made, or participated in, by the designated employee by virtue of his or her position. (GC § 81000 et seq.)

The codes governing state corporations (including charter schools operated by non-profit or for-profit corporations) require no more than 49 percent of persons serving on the board of any corporation to be "interested persons." "Interested persons" is defined as either of the following: (a) any person currently compensated by the corporation for services rendered to it within the previous 12 months (excluding any reasonable compensation paid to a director); or, (b) any relative, as specified, of any such person. (Corporations Code § 5110 et seq.)

Existing law provides no specific requirement for charter school governing board conflict of interest policies.

ANALYSIS

This bill:

1. Requires charter schools to operate as, or be operated by, a nonprofit public benefit corporation, a school district, or a county office of education, and prohibits a charter school from operating as a for-profit entity.
2. Prohibits a for-profit entity from: (1) participating in the appointment or selection of members of the board of directors of a nonprofit charter school; (2) supervising a nonprofit charter school’s employees; (3) servicing more than 50 percent of a nonprofit charter school’s pupil-serving employees with employees of the for-profit entity; and (4) approving, validating, denying, or vetoing the annual budget of a charter school.
3. Beginning July 1, 2018, and subject to limitation, subjects the governing body of a charter school to all of the following:
   1. The Ralph M. Brown Act, except that a charter school operated by

an entity governed by the Bagley-Keene Open Meeting Act is subject to the Bagley-Keene Open Meeting Act regardless of the authorizing entity.

• 1. The California Public Records Act.
  2. Provisions of Government Code 1090 prohibiting government officers or

employees from being financially interested in contracts or purchases made by them in their official capacity, unless the charter school is operated as, or is operated by, a nonprofit public benefit corporation.

• 1. The Political Reform Act of 1974. For purposes of Government Code § 81000, the bill provides that a charter school is considered an agency and is the most decentralized level for purposes of adopting a conflict of interest code.
  2. The Nonprofit Public Benefit Corporation Law, if the charter school is operated by or as a nonprofit public benefit corporation.
  3. Prohibits a member of the governing body of a charter school from providing a loan to the charter school or sign a guarantor agreement relative to a line of credit for the charter school unless all of the following are satisfied:
     1. The governing body of the charter school adopts a resolution at a public meeting declaring and describing the need for the loan or the line of credit.
     2. The governing body of the charter school discloses and approves the loan agreement or line of credit, including the terms of the loan or the line of credit, during a public meeting.
     3. The member of the governing body of the charter school abstains from voting on, or influencing or attempting to influence another member of the governing body regarding, all matters affecting the loan agreement or the line of credit.
  4. Prohibits a member of the governing body of a charter school from leasing real property or signing a guarantor agreement relative to a lease of real property to be occupied by a charter school unless:
     1. The governing body of the charter school discloses and approves the real property lease agreement, including the terms of the lease and the guaranty, if applicable, during a public meeting.
     2. The member of the governing body of the charter school who is a lessor or guarantor of the real property to be occupied by the charter school abstains from voting on, or influencing or attempting to influence another member of the governing body of the charter school regarding, all matters affecting the real property lease agreement.
  5. Requires a member of the governing body of a charter school to abstain from voting on, or influencing or attempting to influence another member of the governing body of the charter school regarding, personnel matters that uniquely affect a relative of the member but may vote on collective bargaining agreements and personnel matters that affect a class of employees to which the relative belongs, as specified.
  6. Specifies that the governing board of a charter school is not subject to open meeting laws or the Public Records Act when conducting activities unrelated to the school’s operation and prohibits the discussion of unrelated activities in meetings held to discuss the operation of the charter school.
  7. Authorizes the governing body of a charter school to meet within the physical boundaries of the state if all of the following are specified:
     1. Proper notices, as specified, are posted at all charter school facilities.
     2. A teleconference location is available in at least one charter school facility within the physical boundaries of each county in which any of the charter school’s facilities are located.
     3. The meeting location complies with the open, public, and accessibility requirements, as specified.
     4. For nonclassroom-based charter schools, the meeting occurs within the boundaries of the county in which the greatest number of pupils who are enrolled in the charter reside.
  8. Provides that the Ralph M. Brown Act and the Bagley-Keene Open Meeting Act shall not apply to committees of the charter school, unless a committee is comprised of a majority of the members of the governing body of the charter school.
  9. Authorizes the governing body of a charter school to hold closed sessions to consider matters regarding pupil discipline.
  10. Provides that a statement of economic interest that is filed by a designated person at a charter school after the required deadline pursuant to the Political Reform Act of 1974 shall not be the sole basis for revocation of a charter.
  11. Requires a charter school, within 20 days upon a request for a copy of records, as specified, to determine whether the request seeks copies of disclosable public records in possession of the charter school and promptly notify the person making the request of that determination.
  12. Provides that a charter school may require payment of actual costs from the person making the request before producing the records.
  13. Provides that the governing board of a school district, county board of education, or the State Board shall not impose any requirements that are inconsistent with, or in addition to, the bill’s provisions, as specified.
  14. Provides that, if a potential violation of the self-dealing provisions has occurred, the charter authorizer may initiate, with relator status, the court process established in the Corporations Code § 5233, as specified. If the court finds a violation has occurred: (1) the charter school shall implement the court’s ruling and remove any convicted board member or employee, and (2) the charter authorizer may prohibit any board memberships with a material financial interest in the school for up to five years.
  15. Specifies that policies adopted by a charter school or its authorizer in accordance with the bill shall not constitute a material revision to the charter and that any requirements between a charter and its authorizer that are beyond the scope of this bill are null and void.

1. Provides that a charter school is considered a local government and school district for purposes of state mandate reimbursement and the ability to seek a waiver of provisions of the Education Code from the State Board of Education.

STAFF COMMENTS

1. Need for the bill. According to the author’s office, “It is long overdue for the Legislature to pass a robust conflict of interest law for charter schools that effectively serves the best interests of the public, charter schools, and their students—and that can become law.

In addition, current law does not clearly state that charter school cannot be run by for-profit businesses and does not define those functions of a charter school that are off limits to a for-profit entity under contract to the charter school. Even though only 5 out of 1,253 charter schools in the state are for profit, it is critical to declare California off limits to for-profit operators.

While substantial portions of both of these policy objectives have been widely supported for years and a consensus has formed around a comprehensive array of governance and conflict of interest revisions, no legislation has yet become law.

This bill lays out in detail a package of revisions that (1) achieves the right balance between public transparency, conflict of interest controls, and sensitivity to the singular needs of a charter school, and (2) provides limitations on for-profit contractors.”

1. Public accountability laws. County boards of education and school district governing boards are required to conduct public meetings and make information available to the public, upon request. Members of these boards are also subject to conflict-of-interest statutes contained in Government Code § 1090 and the Political Reform Act of 1974.
   
