BILL ANALYSIS                                                                                                                                                                                                    Ó






                          SENATE COMMITTEE ON EDUCATION
                              Alan Lowenthal, Chair
                             2011-12 Regular Session
                                         

          BILL NO:       AB 440
          AUTHOR:        Brownley
          INTRODUCED:    February 14, 2011
          FISCAL COMM:   Yes            HEARING DATE:  June 22, 2011
          URGENCY:       No             CONSULTANT:Beth Graybill

           SUBJECT  :  Charter schools:  accountability.
          
           SUMMARY   

          This bill establishes various academic and fiscal 
          accountability standards related to charter schools.

           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.  (Education Code § 
          47601 et. seq.)  

          Existing law authorizes anyone to develop, circulate, and 
          submit a petition to establish a charter school and requires 
          charter developers to collect certain signatures in support 
          of the petition, as specified.  Current law requires 
          governing boards to grant a charter unless the petition fails 
          to meet one or more of the following:  (EC § 47605)  

          1)   The charter school presents an unsound educational 
               program;  

          2)   The petitioners are demonstrably unlikely to 
               successfully implement the program described in the 
               petition;  

          3)   The petition does not contain the number of required 
               signatures;  

          4)   The petition does not contain an affirmation that it 
               will be nonsectarian in its programs and policies, shall 




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               not charge tuition, shall not discriminate, and other 
               affirmations, as specified.  

          5)   The petition does not contain reasonably comprehensive 
               descriptions of, among other things:  

                        The educational program, including educational 
                    goals, students to be served, measurable outcomes 
                    and methods by which the school will determine that 
                    pupils have met educational goals.  

                        School operations and procedures, including 
                    governance structure of the school, qualifications 
                    of staff, health and safety procedures, student 
                    admission and discipline procedures, the manner by 
                    which annual, independent financial audits will be 
                    conducted, employee personnel rights and retirement 
                    system, and procedures to be followed if the 
                    charter school closes.  

          Existing law requires a charter school to annually prepare 
          specified financial reports to its chartering authority, and 
          requires the chartering authority to use any financial 
          information to assess the fiscal condition of the charter 
          school.  (EC § 47604.33)  

          Existing law requires the State Controller, in consultation 
          with specified stakeholders, to recommend statements and 
          other information to be included in a school district audit 
          guide.  The guide and any supplements are to be adopted by 
          the Education Audits Appeal Panel pursuant to rulemaking 
          procedures of the Administrative Procedures Act.  (EC § 
          14502.1)

          Existing law authorizes a charter to be granted for not more 
          than five years and specifies that each renewal shall be for 
          five years.  Existing law requires the renewal and any 
          material revision of the provisions of the charter to be made 
          only with the approval of the authority that granted the 
          charter and be based on the same standards as the original 
          charter.  (EC § 47607)  

          Existing law requires a charter school to meet at least one 
          of the following performance standards in order to be 
          renewed:  (1) attainment of the school's Academic Performance 
          Index (API) growth target in two of the last three years or 




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          in the aggregate last three years; (2) an API decile ranking 
          of four or better in the prior year or in two of the last 
          three years; (3) a Similar Schools API ranking of four or 
          better in two of the last three years; (4) academic 
          performance that is at least equal to the academic 
          performance of the public schools that the charter school 
          pupils would otherwise been required to attend; or (5) 
          qualification for participation in the Alternative School 
          Accountability Model.  (EC § 47607)

          Existing law requires the Superintendent of Public 
          Instruction and the State Board of Education to establish a 
          list of Persistently Lowest Achieving Schools and requires 
          the governing board to implement for any school so identified 
          one of four school intervention models beginning in the 
          2010-11 school year.  (EC § 53202)
          The four models are:  

               Turnaround model  in which the Local Education Agency 
               (LEA) undertakes a series of major school improvement 
               actions including replacing the principal and rehiring 
               no more than half of the staff.  

               Restart model  in which the LEA converts a school or 
               closes and reopens a school as a charter school.  

               School closure model  in which the LEA closes a school 
               and enrolls students in another school.  

               Transformation model  in which the LEA implements a 
               series of required school improvement strategies, 
               including replacing the principal and increasing 
               instructional time.  

