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 AB 440 Page 2 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 AB 440 Page 3 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; AB 440 Page 4 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. AB 440 Page 5 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. AB 440 Page 6 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 AB 440 Page 7 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 AB 440 Page 8 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 AB 440 Page 9 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. AB 440 Page 10 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. AB 440 Page 11 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 AB 440 Page 12 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 AB 440 Page 13 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