   1. Open meeting laws – entitles the public to have access to meetings of multi-member public bodies. The Brown Act and the Bagley-Keene Act recognize the need to balance the public’s right to open government with the need for boards, on occasion, to have closed session discussions in certain matters such as personnel or litigation. By making charter schools subject to open meeting laws, charter school boards would need to provide advance notice of meetings and conduct their meetings in public.
   2. Public records – the purpose of the California Public Records Act (CPRA) is to give the public an opportunity to monitor the functioning of their local and state government. The fundamental precept of CPRA is that governmental records are to be disclosed to the public when requested, unless there is a specific reason not to do so. The CPRA allows for certain exemptions, such as matters relating to individual privacy. Under CPRA, agencies must segregate or redact exempt information and disclose the remainder of the record. Under the provisions of this bill, charter schools would need to respond to requests for information that is not private in nature.
   3. The Political Reform Act – The Political Reform Act of 1974 established the Fair Political Practices Commission (FPPC) to administer its requirements and receive annual conflict-of-interest statements. According to the FPPC, the CPRA is designed to assure that public officials perform their duties impartially without bias because of personal financial interests or the interests of financial supporters; and that public officials disclose income and assets that could be affected by official actions and to assure that public officials disqualify themselves from participating in decisions when they have conflicts-of-interest. This bill would result in charter school board members and designated employees having to disclose their financial interests in annual statements filed with the Fair Political Practices Commission.
2. Government Code § 1090. This is the state’s central conflict-of-interest act. It applies to public officials from members of the Legislature to local officials and employees, including those of school districts. In a 1983 opinion, the Attorney General stated, “Section 1090 of the Government Code codifies the common law prohibition and the general policy of this state against public officials having a personal interest in contracts they make in their official capacity.” This bill specifies that charter schools operated by nonprofit corporations are not subject to Government Code § 1090. Supporters of the bill have expressed concern with subjecting charter schools to the provisions of Government Code § 1090 because it could make it more difficult for philanthropic board members to provide financial assistance or low-interest loans or make facilities available to charter schools, which may happen during the start-up phase of a charter school. However, opponents of the bill argue that since charter schools are public schools and receive public funds, they have a fiduciary duty to taxpayers with regards to the use of those funds and should be subject to the same conflict-of-interest and disclosure requirements as traditional school districts.
3. Corporations Code. Statute governing corporations requires not more than 49 percent of persons serving on the board of any corporation to be interested persons. "Interested persons" is defined as either of the following: (1) any person currently compensated by the corporation for services rendered to it within the previous 12 months (excluding any reasonable compensation paid to a director); or, (2) any relative, as specified, of any such person. Advocates of charter schools contend they should abide by conflict of interest provisions related to corporations, not local educational agencies, due to the fact that some charter schools are operated by nonprofit corporations. Notwithstanding the corporations code, this bill allows members of the governing body of a charter school to provide loans or lease real property to a charter school if the terms of the loan or lease are disclosed at a public meeting and the offering board member abstains from voting and does not influence other board members. Even with these additions to the requirements of the corporations code, the committee may wish to consider whether it is appropriate to have public funded charter schools abide by these codes, rather than the government code with regard to conflict of interest policies.
4. Court process for self-dealing transactions. According to the author’s office, these provisions are intended to provide an alternative to charter revocation for charter authorizers seeking remedies for suspected self-dealing transaction violations. The bill gives charter authorizers relator status under corporations code, meaning they can bring an action in the superior court of their county for remedy. If the court finds that a violation has occurred, the charter school must implement the ruling and remove any board member or employee found in violation. Further, the authorizer may prohibit any board memberships with a material financial interest in the school for up to five years. Charter authorizers that utilize this process are prohibited from taking further action against the charter school in response to a violation. Would this mean that charter authorizers that begin this court process, and find pervasive and systemic problems suggesting a high probability of repeated offenses by the charter school or governing board, would be prohibited from revoking the charter as authorized under Education Code § 47607? The author may wish to consider clarifying whether the court process included in this bill, if pursued by an authorizer, is intended to supersede all other existing charter revocation provisions.
5. 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. According to the author’s office, “Only a handful of California charter schools are now run for profit and this bill bans those operations”. The author continues, “But just like traditional school districts, charter schools sometimes turn to private vendors for the provision of some services when it is not cost-effective to provide those services directly.” This bill authorizes nonprofit charter schools to fill up to 50 percent of their positions that serve pupils with employees of for-profit entities. Along with considering whether it is an appropriate use of state taxpayer dollars to allow for-profit corporations to operate public schools, the Committee should consider whether public schools should be staffed (up to 50 percent) with employees of for-profit entities.
6. Impact on students? Notwithstanding the issues regarding the appropriateness of using taxpayer dollars for charter schools operating as a for-profit corporation, it does not appear that 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. To the extent that these entities are unable to do so, would the charter schools be required to immediately shut down? Would there be a transition period for students to find placement in a new school? Some students may have unique learning needs which could present logistical challenges in finding the appropriate placement in a new school. To prevent the potential disruption of educational services provided to students, the Committee may wish to consider whether the bill should become operative no earlier than January 1, 2019.
7. Additional clarification may be needed. It is unclear if the bill’s prohibition would extend to contracts that charter schools have in place with for-profit corporations for various operations such as testing companies, test publishers, and providers of instructional materials. Or is the bill limited only to the for-profit entity that owns or manages the day-to-day operations of the charter school? To prevent differing practical interpretations, the author may wish to consider clarifying which entities would be subject to the bill’s prohibition.
8. Mandates Block Grant. According to the Legislative Analyst Office, as another way to address some of the problems with the traditional mandate reimbursement system, the state created two block grants for education mandates. One block grant is for school districts, county offices of education, and charter schools. The other block grant is for community colleges. Instead of submitting detailed claims on an ongoing basis listing how much time and money was spent on each mandated activity, local educational agencies (LEAs) can choose to receive funding for all mandated activities included in the block grants. Except for new mandates not yet included in the state budget, all active education mandates currently are included in the block grants. Due to concerns regarding the state’s constitutional obligation to reimburse LEAs for mandated costs, the state retained the existing mandates claiming process for LEAs not opting into the block grants.

The 2016 Budget Act includes block grant funding of $219 million for schools and $32 million for community colleges. Block grant funding is allocated to participating LEAs on a per-student basis, as measured by average daily attendance for schools and full-time equivalent students (FTES) for community colleges. The rate varies by type of LEA and, for schools, by grade span. The difference in rates is because different mandates apply to different LEAs and because one mandate for schools (Graduation Requirements) is exceptionally costly and only applies to high schools. School districts receive $28 per student in grades K-8 and $56 per student in grades 9-12 while charter schools receive $14 per student in grades K-8 and $42 per student in grades 9-12. Even though charter schools are not eligible to submit mandate claims, the state included them in the block grant given some mandates apply to them. County offices of education (COE) receive $28 per student in grades K-8 and $56 per student in grades 9-12 and an extra $1 per student for all students located within the county, in recognition of the fact that some mandates entail broader oversight responsibilities performed by the COE.

This bill provides that charter schools are considered local governments and school districts for purposes of state mandate reimbursement. As this bill deals with open meetings, conflict of interest, and disclosure policies, the Committee may wish to consider whether it would be more appropriate to have a separate budgetary discussion on this proposal.