           ANALYSIS 

           This bill  :

           Fiscal and operational accountability  

          1)   Requires the State Controller (Controller) to propose 
               and the Education Audits Appeal Panel to adopt a charter 
               school supplement to the audit guide in consultation 
               with the California Charter Schools Association and 
               other specified entities; requires charter schools to 
               complete annual audits consistent with the audit guide;  




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          2)   Specifies a charter school operated by a for-profit 
               corporation to annually notify the SPI of that fact in 
               writing.  

          3)   Allows a charter school authorizer, when authorizing a 
               new charter school, to consider whether the petitioner 
               has operated another charter school for at least three 
               consecutive years and any of the following has occurred: 
                

               a)        The charter school demonstrated academic 
                    achievement equivalent to a Persistently 
                    lowest-achieving school;  

               b)        The charter school completed its first cycle 
                    and was not renewed by the authorizing entity, the 
                    county board of education, or the SBE;  

               c)        The school has ever had its charter revoked 
                    and the charter was not restored by the county 
                    board of education or the SBE.  

          4)   Requires the State Controller to annually publish a 
               directory of public accountants as specified, deemed by 
               the Controller to be qualified to conduct audits of the 
               charter schools; requires charter school audits to be 
               conducted by a certified public accountant (CPA) or 
               public accountant selected by the charter school from 
               the directory published by the Controller; and expresses 
               Legislative intent that the regular rotation of public 
               accounting firms used to complete these audits 
               consistent with the federal Sarbanes-Oxley Act of 2002.  


          5)   Makes it unlawful for a public accounting firm to 
               provide audit services to a charter school if the lead 
               audit partner or coordinating audit partner having 
               responsibility for the audit has performed audit 
               services for that charter school in each of the six 
               previous fiscal years.  








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           Academic accountability and renewals  

          6)   Requires a chartering authority to consider, as one 
               factor in determining whether to grant a renewal, the 
               degree to which a charter school serves student 
               populations that are similar to local district student 
               populations, or similar to pupil populations identified 
               in the charter petition as the target pupil population 
               to be served, especially related to high-need students, 
               including, but not limited to, students with 
               disabilities, students living in poverty, and English 
               learners.  

          7)   Changes the charter school renewal process as follows:  

               a)        Allows an authorizer to renew a charter school 
                    for a period of one to five years;  

               b)        Requires a charter school to attain its 
                    Academic Performance Index (API) school wide and 
                    subgroup growth targets in the prior year or in two 
                    of the last three years;  

               c)        Specifies that a charter school in program 
                    improvement (PI) not be renewed for more than three 
                    years; and  

               d)        Prohibits the renewal of a charter school that 
                    is in PI year five if the school has not exited PI 
                    and did not meet adequate yearly progress (AYP) in 
                    the year prior to renewal.  

          8)   Deletes the authorization for a chartering entity to 
               renew a charter petition if the academic performance is 
               equal to the academic performance of the public schools 
               that the charter school students would otherwise have 
               been required to attend.  

          9)   Authorizes renewal if the charter school has met or 
               exceeded the API of the local district.  

          10)  Makes Legislative findings and declarations regarding 
               the importance of establishing academic performance 
               targets and sound fiscal management practices in charter 
               schools.  





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          11)  Provides for local educational agencies to be reimbursed 
               for costs associated with complying with the 
               requirements of this act if the Commission on State 
               Mandates determines that the act contains mandated 
               costs.

           STAFF COMMENTS  

           1)   Need for the bill  :  According to the author's office, 
               the purpose of this bill is to encourage high levels of 
               academic performance and sound fiscal management 
               practices among charter schools.  The fiscal 
               accountability standards are intended to ensure that 
               charter schools receive thorough audits conducted by the 
               same auditors that conduct school district audits.  The 
               academic accountability standards are intended to ensure 
               that charter schools are not simply demonstrating 
               student achievement that is equal to neighborhood 
               schools, but are demonstrating improved student 
               achievement compared to their neighborhood schools.  

           2)   Charter schools  .  Charter schools are public schools 
               that provide instruction in any combination of grades, 
               kindergarten through grade 12.  Parents, teachers, or 
               community members may initiate a charter petition, which 
               is typically presented to and approved by a local school 
               district governing board.  The law also allows, under 
               certain circumstances, for county boards of education 
               and the State board of Education to authorize charter 
               schools.  The specific goals and operating procedures 
               for a charter school are detailed in the agreement 
               (charter) between the authorizing entity and the charter 
               developer.  Current law establishes 16 different 
               operational and educational quality indicators that need 
               to be included in a charter school petition.  A 
               governing board may deny a charter school proposal that 
               does not comprehensively address each of those 16 
               elements.  According to the California Department of 
               Education (CDE), there are currently 910 charter 
               schools.  

