January 23, 2014
Pursuant to Elections Code Section 9005, we have reviewed the
proposed statutory initiative relating to charter schools (A.G. File No.
13‑0057).
Background
Charter Schools in California
California Law Allows for Charter Schools.
Charter schools are publicly funded elementary and secondary schools.
Charter schools are exempt from many state laws and operate under
locally developed agreements (or “charters”) that describe their
educational programs. In 2012‑13, approximately 1,100 charter schools
served 460,000 students (8 percent of the state’s public school
students).
All Charter Schools Receive Oversight From an Authorizer.
Every charter school has an authorizer that is responsible
for approving the school’s charter. The authorizer monitors the charter
school and may close a school that does not adhere to its charter,
performs poorly on state measures of academic performance, or violates
the law. (To defray the costs of this oversight, the charter school
typically pays an annual oversight fee equal to 1 percent of its general
purpose revenue.) In most cases, the authorizer is the school district
with jurisdiction over the location where the charter school is located.
About 110 charter schools, however, are authorized by the county office
of education (COE) in the county where the charter school is located. In
addition, about 25 charter schools are authorized by the State Board of
Education (SBE). These 25 schools receive oversight from the California
Department of Education (CDE).
Charter Schools Can Be Operated in Several Different
Ways. Roughly 40 percent of charter schools operate as
independent, stand-alone entities. About one-third of charter schools
are operated entirely or in large part by a school district. Another
one-quarter of charter schools are members of networks of charter
schools that are operated by charter management organizations (CMOs). A
CMO can have varying responsibilities, but it typically operates the
instructional and administrative services for its member schools.
Currently, about 50 CMOs operate in California.
Some Charter Schools Establish Special Lease-Related
Entities. Some charter schools establish special entities
for the purpose of obtaining a school facility lease. These entities own
the facility that is subsequently leased to the charter school. Charter
schools often establish these entities when they have financial reasons
to lease rather than own their facilities directly.
Charter Schools Differ From School Districts
Charter Schools Differ From School Districts in Various
Ways. Charter schools differ from their school district
peers in that they generally are exempt from state education laws,
except when explicitly specified otherwise. Below, we describe a few of
these differences.
- For-Profit and Nonprofit Status.
Charter schools may operate as nonprofit or for-profit entities.
Charter schools operate as nonprofit entities in nearly all cases,
but a few charter schools do incorporate as for-profit entities.
(Data suggest fewer than ten for-profit charter schools operate
statewide.) School districts, by contrast, cannot be operated as
for-profit entities.
- Collective Bargaining. State law
allows charter school employees to collectively bargain over wages
and other working conditions, but few charter schools have
collective bargaining agreements in place. School districts, by
contrast, commonly have collective bargaining agreements.
- Members of Governing Boards. The
method of selecting members of a charter school’s governing board is
determined by the school’s charter. In school districts, by
contrast, members of the governing board are elected by local
voters. An individual who is convicted of certain felony offenses,
however, can be disqualified from holding public office and lose the
ability to serve on the governing board of a school district. Such
an individual is not automatically disqualified from serving on the
governing board of a charter school.
- Investment of Public Funds. Charter
schools may deposit or invest the public funds they receive, and
state law does not contain specific rules relating to these
investments. School districts, by contrast, are legally required to
make safeguarding the principal of their funds their primary
objective and are generally limited to low- and moderately-low risk
investments. (As a practical matter, many districts hold their
reserves with other local agencies in low-risk investment pools
maintained by their county governments.)
Laws Affecting Local Public Agencies
Various Laws Govern the Conduct of School Districts and
Local Governments. The Legislature has passed a number of
laws to regulate the way local agencies such as cities, counties, and
school districts interact with the public. Below, we summarize five of
these laws.
- Ralph M. Brown Act. The Ralph M. Brown
Act (“Brown Act”) requires the governing body of a local agency to
conduct its activities in open meetings except for situations
specifically exempted by law. The agency also must take special
steps to facilitate public participation in its meetings, such as:
(1) releasing an agenda 72 hours in advance of any meeting; (2)
holding meetings only within the boundaries of its jurisdiction; and
(3) allowing any member of the public to attend, record, and speak
at a meeting.
- California Public Records Act. The
California Public Records Act requires a local agency to disclose
any of its records to the public upon request unless the record is
specifically exempted by law. The agency may charge a fee for making
copies of records but not for researching or responding to a
request.