1. State Board of Education Waivers. Under current law, school districts, on behalf of one or more of its schools or programs after a public hearing on the matter, may request the State Board of Education (SBE) to waive all or part of any section of the Education code or any regulation adopted by the SBE that implements a provision of law, with certain exceptions. Charter schools previously had similar waiver authority where they submitted waivers to their charter authorizer, who were then required to hold a public hearing prior to submitting the waivers to the SBE. That waiver authority became inoperative on January 1, 2007. This bill provides charter schools the same ability as school districts to seek waivers before the SBE. Again, as this bill deals with open meetings, conflict of interest, and disclosure policies, the Committee may wish to consider whether this bill should provide this authority to charter schools.
2. Arguments in support. Supporters of the bill indicate that prohibiting charter schools from being run by for-profit corporations would protect California taxpayers by ensuring their money is not being taken out of the state and away from classrooms. The bill would help charter schools focus on students and not profits or pleasing investors. Further, excluding nonprofit charter schools from Government Code § 1090 ensures that these schools can turn to board members for loans and leases that the charter school cannot access on its own. Lastly, affirming that charter schools are subject to the Corporations Code prevents board members from engaging in any financial interest that does not benefit the charter school.
3. Arguments in opposition. Opponents of the bill argue that whether or not the school is “for-profit” should not be the driver, and rather, we should be looking at what the program has done to help students attain academic proficiency in an alternative setting. They indicate the bill would prohibit successful arrangements with online programs that have provided students with successful options. Further, the bill would go too far in limiting the scope of what work for-profit corporations assisting charter schools can do. Other opponents argue that, according to a 2015 Legislative Counsel opinion, charter schools are already required to comply with the Brown Act, the Public Records Act, the Political Reform Act, and Government Code 1090. By removing charters from their current Government Code 1090 requirements, this bill would allow nonprofit charter school board members to serve only the interests of the corporation, when in fact charters schools serve an important public service.
4. Related Legislation.

AB 406 (McCarty) prohibits charter schools from operating as or being operated by a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization, beginning January 1, 2019. This measure is currently pending before the Assembly Education Committee.

AB 1478 (Jones-Sawyer) requires charter schools and an entity managing a charter school to comply with the same conflict of interest requirements as school districts, including Government Code 1090. This measure is currently pending before the Assembly Judiciary Committee.

SUPPORT

Association of Personalized Learning Schools and Services

California Charter Schools Association (sponsor)

OPPOSITION

California Parents for Public Virtual Education

California Teachers Association

California Virtual Academies

Charter Schools Development Center

K-12, Inc.

Opportunities for Learning Public Charter Schools

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 806 (Author:Glazer)

Version: April 17, 2017

Hearing Date: April 25, 2017

Fiscal: Yes

Urgency: No

Consultant: MEC

SUBJECT

Charter schools: operation: for-profit entities

DESCRIPTION

It is the opinion of Legislative Counsel that under current law, a charter school is subject to the Ralph M. Brown Act (Brown Act), the California Public Records Act (CPRA), the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code Section 1090. It is also Legislative Counsel’s opinion that the conflict-of-interest provisions of the Political Reform Act of 1974 and Government Code section 1090 apply concurrently with the conflict-of-interest provisions of Corporations Code section 5233 to a member of the governing body of a charter school, operated by a nonprofit public benefit corporation, who is also a director of that corporation. (Legislative Counsel Opinion #152326, p. 17, Aug. 14, 2015)

This bill, as currently in print, and as agreed to be amended in the Senate Education Committee, would limit the public’s access to the records of charter schools, weaken the public’s right to open meetings of charter schools, weaken the application of the Political Reform Act of 1974 and the conflict-of-interest Government Code Section 1090 as applied to charter schools. This bill would exempt charter schools that are run by nonprofit public benefit corporations from the conflict of interest provisions of Government Code Section 1090 and instead only apply the conflict of interest provisions that are applicable to non-profit corporations.

BACKGROUND

In 1992, the Legislature enacted the California Charter Schools Act in order to provide communities with the opportunity to establish schools that could operate freely from the structural programs of public school districts. (SB 1448 (Hart, Ch. 781, Stats. 1992).) Charter schools are intended to provide a unique learning environment, giving students a different approach to scholastic achievement. In the 2007-2008 State of California Education report, 675 charter schools were in operation, serving almost 250,000 students. (Education Data Partnership, May 22, 2009.) In the 25 years of charter school existence in California, many reports of widespread financial mismanagement of charter schools’ public funds have surfaced as well as violations of self-dealing.^[1]

In 2007, the Los Angeles Times reported that the Los Angeles County Office of Education hired an outside auditor to examine the Gorman Learning Center Charter School. The audit showed that for the three years audited, the Gorman Learning Center Charter School provided false information on State School Fund applications and received $7.7 million more than the school should have received. The audit further revealed that the school spent thousands of dollars on questionable items, such as a $14,000 board retreat that included helicopter and yacht rentals, and horseback riding and diving lessons for board members and their families. As reported, the school’s chief executive officer inappropriately hired family members and the director of human resources received $18,000 in school funds to pay for her rent. (Rubin, School misused funds, audit finds (Mar. 17, 2007) Los Angeles Times <http://articles.latimes.com/2007/ mar/17/local/me-school17> [as of April 22, 2017].)

Another Los Angeles Times article reported that Charles Cox, head and founder of California Charter Academy, was indicted and charged with the misuse of over $5 million in school funds, using the money as compensation in the form of wages to himself, friends, and family members, and to make extravagant purchases unrelated to the charter school. Cox was also charged with inappropriately entering into school service contracts with a company he owned. (Reston and Landsberg, Charter schools’ founder indicted (Sept. 5, 2007) Los Angeles Times <http://articles.latimes.com/2007/sep/05/local/me-charter5> [as of April 22, 2017].)

Over the years, the Legislature has made clear that public agency actions should be open to the scrutiny of the public. In 1961, the Legislature enacted the Ralph M. Brown Act, which provided public access to local public agency information. In 1967, the Legislature enacted the Bagley-Keene Act, which provided public access to state public agency information. In 1975, the Brown Act was amended to provide for disclosure of public agency acts taken during closed meetings. In 1986, the Brown Act, among other things, was amended to provide for the posting of public agency agendas. In 2004, Proposition 59 added to the California Constitution the people’s right of access to public body information. (Cal. Const., art. I, Sec. 3(b)(1).)

The California Legislative Counsel, this Legislature’s legal counsel, was asked to render an opinion with regard to the following question: whether charter schools are subject to the Brown Act, the CPRA, the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code Section 1090. The following is the opinion of the California Legislative Counsel:

In summary, it is our opinion that a charter school is subject to the Ralph M. Brown Act, the California Public Records Act, the conflict-of-interest provisions of the Political Reform Act of 1974, and Government Code section 1090. It is also our opinion that the conflict-of-interest provisions of the Political Reform Act of 1974 and Government Code section 1090 apply concurrently with the conflict-of-interest provisions of Corporations Code section 5233 to a member of the governing body of a charter school, operated by a nonprofit public benefit corporation, who is also a director of that corporation. (Legislative Counsel Opinion #152326, p. 17, Aug. 14, 2015.)