          Charter schools are exempt from most laws governing school 
               districts and schools in order to allow the charter 
               school the flexibility to innovate and be responsive to 
               the educational needs of the student population served.  
               Charter schools are required however, to have 




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               credentialed teachers in core and college preparatory 
               courses, meet statewide standards, participate in state 
               testing programs required for the Academic Performance 
               Index (API), and consult with parents, guardians, and 
               teachers regarding the school's programs.  

           3)   Academic Performance Index  .  The Academic Performance 
               Index (API) is single number on a scale of 200 to 1,000 
               that is an annual measure of test score performance in 
               schools.  The API is used to summarize the performance 
               of students and a school, and is based on results of the 
               Standardized Testing and Reporting (STAR) program and 
               the California High School Exit Examination (CAHSEE).  
               The system is based on a two-year cycle that gives a 
               "base" score for the first year and a "growth" score in 
               the second year.  The Base API is released in the spring 
               and is derived from the previous spring's test scores.  
               The Growth API, which is released in the fall, comes 
               from the previous spring's test scores.  The SBE has 
               established a statewide target of 800 for the API.  
               Schools with API scores below 800 are expected to 
               improve and are given a "growth target" that is 5 
               percent of the difference between their API score and 
               800, with a minimum target of 5 points.  (Schools with 
               an API above the statewide target are expected to stay 
               above 800.)  A school's Base API score plus its growth 
               target becomes that school's goal for its next Growth 
               API.  For example, a school with a Base API of 320 would 
               be expected to improve its performance by 24 points in 
               the next cycle, or attain an API of 344.  

          4)   Hoover Commission findings and recommendations  .  In 
               November 2010, the Little Hoover Commission released a 
               report "Smarter Choices, Better Education:  Improving 
               California Charter Schools" that contained findings and 
               recommendations regarding the charter school 
               authorization, renewal, and appeal process.  The 
               Commission found that there was broad agreement that the 
               current renewal criteria for charter schools must be 
               improved.  During the study, the Commission was told 
               "repeatedly that the state's renewal criteria are too 
               vague and the bar is set too low, making it difficult 
               for authorizers to close down poor performing schools."  
               Under current law, a school can be renewed if the 
               school's performance is comparable to that of district 
               schools its students would otherwise attend.  If all 




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               schools within a neighborhood are performing poorly but 
               the charter school provides a safe haven for students, 
               parents and students may pressure the local school board 
               to keep the school open even if it is not meeting its 
               academic goals.  Since achievement test scores may not 
               provide a complete picture of student learning, the 
               Commission recommended that the state expand the renewal 
               criteria to include other factors, such as graduation 
               rates, employment readiness, as well as college 
               attendance and completion rates.  The Commission urged 
               the state to "raise the bar for charter school renewal 
               while still maintaining options for certain charter 
               schools serving the most difficult student populations." 
                

           5)   Academic accountability  .  According to the author, 
               various studies indicate that while there are many 
               outstanding and diverse charter schools, there are also 
               charter schools that are not "living up to the promise" 
               to improve student learning and expand learning 
               experiences for academically low-achieving pupils.  A 
               July 2003 RAND study concluded that charter and 
               noncharter students generally performed similarly on 
               statewide achievement tests, with differences in some 
               grades and subject areas.  A 2009 EdSource report 
               concluded that after "adjusting for differences in 
               student demographics, charter high schools scored 
               modestly higher than noncharter schools in English, but 
               lagged in mathematics."  This bill addresses some of the 
               issues identified in these reports.  

          Performance record:  Under current law, an authorizer may 
               only consider the extent to which a petitioner has 
               provided comprehensive responses to each of the 16 
               elements required in a charter school application.  
               While some authorizers may consider past performance in 
               evaluating the soundness of the petitioner's educational 
               program, it is not clear that a governing board could 
               deny a charter on the basis of known information about 
               the quality of other charter schools operated by the 
               petitioner.  This bill provides explicit authority for 
               governing boards to consider a petitioner's track record 
               before granting the initial charter.  While an argument 
               could be made that each petition should be evaluated on 
               its own merits, the past-performance information could 
               help governing boards determine the capacity of the 




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               developer to deliver on the promises made in the charter 
               petition and could give authorizers wider latitude to 
               consider the quality of a petitioner's previous or 
               concurrent charter school efforts.  