- Financial Interest Law. California law
prohibits the governing board of a local agency from entering into a
contract if a member of the governing board has a “financial
interest” in the entity receiving the contract. (A board member may
not avoid the conflict simply by abstaining from an individual
decision.) A financial interest can occur when a board member has a
financial relationship with an entity receiving a contract or could
personally benefit from that contract. The law has a few exceptions.
For example, a contract with a nonprofit entity is permissible even
if a board member of the agency also is a board member of the
nonprofit entity. The state’s Fair Political Practices Commission
(FPPC) investigates violations of this law and provides technical
advice.
- Political Reform Act. The Political
Reform Act requires board members and officers of local agencies to
file annual statements of economic interest disclosing their sources
of income, ownership of real property, investment interests, and
other information. The level of disclosure varies according to the
responsibilities associated with the position held. To implement
these rules, agencies must identify the disclosure requirements for
every position covered by the Political Reform Act. The FPPC
investigates violations of this law and provides technical advice.
- Grand Jury Reviews. California law
requires the courts in each county to convene panels of citizens
known as grand juries. Among other responsibilities, a grand jury
may investigate the performance of local agencies. Agencies must
provide the records or information the grand jury wishes to review.
Application of Laws to Charter Schools Is Disputed.
Although these five laws have been interpreted to include
virtually all local agencies, the laws do not explicitly state whether
charter schools must follow them. California courts have never ruled
directly on whether charter schools are bound by these laws. As a
practical matter, some charter schools follow these laws voluntarily or
as a condition imposed by their authorizer. Other charter schools do not
follow all of these laws or follow only certain provisions of the laws.
Proposal
Prohibits For-Profit Charter Schools and Certain
Contracts With For-Profit Companies. The measure prohibits
any charter school from operating as a for-profit entity. The measure
further prohibits any charter school from contracting with a for-profit
entity to “provide instructional services or exercise control over the
school’s daily operations.”
Explicitly Requires Charter Schools to Comply With
Certain Laws Applicable to Local Agencies. The measure
explicitly requires charter schools to comply with the Brown Act, Public
Records Act, financial interest law, and Political Reform Act. In
addition, the measure explicitly authorizes grand juries to review the
records of a charter school. For purposes of the Brown Act, the measure
generally requires the governing board of a charter school to hold its
meetings in a county where it has a school facility or in a neighboring
county that is home to at least 10 percent of the charter school’s
students. For purposes of the Political Reform Act, the measure requires
every member of the charter’s governing board and any superintendent,
chief executive, chief financial officer, or other person managing funds
on behalf of the charter school to file statements of economic interest
at the highest level of disclosure.
Requires Board Approval and Disclosure for Transactions
Larger Than $10,000. The measure requires the governing
board of a charter school to approve any contract, loan, lease, or other
transaction whose value exceeds $10,000. In addition, the governing
board is required to disclose to the public specific information before
approving any such transaction, including: (1) the name of all parties
to the transaction, (2) the terms of the transaction, (3) whether the
transaction was competitively bid, (4) the extent to which the board
determined the transaction was the lowest cost option, (5) the extent to
which the board investigated alternative options, and (6) a statement
disclosing the name of any charter school official or employee with a
financial interest in the transaction. The requirements for board
approval and disclosure would extend to the hiring of an employee above
the $10,000 threshold, except that the hiring of an individual for a
position covered by a collective bargaining agreement is specifically
exempted.
Sets Limits on Investment of Public Funds.
The measure requires charter schools to deposit or invest public funds
only in (1) federally insured accounts; (2) bonds and other obligations
issued by the United States government or its agencies; (3) bonds and
other obligations issued by the state of California; (4) bonds and other
obligations issued by certain local agencies within California,
including counties, cities, school districts, and water districts; and
(5) investment certificates issued by federally insured savings and loan
associations.
Requires Online Posting of Information. The
measure requires a charter school to post several documents on its
website or the website of its authorizer. These documents include:
(1) the charter under which the school operates, (2) the articles of
incorporation and bylaws of the charter school, (3) the individual
conflict of interest forms required by the Political Reform Act, and (4)
a list of all individuals who within the past two years have served as
board members or designated senior employees of the charter school and
the compensation received by those board members and employees.
Disqualifies Charter School Board Members Who Also Are
Disqualified for Public Office. The measure provides that
any individual who is disqualified from holding a public office also is
disqualified from serving on the governing board of a charter school.
Extends All Changes to CMOs and Leasing-Related Entities.