This bill, as currently in print, and as agreed to be amended in the Senate Education Committee, would limit the public’s access to the records of charter schools, weaken the public’s right to open meetings of charter schools, and weaken the application of conflict-of-interest laws to charter schools.

In line with the Legislative Council opinion which had not yet been released, this Committee, on July 1, 2015, passed AB 709 (Gipson, 2016)^[2], which was opposed by the California Charter Schools Association, and would have codified that a charter school is subject to all of the following:

• the California Public Records Act;
• the Ralph M. Brown Act, except that a charter school operated by an entity governed by the Bagley-Keene Open Meeting Act is subject to the Bagley-Keene Open Meeting Act regardless of the authorizing entity;
• the Political Reform Act of 1974 (Title 9 (commencing with Section 81000) of the Government Code). For purposes of Section 87300 of the Government Code, a charter school shall be considered an agency; and
• Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of the Government Code.

The bill currently before this committee was heard by the Senate Education Committee on April 19, 2017, and approved by a vote of 4-1 with amendments to be taken in the Senate Committee on Judiciary.

CHANGES TO EXISTING LAW

Existing law provides that the people have the right of access to information concerning the people’s business and requires meetings of public bodies and the writings of public officials and agencies to be open to public scrutiny. (Cal. Const., art. I, Sec. 3(b)(1).)

Existing law, the Brown Act, provides statutory requirements of local school districts to keep the public informed. (Gov. Code Sec. 54950 et seq.) Existing law requires a school district board to post notices and agendas of school district board meetings. (Gov. Code Secs. 54953, 54954.2, 54954.6, and 54956.) Existing law requires a school district board to publicly report any action taken in closed sessions. (Gov. Code Secs. 54957.1 and 54957.7.) Existing law requires a school district board to disclose in an open meeting the items to be discussed in closed sessions. (Gov. Code Sec. 54957.7.)

Existing law, the Bagley-Keene Act, provides statutory requirements of state school districts to keep the public informed. (Gov. Code Sec. 11120 et seq.) Existing law requires state school district boards to post notices and agendas of state public body meetings. (Gov. Code Secs. 11123, 11125, 11125.4, 11125.5, 11125.9, and 11126.) Existing law requires state school district boards to publicly report any action taken in closed sessions. (Gov. Code Secs. 11125.2, 11126, and 11126.3.)

Existing law provides that all meetings of the governing board of the school district and the county board of education at which the granting, revocation, appeal, or renewal of a charter petition is discussed shall comply with the Brown Act. (Gov. Code Sec. 47608.)

Existing law provides that a charter school is deemed to be a “school district” for purposes of appropriations, disbursements, and apportionment from state school and lottery funding. (Ed. Code Secs. 47612, 47638, and 47650.)

Existing law provides that a charter school is provided with local operational funding that is equal to the total funding that would be available to a similar school district serving a similar pupil population. (Ed. Code Sec. 47630.)

Existing law requires a local school district board to hold open meetings, unless otherwise exempt, as specified. (Ed. Code Sec. 35147.)

Existing law, the California Public Records Act (CPRA), governs the disclosure of information collected and maintained by public agencies, including school districts. (Gov. Code Sec. 6250 et seq.) Generally, all public records are accessible to the public upon request, unless the record requested is exempt from public disclosure. (Gov. Code Sec. 6254.) There are 30 general categories of documents or information that are exempt from disclosure, essentially due to the character of the information, and unless it is shown that the public’s interest in disclosure outweighs the public’s interest in non-disclosure of the information, the exempt information may be withheld by the public agency with custody of the information. (Id.)

Existing law authorizes the person whose request for a public record under the CPRA is denied to file an action in superior court for an order requiring disclosure. (Gov. Code Sec. 6258.) The test for a determination of whether a record may be withheld from public access is whether the public’s interest in disclosure is outweighed by the public’s interest in withholding disclosure of the record. (Gov. Code Sec. 6255.)

Existing law provides that a private person or organization can provide funding to assist in the establishment or operation of a charter school. (Ed. Code Sec. 47603.)

Existing law provides that a charter school may elect to operate as, or be operated by, a nonprofit public benefit corporation, formed and organized pursuant to the Nonprofit Public Benefit Corporation Law. (Ed. Code Sec. 47604.)

Existing law provides that an authority that grants a charter to a charter school to be operated as, or operated by, a nonprofit public benefit corporation is not liable for the debts or obligations of the school, or for claims arising from the performance of acts, errors, or omissions by the school, if the authority has complied with all oversight responsibilities required by law. (Ed. Code Sec. 47604.)

Existing law provides that a state community college district or state university can establish an auxiliary organization to solicit funds for the benefit of the community college district, and the board members of such auxiliary organizations are subject to conflict of interest disclosure requirements. (Ed. Code Secs. 72670 et seq. and 89907 et seq.)

Existing law prohibits officers, board members, and employees of a school district from having a financial interest in any contract made by the officer, board member, or employee, in an official capacity on behalf of the school district. (Gov. Code Sec. 1091.)

Existing law provides that an officer will not be deemed to be interested in a contract entered into by a board or school district in which the officer, board member, or employee is a member if that individual has only a remote interest in the contract and that interest is disclosed to the board or district of which the individual is a member, as specified. Existing law provides numerous financial transactions that qualify as a “remote interest.” (Gov. Code Sec. 1091.)

Existing law, the Political Reform Act of 1974 (PRA), requires public officials to file annual statements of financial interest. (Gov. Code Sec. 81000.)

Existing law prohibits an employee of a school district from serving as a board member of the school district. (Ed. Code Sec. 35107(b).)

This bill would require a charter school and its board to comply with the open meeting requirements of the Brown Act or Bagley-Keene Act, with limitations, as specified.

This bill would require a charter school to comply with the public disclosure requirements under the California Public Records Act, with limitations, as specified.

This bill would require a charter school to comply with the restrictions on financial interests, and the financial interest disclosure requirements under the Political Reform Act, with limitations, as specified.

This bill would remove from charter schools the application of the conflict of interest code that applies to public schools (Government Code Sec. 1090) and instead only subject the charter school to the conflict of interest codes that apply to nonprofit corporations (Corporations Code Sec. 5233) when an officer of the nonprofit entity is also a board member of the charter school.

This bill would create “the Charter Schools Transparency and Standards of Governance Act of 2017.”

This bill would make legislative findings and declarations, as specified.

This bill would provide that a charter school shall operate as, or be operated by, a nonprofit public benefit corporation, or shall be operated by a school district or county office of education.

This bill would clarify that a charter school shall not operate as, or be operated by, a for-profit entity.

This bill would provide that a for-profit entity: shall not participate in the candidate review or be involved in any way or influence the appointment or selection of members of the board of directors of the nonprofit public benefit corporation operating a charter school; and shall not approve, validate, deny, or veto the annual budget or individual expenditures of a charter school.