          High-needs students:  A 2009 EdSource report found that 
               California charter high schools serve 13% fewer students 
               who are either English learners or redesignated as 
               fluent English proficient (RFEP) compared to noncharter 
               schools, and found that charter schools serve lower 
               proportions of students with disabilities compared to 
               noncharter schools at all grade levels.  The EdSource 
               study also found that charter schools serve fewer 
               students that participate in the federal Free and 
               Reduced-Price Meal Program in both elementary and middle 
               school compared to noncharter schools.  

          This bill requires the chartering authority to consider, as 
                one factor  in determining whether to grant a renewal, 
               the degree to which a charter school serves pupil 
               populations that are similar to local district pupil 
               populations, especially high-needs students, or serves 
               the population described in the charter petition.  Given 
               that some charters are established to provide specific 
               educational programs or to serve underserved or high 
               need student groups (such as those normally served by a 
               county office of education), this measure appears to 
               provide authorizers with sufficient flexibility to 
               evaluate a charter school's enrollment balance in light 
               of the educational program and student population 
               described in the charter agreement and the extent to 
               which the charter school has met those goals.  

          Student performance:  Like SB 645 (Simitian), which was 
               passed by this Committee on May 4, 2011, this bill 
               changes existing law regarding student performance 
               criteria a charter school must meet prior to renewal.  
               Under current law, charter schools can demonstrate 
               attainment of API growth target in the prior year or in 
               two of the last three years, or in the aggregate for the 
               prior three years.  This bill would instead require the 
               charter school to meet API school wide  and  subgroup 
               targets.  Under this bill and SB 645, charter schools 
               could no longer be renewed if their performance is at 
               least equal to the schools the students would otherwise 
               attend.  




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          Some have expressed concern that the criteria to include 
               subgroup growth targets could place a charter school in 
               a "potentially precarious position" if one of the 
               subgroups does not achieve its target but the other 
               subgroups and school wide targets are met.  Some concern 
               has also been expressed that by deleting the provision 
               that allows performance that is at least equal to 
               neighboring schools, reduces the flexibility of 
               authorizers to consider unique circumstances that may 
               apply to individual schools, such as nonclassroom-based 
               charters or a multi-grade K-12 charter school.  While 
               there seems to be an agreement that persistently 
               low-achieving and failing charter schools should not be 
               allowed to continue to operate, some have expressed 
               concern about using the federal No Child Left Behind 
               Program Improvement status as the metric.  There is some 
               expectation that the number of traditional and charter 
               public schools that enter program improvement will 
               increase over the next few year as a result of the 
               escalating federal yearly progress benchmark.  If the 
               federal goal increases at a faster rate than a school's 
               yearly progress, it may be difficult for the school to 
               exit program 
                
                improvement.  These concerns suggest the need for 
               authorizers to have some flexibility to consider unique 
               circumstances or for an alternative review process, as 
               proposed by SB 645.  

          6)   Fiscal accountability  .  Although existing law requires 
               charter schools to have annual audits, current law does 
               not provide for the establishment of an audit guide 
               supplement that is appropriate for and specific to 
               charter schools.  The author's office also maintains 
                                                                        that current law does not require charter schools to 
               hire qualified auditors approved by the State 
               Controller.  By requiring charter school audits to be 
               conducted by auditors approved by the State Controller 
               and requiring audits to follow the appropriate 
               supplemental audit guide, the author hopes this bill 
               will establish uniform audit and fiscal accountability 
               standards for all charter schools that could provide 
               both schools and authorizers with uniform guidance 
               relative to appropriate fiscal management practices.  