The measure extends all of its provisions to CMOs and
leasing-related entities. (Since CMOs and leasing-related entities are
currently not defined by state law, the scope of this provision would
depend upon how subsequent regulations or the courts defined these
entities.)
Fiscal Effects
This measure would have several fiscal effects on state and local
governments. The largest effect would be on charter schools, though the
measure also would create additional costs for charter school
authorizers and two state agencies.
New Costs for Charter Schools. We estimate
this measure would create additional costs for an average charter school
of several thousand dollars annually. With about 1,100 charter schools
in California, these costs would result in statewide costs of several
million dollars annually. Below, we discuss new costs for charter
schools generated by the measure.
- Legal Counsel and Training. Charter
schools would need to obtain additional legal counsel and training
to comply with the terms of this measure. These costs would include
training board members and officers to review the school’s
operations for compliance with the laws explicitly applied to
charter schools (to the extent the charter school is not already
complying with these laws). Additional costs would be associated
with legal review of contracts, transactions, and investments to
ensure the prohibitions and requirements contained in this measure
are satisfied. For example, a charter school with a leasing-related
entity would need to ensure its lease agreement conformed with the
financial interest law. On average, each charter school likely would
require a few dozen additional hours of legal counsel and training
per year.
- Transaction Disclosures. Additional
staff hours would be needed to prepare the required disclosures for
transactions greater than $10,000. Since charter schools commonly
make annual decisions about the staff they hire, facilities they
rent, and services they purchase, on average each charter school
likely would need to prepare a few dozen of these disclosures
annually.
- Posting Documents Online. Additional
staff hours would be required to post documents online. Since a
school’s charter, bylaws, list of officers, and other required
documents can change throughout the year, on average each charter
school likely would need to compile updated documents and post them
on its website several times per year.
Two Other Provisions Could Create Costs for Charter
Schools. In addition to the three costs described
previously, this measure could create additional costs for charter
schools in two other ways. We describe these costs in greater detail
below and explain why they cannot be easily estimated.
- Fewer Options for Contracting. By
prohibiting charter schools from contracting with for-profit
companies for instructional services, the measure would reduce the
options for charter schools to purchase certain services. The exact
fiscal effect would depend on whether the measure is interpreted
broadly or narrowly and the number of contracts affected. For
example, some charter schools currently purchase learning software
from for-profit companies. If the measure were interpreted broadly,
these contracts likely would be disallowed. If interpreted narrowly,
these contracts might be unaffected by the measure.
- Lower Investment Returns in the Long Run.
The investment options allowed by this measure tend to be
very low-risk, since all the options are federally insured or backed
by federal, state, or local authorities. Low-risk investments are
safer than alternative investments yet tend to have lower rates of
return over the long run. The exact effect on a charter school would
depend on the rates of return the charter school receives from the
allowable investments relative to other investments it might have
made.
Additional Costs for Charter School Authorizers.
By requiring charter schools to comply with additional laws,
this measure also would create additional costs for authorizers to carry
out their oversight functions. Some of these costs would be due to
additional monitoring of the charter school. For example, the authorizer
might need to check a charter school’s website to see if the required
documents were posted. The authorizer also might receive additional
complaints if a charter school failed to follow the provisions of this
measure. The authorizer could incur costs to investigate these
complaints and take the appropriate response, such as requiring the
charter school to correct a violation or—for more serious
violations—taking action to close the charter school. The additional
actions taken in response to this measure likely would represent a minor
increase statewide in existing oversight duties, perhaps in the range of
tens of thousands of dollars to low hundreds of thousands of dollars per
year.
Additional Costs for Two State Agencies.
The measure could result in minor cost increases for the FPPC and CDE.
By specifically requiring all charter schools—including all CMOs and
leasing-related entities—to comply with the financial interest law and
Political Reform Act, FPPC likely would need to provide additional
technical advice and investigate additional violations of the laws. The
CDE could experience higher costs associated with monitoring the charter
schools authorized by the SBE. The additional workload for both agencies
likely could be managed with a few additional staff at a cost of a few
hundred thousand dollars annually.
Summary of Fiscal Effects
We estimate the measure would have the following fiscal effects:
- Costs to charter schools, of at least several million dollars
annually statewide, to undertake additional legal, financial, and
disclosure-related work.
- Minor annual costs to school districts, county offices of
education, and two state agencies to provide additional oversight
and assistance to charter schools.
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