This bill would provide that a for-profit entity providing direct instructional services to charter school pupils shall not supervise or direct any certificated employees of the charter school, and no more than 50 percent of the full-time equivalent certificated employees serving pupils of the charter schools may be employees of a for-profit entity.

This bill would provide that a contract between a charter school and a for-profit entity to provide instructional services shall be provided to any member of the public upon request and approval at a publicly noticed meeting of the governing body of the charter school.

This bill would prohibit a school district, county board of education, or the state board from imposing on a charter school any open meeting, public records, or public official conflict-of-interest requirements other than those specified in this section. Because the open meeting, public records, and public official conflict-of-interest requirements specified in this section only apply to the governing body of a charter school, this provision would have the practical effect of exempting all charter schools, except for their governing body, from the California Public Records Act, any and all open meeting

acts and requirements, and any and all public official conflict of interest acts or requirements.

This bill would provide limitations on the application of the Ralph M. Brown Act and the Bagley-Keene Act to charter schools and would only apply the Brown Act or Bagley-Keene Act to the governing body of a charter school. This bill would also provide that the Bagley-Keene Act would be the open meeting act the governing body of a charter school is subject to if the charter school is operated by an entity governed by the Bagley-Keene Act regardless of the authorizing entity.

This bill would provide limitations on the application of the California Public Records Act to charter schools and would only apply the CPRA to the governing body of a charter school.

This bill would provide limitations on the application of the Political Reform Act of 1974 to charter schools and only apply the Political Reform Act to the governing body of a charter school. For purposes of the Political Reform Act, this bill would provide that a charter school shall be considered an agency and is the most decentralized level for purposes of adopting a conflict of interest code. This bill would provide that a statement of economic interest that is filed by a designated person at a charter school after the required deadline pursuant to the Political Reform Act shall not be the sole basis for revocation of a charter pursuant to Section 47607.

This bill would provide limitations on the application of the conflict of interest code Government Code Section 1090 to charter schools by only applying Government Code Section 1090 to the governing body of a charter school, only if the charter school is not operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation.

This bill would provide that for a charter school that is operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation, the governing body of the charter school, as to conflict-of-interest, only would have the corporation code conflict-of-interest provisions apply to it and not the Government Code Section 1090 conflict-of-interest provisions that apply to public schools.

This bill would provide that for all charter school governing bodies, a member of the governing body shall not provide a loan to the charter school or sign a guarantor agreement relative to a line of credit for the charter school unless all of the following are satisfied:

• the governing body of the charter school adopts a resolution at a public meeting declaring and describing the need for the loan or the line of credit. In the case of a line of credit, the funds from the line of credit shall not be accessed until the governing body of the charter school compiles with this criteria;
• the governing body of a charter school discloses and approves the loan agreement or line of credit, including the terms of the loan or the line of credit, during a public meeting; and
• the member of the governing body of the charter school who offers the loan or the guarantor agreement relative to a line of credit abstains from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding all matters affecting the loan agreement or the line of credit.

This bill would provide that for all charter school governing bodies, a member of the governing body of a charter school shall not lease real property or sign a guarantor agreement relative to a lease of real property to be occupied by a charter school unless both of the following are satisfied:

• the governing body of the charter school discloses and approves the real property lease agreement, including the terms of the lease and the guaranty, if applicable, during a public meeting; and
• the member of the governing body of the charter school who is a lessor or guarantor of the real property to be occupied by the charter school abstains from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding all matters affecting the real property lease agreement.

This bill would provide that a member of the governing body of a charter school shall abstain from voting on, influencing, or attempting to influence another member of the governing body of the charter school regarding personnel matters that uniquely affect a relative of the member, as defined, but may vote on collective bargaining agreements and personnel matters that affect a class of employees to which the relative belongs.

This bill would provide that activities that are unrelated to the operation of the charter school that the governing body engage in are not subject to Section 1090 of the Government Code, the Ralph M. Brown Act, the Bagley-Keene Open Meeting Act, or the California Public Records Act.

This bill would further allow charter school’s governing boards to use procedures that are not in line with the Brown Act or Bagley-Keene Open Meeting Act that restrict public access to meetings by governing body members, as specified, including not applying the Brown Act or Bagley-Keene to committees of the charter school, unless the committee is comprised of a majority of the members of the governing body of the charter school.

This bill would clarify that the governing body of a charter school may hold closed sessions to consider a matter regarding pupil discipline as specified.

This bill would create a different time frame and procedure for public records requests for charter schools than provided under the California Public Records Act and allow the charter school to charge and obtain actual costs from the person making the request before producing the records.

This bill would set forth a different statutory scheme regarding how to deal with suspected violations by the charter school of Section 5233 of the Corporations Code, the conflict-of-interest provision that applies to non-profits.

This bill would provide that notwithstanding any other law, the key provisions of this Act shall not apply to actions taken before July 1, 2018, the operative date of this section.

This bill would provide that any policies adopted by a charter school or its authorizer in accordance with the key provisions of this Act shall not constitute a material revision to the charter in operation on January 1, 2018.

This bill would nullify and void, on July 1, 2018, any requirements imposed by any memorandum of understanding between a charter school and its authorizers that is not described in this section or in conflict with this section.

This bill would make conforming changes.

COMMENT

1. Stated need for the bill

According to the author:

It is long overdue for the Legislature to pass a robust conflict of interest law for charter schools that effectively serves the best interests of the public, charter schools, and their students—and that can become law.

In addition, current law does not clearly state that charter schools cannot be run by for-profit businesses and does not define those functions of a charter school that are off limits to a for-profit entity under contract to the charter school. Even though only 5 out of 1,253 charter schools in the state are for profit, it is critical to declare California off limits to for-profit operators.

While substantial portions of both of these policy objectives have been widely supported for years and a consensus has formed around a comprehensive array of governance and conflict of interest revisions, no legislation has yet become law.

This bill lays out in detail a package of revisions that (1) achieves the right balance between public transparency, conflict of interest controls, and sensitivity to the singular needs of a charter school, and (2) provides limitations on for-profit contractors.

1. Subjecting charter school’s use of public funds to public disclosure

Existing law provides that the people have the right of access to information concerning the people’s business and requires meetings of public bodies and the writings of public officials and agencies to be open to public scrutiny. (Cal. Const., art. I, Sec. 3(b)(1).) The Legislature has declared a charter school to be a school district, and thus a public agency, for purposes of state and local funding. (Ed. Code Secs. 47612, 47630, 47638, 47650.) When public agencies receive state and local funds, it becomes necessary to provide public access and scrutiny over the use of these funds to ensure that the public’s business is being properly conducted.

1. Open Meetings Requirement

Existing law, the Brown Act, provides statutory requirements for local school districts to keep the public informed by holding properly noticed public meetings and requiring disclosure of certain information before and after closed meetings. (Gov. Code Sec. 54950 et seq.) The Brown Act generally requires that the meetings of a legislative body of a local agency be open and public and that all persons be permitted to attend. (Gov. Code Sec. 54953.) Existing law, the Bagley-Keene Act, provides similar statutory requirements for a state agency. (Gov. Code Sec. 11120 et seq.)