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           7)   Fiscal impact  .  According to the Assembly Appropriations 
               Committee analysis, this bill could result in annual 
               General Fund/Proposition 98 state-reimbursable mandated 
               costs of $100,000 to local educational agencies to 
               review and verify specified petition and renewal 
               information required under this bill.  To the extent 
               that the information required for submission is more 
               readily available to an LEA than current law 
               requirements, this cost may be offset.  Additionally, 
               there would be one-time General Fund administrative 
               costs, likely less than $80,000 to the State Controller 
               to complete the development of a supplemental audit 
               guide for charter schools, as specified.  Although the 
               Legislative Counsel's digest notes that this bill 
               contains mandated costs, staff notes that according to a 
               May 2006 decision by the Commission on State Mandates, 
               charter schools are not eligible to claim mandate 
               reimbursements because they are "voluntarily" created.

           8)   Related and prior legislation  .  This bill is 
               substantially similar to AB 1950 (Brownley, 2010), which 
               would have established new academic and fiscal 
               accountability standards for charter schools.  This 
               measure was pulled from the Committee's agenda at the 
               request of the author.  

          SB 433 (Liu) would require charter schools to comply with 
               state statutes governing the suspension and expulsion of 
               pupils.  This measure was heard in this Committee on May 
               4, 2011 and was held at the request of the author.  

          SB 645 (Simitian) establishes new academic criteria for 
               charter school renewal.  This measure was passed as 
               amended by this Committee on May 4, 2011 on a 7-1 vote.  


          AB 86 (Mendoza) expands signature requirements for charter 
               school petitions to include classified employees.  This 
               measure was passed by this Committee on a 6-2 vote on 
               June 15, 2011.  

                
                
               AB 360 (Brownley) makes charter schools subject to the 
               Ralph M. Brown Act or Bagley-Keene Open Meeting Act, 
               depending on the entity operating the school.  Also 




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               subjects charters to the California Public Records Act 
               and the Political Reform Act.  This measure is pending 
               in this Committee.

               AB 925 (Lara) requires charter schools to provide 
               classified employees employment benefits and protections 
               that mirror those provided to classified employees in 
               school districts.  This measure is pending in this 
               Committee.  

               AB 1034 (Gatto) requires charter schools to report 
               specified information relating to pupil demographics and 
               academic progress, requires charter schools to collect 
               data regarding pupils who transfer out of the school, 
               and modifies existing law regarding charter school 
               admissions.  This measure is pending in this Committee.  


               AB 1741 (Coto, 2010), would have required charter 
               schools that expect 15% of their pupil population to be 
               English learners to meet additional petition 
               requirements relating to the education of those 
               students.  This bill was heard and passed as amended by 
               the Senate Education Committee and was subsequently held 
               in the Senate Rules Committee.  

               AB 1991 (Arambula, 2010) would have authorized charter 
               school renewals to be granted for five to ten years.  
               This bill failed passage in the Assembly Education 
               Committee.  

               AB 2363 (Mendoza, 2010) would have required charter 
               school petitioners to obtain the signatures of half of 
               the number of teachers and half of the number of 
               classified employees, as specified.  This bill was heard 
               by the Senate Education Committee and failed passage on 
               a 2-6 vote.  

               AB 2320 (Swanson, 2010) would have added new 
               requirements to the charter school petition process, 
               deletes the authority of a charter school petitioner to 
               submit a petition to a County Board of Education to 
               serve pupils that would otherwise be served by the 
               County Office of Education, and eliminates the ability 
               of the State Board of Education to approve charter 
               school petition appeals.  This bill was heard by the 




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               Senate Education Committee and failed passage on a 2-3 
               vote.  

               AB 572 (Brownley, 2009) would have required charter 
               schools to comply with the Brown Act open meeting law, 
               the California Public Records Act, and the Political 
               Reform Act.  This bill was passed by the Senate 
               Education Committee and subsequently vetoed by Governor 
               Schwarzenegger.  

               ABX5 8 (Brownley, Fifth extraordinary session of 2009) 
               would have deleted the cap on charter schools and would 
               have made other changes to provisions governing audit 
               and fiscal standards, and the authorization, 

               renewal and revocation of charter schools.  The Senate 
               Education Committee hearing for this bill was canceled 
               at the request of the author and the bill was 
               subsequently held by the Committee.  

           SUPPORT
           
          California Federation of Teachers
          California School Boards Association
          California School Employees Association
          California Teachers Association
          Californians Together
          Public Advocates
          San Bernardino County District Advocates for Better Schools
          San Francisco Unified School District
          United Teachers Los Angeles

           OPPOSITION
           
          Charter Schools Development Center