Charter schools, like public schools, receive public funds. Students of the charter schools, as well as the parents of those students, have a stake in all discussions and decisions of the charter school governing boards. Since the charter schools are also publicly funded, the taxpayers also have a strong interest in all discussions and decisions of the charter school governing boards. Students, parents, communities, and taxpayers have a strong interest in attending to observe and participate in the meetings of the charter school governing boards.

Legislative Counsel’s opinion is that a charter school is a local agency for purposes of the Brown Act, thus the governing body of a charter school is the legislative body of a local agency, and is, therefore, subject to the Brown Act. (Legislative Counsel Opinion #152326, p. 5, Aug. 14, 2015)

This bill contains deviations from the requirements of the Brown Act, all of which would result in less transparency and meaningful public participation. As an example, the bill would exempt committees of the charter school from the requirements of the Brown Act unless the committee is comprised of a majority of the members of the governing body of the charter school. This provision would allow the charter school to conduct their business in the dark. Under the Brown Act, a commission, committee, board, or other body of a local agency is subject to the requirements of the act. As pointed out by the California Newspaper Publishers Association in opposition to this bill, the “provision exempting committees from the Brown Act would allow a charter school governing body to delegate much of or all of its work to committees” that will be operating in the dark.

According to the California Charter Schools Association, the sponsor:

Because many charter schools operate in multiple counties, SB 806 allows a charter school board to meet anywhere in the state provided that teleconference capacity is made available in every county in which the charter operates a school. Teleconferencing allows parents in every county served to fully participate in real time with the charter school’s governing board.

According to the California Teachers Association, an opponent of the bill:

The bill carves out areas of the Brown Act with which charter schools will not have to comply, permitting a governing board meeting to occur anywhere in California provided there is a teleconference location within the authorizing county. Charter schools are defined in California law as public schools; the business they conduct is the business of the public. Having private and secret meetings to discuss how tax dollars will be spent is not acceptable. [. . . ] There is no substitute for a meeting that the public can sit in and engage, and a teleconference diminishes participation.

Consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying the Brown Act and Bagley-Keene Act, without exception, to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the Brown Act and Bagley-Keene Act apply to charter schools.

Suggested Amendment:

Strike out the provisions that are inconsistent with the Brown Act and Bagley-Keene Act, including the provisions: allowing the charter school governing body to meet at a teleconference location; allowing a charter school to meet in a county contiguous to the county where one or more of the charter school’s facilities are located if at least 10 percent of the pupils who are enrolled in the charter school reside in that contiguous county^[3]; and exempting committees of the charter school from the requirements of the Brown Act unless the committee is comprised of a majority of the members of the governing body of the charter school.

Insert the following instead: “A charter school is subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5 of the Government Code), except that a charter school operated by an entity governed by the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) is subject to the Bagley-Keene Open Meeting Act regardless of the authorizing entity.”

1. Public disclosure of information pursuant to the California Public Records Act (CPRA)

Existing law, the CPRA, governs the disclosure of information collected and maintained by public agencies, including school districts. (Gov. Code Sec. 6250 et seq.) Generally, all public records are accessible to the public upon request, unless the record requested is exempt from public disclosure. (Gov. Code Sec. 6254.)

Charter schools, financed by the State School Fund, are deemed school districts for purposes of funding, but are free from many of the constrictions placed on school districts in order to increase the learning opportunities for all students, according to the Legislative intent language contained in the Charter Schools Act of 1992. (Ed. Code Secs. 47601, 47650.) Although charter schools are able to operate independently from school district construction, charter schools are still considered to be members of the public school system and under the control of the officers of the public school system. (Ed. Code Sec. 47615.)

Because charter schools are funded by taxpayer money, the public should have access to information that would allow them to evaluate charter schools. The bill in print, and as agreed to be amended in Senate Education Committee, contains provisions that undermine the CPRA. For example, section 47604.1(j) of the bill would provide that a charter school may require payment of actual costs from the person making the request before producing the records. Under the CPRA, an agency many only charge the direct cost of duplication or a statutory fee, if any, for copies of records. Subjecting charter schools to the CPRA would increase accountability and public scrutiny required to prevent misconduct and misappropriation of public funds. According to the Los Angeles Times, a recent report concluded that “at least 253 California charter schools, more than 20% of the state total, had enrollment policies that illegally excluded some students or discouraged them from applying, such as those with poor academic scores, limited English-speaking skills or disabilities.” (“Charter schools are growing in number where they are not needed, new report says,” Los Angeles Times, April 10, 2017, Howard Blume) <http://www.latimes.com/local/lanow/la-me-edu-california-charter-laws-criticized-20170409-story.html> (as of April 22, 2017).

Sponsors of the bill justify the actual cost provision because “many charter schools are small with limited administrative staff[.]” Legislative Counsel’s opinion is that charter schools are subject to the California Public Records Act. (Legislative Counsel Opinion #152326, p. 6, Aug. 14, 2015.) As currently drafted, this bill would make it more difficult and more expensive for the public to inspect charter school records than required by the CPRA.

Consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying the CPRA without exception to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the CPRA applies to charter schools.

Suggested amendment:

Strike out the provisions that are inconsistent with the California Public Records Act, including the provisions: allowing charter schools to require payment of actual costs from the public before producing records; and allowing charter schools to take up to 20 days to make their determination.^[4]

Insert the following instead: “A charter school is subject to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).”

1. Disclosure of conflicts of interest pursuant to the Political Reform Act of 1974 (PRA)

Existing law, the PRA, requires public officials to file annual statements of financial interest. (Gov. Code Sec. 81000.) The Legislature declared this necessary because “[p]ublic officials, whether elected or appointed, should perform their duties in an impartial manner, free from bias caused by their own financial interests or the financial interests of persons who have supported them.” (Gov. Code Sec. 81001.)

Having charter school boards subject to the PRA protects funding for public education by applying requirements that have proven to be effective in minimizing conflicts of interest in traditional public schools. Charter school boards have the responsibility to ensure that the public’s money is used appropriately. In order to ensure that charter school board members are not receiving inappropriate gifts for the purpose of compromising the board member’s decisions relating to the charter school, a charter school and its board members should be required to comply with financial interest disclosure requirements under the PRA.

There is no justification to exempt charter schools and their board members, in any way, from the conflict-of-interest provisions of the PRA. Legislative Counsel’s opinion is that charter schools are subject to the California Political Reform Act and that the PRA conflict-of-interest provisions apply to members of the governing body of a charter school. (Legislative Counsel Opinion #152326, p. 7, Aug. 14, 2015.) As currently drafted, this bill is inconsistent with the objective of the Political Reform Act, which is the promotion of impartial and ethical conduct of public affairs by state and local government officials.

The California Teachers Association, writing in opposition to the measure, explains:

The bill carves out areas of the Political Reform Act with which charter schools will not have to comply, suggesting that if a board member has an economic interest in a decision being made by the governing board that they do not disclose, the school board cannot make a decision to revoke the charter school. Charter school board members and their immediate families must not benefit financially from their schools. Public schools’ conflict of interest laws and disclosure regulations should apply to charter schools that receive public funds, in the same way that they apply to other public schools.

Consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying the Political Reform Act without exception to charter schools, the following amendment is suggested to make it clear that there will be no exceptions to how the Political Reform Act applies to charter schools.

Suggested amendment:

Strike out the provisions that are inconsistent with the California Political Reform Act completely applying to charter schools and their board members, and insert the following instead: “A charter school is subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000) of the Government Code). For purposes of Section 87300 of the Government Code, a charter school shall be considered an agency.”

1. Conflict-of-interest provisions: Government Code Section 1090 and Corporation Code 5233

Existing law prohibits officers, board members, and employees of a school district from having a financial interest in any contract made by the officer, board member, or employee, in an official capacity on behalf of the school district. (Gov. Code Sec. 1091.)

Government Code Section 1090 prohibits an officer or employee of the enumerated entities from being financially interested in a contract made by the officer or employee in his or her official capacity or by a body or board of which the officer or employee is a member. Section 1090 also prohibits an officer or employee of the enumerated entities from making, in their official capacity, either a purchase from the entity or a sale to the entity. As used here, the term “financially interested” refers to any financial interest that might interfere with the officer or employee’s unqualified devotion to their public duty. However, an officer is not deemed to be interested in a contract entered into by a board or school district in which the officer, board member, or employee is a member if that individual has only a remote interest in the contract and that interest is disclosed to the board or district of which the individual is a member, as specified. (Id.) Under existing law, a contract in which a public officer is interested is void, not merely voidable. (Thomson v. Call (1985) 38 Cal.3d 633, 646, fn. 15; Gov. Code Sec. 1092.)

In 2011, the Los Angeles Unified School District reported that its Inspector General identified a number of conflict of interest situations in Los Angeles charter schools:

• a charter school director transferred public funds in excess of $230,000 to a private corporation in which the director had a financial interest;
• a husband and wife team served together as board members for a charter and then conducted a lease transaction for the charter with another organization of which they were officers; and
• charter board directors wearing additional hats as officers and employees of the same charter school.

Under conflict-of-interest laws in the Corporations Code, the board of directors of a nonprofit organization may have up to 49 percent interested directors. (Corp. Code Sec. 5227.) The board may enter into transactions where its members are financially interested, as long as each member’s financial interest is disclosed to the board and the member does not participate in the decision making. (Corp. Code Sec. 5233.) In comparison, under Government Code Section 1091, which governs public school districts, no director may have a material financial interest in a decision made by the Board.

This bill would provide limitations on the application of the conflict-of-interest code Government Code Section 1090 to charter schools by only applying Government Code Section 1090 to the governing body of a charter school only if the charter school is not operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation. If the charter school is operated by a nonprofit public benefit corporation or as a nonprofit public benefit corporation, this bill would provide that the governing body of the charter school, as to conflict-of-interest, only has the Corporation Code conflict-of-interest provisions apply to it and not the Government Code Section 1090 conflict-of-interest provisions.

Although some charter schools are non-profit corporations, they are ultimately funded by taxpayer dollars and should be held to the most protective standard to ensure the interests of the students, parents, and the public are placed above financial interests of board members. The purpose of Government Code Section 1090 is to protect a public agency’s interests and those of its constituency by assuring undivided loyalty and allegiance, removing direct and indirect influence of an interested officer and discouraging dishonesty. (Chapman v. Superior Court (2005) 130 Cal.App.4th 261, 266.)

According to Legislative Counsel, “the conflict-of-interest provisions of section 1090, like the conflict of interest provisions set forth in the PRA, would be deemed to apply to the directors of a nonprofit public benefit corporation, in addition to the conflict-of-interest provisions of Corporations Code section 5233, where those directors take on the additional responsibilities of public officers in acting as members of the governing body of a charter school operated by the corporation.” (Legislative Counsel Opinion #152326, p. 15, Aug. 14, 2015.) Legislative Counsel concluded that the conflict-of interest provisions of Corporations Code section 5233 apply concurrently to the members of the governing board of a charter school operated by a nonprofit public benefit corporation, who are also directors of that corporation. (Id.)

The California Charter Schools Association (CCSA), sponsor of this bill, asserts:

Government Code 1090 would apply to a charter school that is run by a school district or county office of education but not by a nonprofit corporation for the following reasons:

GC 1090 would prohibit a board member or executive staff from making any kind of loan or lease arrangement with a charter school, thereby completely shutting off an important avenue the school has for securing urgently needed resources.

Unlike traditional public schools, nonprofit charter public schools do not have the authority to tax or bond in order to secure financial resources to acquire appropriate facilities or to weather fiscal challenges.

Charter schools often turn to board members for loans and leases that the charter school cannot access on its own.

At the same time, CCSA agrees that the law must include consequences for charter school board members and executive staff who violate the law and must allow the authorizer to pursue those consequences. SB 806 does all of the following:

Affirms that charter schools are subject to the Corporations Code, including those provisions that prevent a board member from engaging in any financial interest that does not first and foremost benefit the charter school. It also strengthens the protections for the charter school when a board member offers to provide a loan or lease for the school.

Grants school district authorizers explicit standing to bring action against the charter school in court for violating the Corporations Code.

Requires the charter school to implement any consequences outlined in the court’s ruling.

Directs the charter school also to remove any board member or dismiss any staff that was the subject of the complaint and found to have violated the law.

Allows the school district, upon a finding that the violation(s) are symptomatic of a more systemic problem, to prohibit any board members or officers of the charter school from having a material financial interest in the charter school for up to 5 years.

Cases detailed in the Background demonstrate why it is not appropriate to allow even an incorporated nonprofit charter school to follow the more lenient conflict-of-interest laws under the Corporations Code. Opponents argue that these cases and others demonstrate that giving charter school board members more flexibility in the management of finances has led to the misappropriation of funds and unethical personal gain, resulting in the closing of some charter schools.

In order to expose potential conflicts-of-interest for the personal gain of a board member and consistent with the history of this Committee in passing AB 709 in 2015 with regard to applying Government Code Section 1090 without exception to charter schools, the Committee may wish to amend the bill to make it clear that there will be no exceptions to how Government Code Section 1090 applies to charter schools. The Committee may wish to amend the bill to make it clear that the conflict-of-interest provisions of Government Code Section 1090 and Corporations Code Section 5233 apply concurrently to the members of the charter school governing board operated by a nonprofit public benefit corporation, who are also directors of that corporation.

Suggested Amendment:

Strike out the provisions of the bill that would have the Corporations Code Section 5233 be the only conflict-of-interest provision applying to charter school board members.

Insert the following language that would prohibit a charter school board member from being a party to a contract with a charter school in which the board member has a financial interest: “A charter school is subject to Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of the Government Code.”

1. Opposition concerns

The California Newspaper Publishers Association (CNPA) is opposed to the portions of the bill which would weaken the requirements of the Brown Act and the California Public Records Act as they apply to charter schools in California. According to the CNPA, the bill would create an environment of secrecy within which charter schools would be allowed to operate. The CNPA notes that “[t]aken as a whole, these provisions would construct a secret system that allows charter schools to operate entirely outside of public view.”

California Association of Clerks and Election Officials (Association), writing in opposition, highlight their concern with a provision of the bill that would require counties to adopt a conflict of interest code for each charter school. The Association asserts that the “impact of boards of supervisors having to individually review and approve the conflict-of-interest codes of most of those 1,200 charter schools would be significant [and] requests an amendment to remove the provision dealing with conflict of interest code adoption with respect to charter schools.”

The California Teachers Association, in opposition, writes:

[T]he bill would permit some “self-dealing” transactions at charter schools wherein a governing board member could have a financial stake in a loan agreement, real property lease agreement, or a guarantor agreement for a line of credit or real property lease for the charter school.

[. . .]

While the Public Benefit Corporations Code contains some proscriptions regarding self-dealing, they are less rigorous than, and hence lack the prophylactic benefit of Government Code 1090. In addition, the Corporation Code imposes an obligation that corporate officers discharge their duties in a manner that best serve the corporation’s interest and hence includes relief that inures to the benefit of the corporation, as opposed to the public. Thus, the obligations imposed under the Non-Profit Public Benefit Corporations Code do not provide the same functional protections or purpose of Government Code 1090. If, arguendo, Charter schools were deemed to be excluded from Government Code 1090, then Charter School Board members would be charged with serving only the interests of the corporation. Since Charter Schools are in fact serving an important public service, it is important that the law be clarified to affirm that Charter School Board members are mandated, under Government Code 1090, to perform their duties in a manner that serves and protects the Public’s interest.

5. Amendments

The legislation contains several provisions that would limit public access to information about charter schools and that would work to the detriment of the public.

As just one example, the bill contains a provision that would prohibit a school district, county board of education, or the state board from imposing on a charter school any open meeting, public records, or public official conflict-of-interest requirements other than those specified in this bill. Because the open meeting, public records, and public official conflict-of-interest requirements specified in the bill only apply to the governing body of a charter school, this provision would have the practical effect of exempting all charter schools, except for their governing body, from the California Public Records Act, any and all open meeting acts and requirements, and any and all public official conflict of interest acts or requirements. The Committee may wish to consider removing these provisions that undermine public participation, information and protections from conflicts-of-interest.

6. Amendments author committed to in Senate Education Committee

While in Senate Education Committee, the author committed to take the following amendments. Below are the amendments in concept:

• delay implementation of the ban on for-profit charter schools until the charter school seeks to establish or renew its charter;
• reduce from 50 percent to 25 percent the portion of a charter school’s pupil-serving employees that may be employees of a for-profit entity;
• codify the self-dealing provisions from the Corporations Code into the Education Code;
• add that, when a governing board member provides a loan or leases property to a charter school, the terms shall be below the fair market rate;
• delete language allowing a charter school to hold a public meeting in a county contiguous to the county in which the charter is located if at least 10 percent of the enrolled students reside in the contiguous county;
• delete language allowing charter schools up to 20 days to respond to public records requests;
• clarify that a school district, county board of education, or the state board of education shall not impose on a charter school public official conflict of interest requirements other than those specified in this bill; and
• clarify that the court process created by this bill for charter authorizers suspecting self-dealing violations does not limit the remedies an authorizer could otherwise pursue under the Charter Act of 1992.

Support: None Known

Opposition: California Association of Clerks and Election Officials; Californians Aware; California School Employees Association; California Newspaper Publishers Association; California Teachers Association

HISTORY

Source: California Charter Schools Association

Related Pending Legislation:

AB 406 (McCarty, 2017) would clarify that charter schools cannot operate as or be operated by a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization. This bill is currently in the Assembly Education Committee.

AB 1478 (Jones-Sawyer, 2017) would require charter schools to comply with the open meeting and public disclosure requirements under the Ralph M. Brown Act, Bagley-Keene Open Meeting Act, the California Public Records Act, and the conflict of interest disclosure requirements under the Political Reform Act. This bill is currently in the Assembly Committee on Judiciary.

Prior Legislation:

AB 709 (Gipson, 2015) would have required charter schools to comply with the open meeting and public disclosure requirements under the Ralph M. Brown Act (Brown Act), Bagley-Keene Open Meeting Act (Bagley-Keene Act), the California Public Records Act (CPRA), and the conflict-of-interest disclosure requirements under the Political Reform Act (PRA). The bill was vetoed by the Governor.^[5]

AB 1057 (Medina, 2015); AB 913 (Chau, 2014); AB 360 (Brownley, 2011); and AB 572 (Brownley, 2010) all would have required charter schools to comply with the open meeting requirements of the Brown Act, or Bagley-Keene Open Meeting Act, the Public Records Act, and conflict-of-interest laws. These bills were vetoed by the Governor.

SB 1317 (Huff, 2014) would have required that charter schools be subject to a variety of the same open meeting, conflict-of-interest, and disclosure laws as school districts, including the Ralph M. Brown Act (Brown Act), the California Public Records Act (CPRA), and the Political Reform Act of 1974 (PRA). Under this measure, the charter school did not have to adhere fully to Government Code Section 1090. The bill died in Senate Appropriations Committee.

AB 2115 (Mullin, 2008) would have required charter schools to adopt and comply with a conflict-of-interest policy and require that members of the governing board of a charter school comply with current conflict-of-interest laws that apply to school district governing boards. This bill would have required charter school governing boards to comply with open meeting requirements of the Brown Act, or in the case of state agency operated charter schools, the Bagley-Keene Open Meeting Act.

AB 1197 (Wiggins, 2004) would have required individuals who govern charter schools to file statements of economic interest under the Political Reform Act. The bill failed passage on the Senate Floor.

SB 1448 (Hart, Ch. 781, Stats. 1992) See Background.

Prior Vote: Senate Education Committee (Ayes 4, Noes 1)

**************

1. See Inside Celerity charter school network, questionable spending and potential conflicts of interest abound,” March 6, 2017 LA Times <http://www.latimes.com/local/education/la-me-edu-celerity-beginnings-20170306-story.html> (as of April 22, 2017).; Ex-Oakland charter schools director charged with grant application fraud, money laundering, March 31, 2017 East Bay Times <http://www.eastbaytimes.com/2017/03/30/former-oakland-charter-schools-director-charged-with-grant-application-fraud-money-laundering-scheme/> (as of April 22, 2017); (Cleeland, Audit Faults Chain of Charter Schools, Aug. 10, 2006, Los Angeles Times <http://articles. latimes.com/2006/aug/10/local/me-audit10> (as of April 22, 2017). ↑

2. AB 709 (Gipson, 2016) was vetoed by the Governor. ↑

3. The author agreed, as a condition of moving this bill out of the Senate Education Committee, to remove this provision. ↑

4. The author agreed, as a condition of moving this bill out of the Senate Education Committee, to remove this provision. ↑

5. The Governor wrote the following in his veto message: “Starting a charter school requires the strong commitment of dedicated individuals willing to serve on a governing board. While I support transparency, this bill goes further than simply addressing issues of potential conflicts of interest and goes too far in prescribing how these boards must operate.” ↑