BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:April 25, 2011 |Bill No:SB | | |619 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Curren D. Price, Jr., Chair Bill No: SB 619Author:Fuller As Amended: April 13, 2011 Fiscal:Yes SUBJECT: California Private Postsecondary Education Act of 2009: exemptions. SUMMARY: Exempts flight instructors or flight schools that do not require the upfront payment of tuition or fees, and do not require students to enter into a contract of indebtedness in order to receive training, from regulation by the Bureau of Private Postsecondary Education (Bureau). Existing law: 1)Establishes the Bureau within the Department of Consumer Affairs (DCA) and provides for Bureau oversight and regulation of California private postsecondary institutions (Business and Professions Code (BPC) § 101 and Education Code (EC) § 94820). 2)Exempts the following from oversight by the Bureau (EC § 94874): a) An institution that offers solely avocational or recreational educational programs. b) An institution offering educational programs sponsored by a bona fide trade, business, professional, or fraternal organization, solely for that organization's membership. c) A postsecondary educational institution established, operated, and governed by the federal government or by this state or its political subdivisions. d) An institution offering test preparation for examinations SB 619 Page 2 required for admission to a postsecondary educational institution or continuing education or license examination preparation, if the institution or the program is approved, certified, or sponsored by: i) A government agency, other than the Bureau, that licenses persons in a particular profession, occupation, trade, or career field. ii) A state-recognized professional licensing body, such as the State Bar of California, that licenses persons in a particular profession, occupation, trade, or career field. iii) A bona fide trade, business, or professional organization. 3)Specifies that the Bureau shall not enforce the Private Postsecondary Education Act (Act) against an institution that offers flight instruction or an institution that offers Federal Aviation Administration (FAA) certified educational programs in aircraft maintenance until July 1, 2010. Requires an institution described above to notify the Bureau of operation. (EC § 94874.3) 4)Establishes numerous fair business practices for institutions covered by the Act, including prohibiting an institution from promising employment or otherwise overstating the availability of jobs or making untrue or misleading statements regarding student completion, placement or expected salary rates. (EC § 94897) 5)Sets forth certain disclosure requirements pertaining to completion, placement, licensure, and salary. Provides that, for the purposes of determining placement rates, "graduates employed in the field" means graduates who are gainfully employed within six months of graduation in a position for which the skills obtained through the education and training provided by the institution are required or provided a significant advantage to the graduate in obtaining the position. (EC § 94910) 6)Specifies certain requirements pertaining to cancellations, refunds and withdrawals for an institution that does not participate in the federal student financial aid programs, including one that provides for a refund of 100 percent of the amount paid for institutional charges, less a reasonable deposit or application fee not to exceed two hundred fifty dollars ($250), if notice of cancellation is made through attendance at the first class session, or the seventh class day after enrollment, whichever is later. (EC § 94920) SB 619 Page 3 7)Requires the Legislative Analyst's Office (LAO), by October 1, 2013, to report to the Legislature and the Governor on the appropriateness of the exemptions provided by the bill. Requires the Bureau to contract with the Bureau of State Audits (BSA), by August 1, 2013, to conduct a performance audit to evaluate the effectiveness and efficiency of the Bureau operations. Specifies that BSA is required to report the results of the audit to the Legislature and the Governor. (EC § 94949) This bill: 1)Adds flight instructors or flight schools that provide flight instruction pursuant to FAA certification and meet the following requirements to the list of entities exempt from the Act and Bureau oversight: a) The flight instructor or flight school does not require students to enter into written or oral contracts of indebtedness. b) The flight instructor or flight school does not require prepayment of tuition or fees and does not accept payment of tuition or fees in excess of two thousand five hundred dollars ($2,500). FISCAL EFFECT: Unknown. Legislative Counsel has keyed this bill "fiscal." COMMENTS: 1. Purpose. This bill is sponsored by the National Air Transportation Association (NATA) and Airline Owners and Pilots Association (AOPA). According to the Author, aviation has long been regulated by the federal government. The Author asserts that "this federal preemption exists to ensure that our national system of aviation is subjected to a single standard and is necessary on the most basic of levels." The Author notes that "no one would argue that an aircraft manufactured in Montana should be held to different design and safety standards than one manufactured in Virginia, and the same holds true for the training of pilots," adding that "the skills necessary to operate an aircraft safely remain the same regardless of where the pilot is trained," The Author does not believe that flight instruction is within the purview of the state to regulate and further, that if the goal of the Bureau is to protect students from financial harm, the Author believes that only organizations or individuals who accept payment in advance should be subject to regulation under the Bureau. SB 619 Page 4 2.Enactment of AB 48. After numerous legislative attempts to remedy the laws and structure governing regulation of private postsecondary institutions, AB 48 was enacted in January 1, 2010, to make many substantive changes that both created a new, solid foundation for oversight and responded to the major problems with the former Private Postsecondary and Vocational Education Reform Act of 1989 (Former Act) which expired on July 1, 2007. The Act as created by AB 48 requires all unaccredited colleges in California to be approved by the new Bureau, and all nationally accredited colleges to comply with numerous student protections. It also establishes prohibitions on false advertising and inappropriate recruiting. The Act requires disclosure of critical information to students such as program outlines, graduation and job placement rates, and license examination information, and ensures colleges justify those figures. The Act also guarantees students can complete their educational objectives if their institution closes its doors, and, most importantly, it gives the Bureau an array of enforcement tools to ensure institutions comply with the law. 3.Flight Schools Oversight. a) Regulation by FAA. The FAA regulates most aspects of flight instruction. However, federal law does not regulate the business practices of many of these flight schools, including the types of student protections provided by Bureau. The FAA regulates flight schools based on certain designations attained by an individual or institution: i) Part 61 of Title 14 of the Code of Federal Regulations contains the provisions related to the certification of pilots, flight instructors, and ground instructors. Subpart H of this part, beginning with §161.181, lays out minimum competency requirements needed to be certified as a flight instructor, as well as basic rules and requirements that these flight instructors must follow. ii) Part 141 of Title 14 of the Code of Federal Regulations is a more intensive set of standards for pilot training. The FAA regulations refer to institutions certified under Part 141 as "pilot schools." Institutions with Part 141 certification are subject to more intensive regulation than part 61 instructors. The additional requirements include: greater qualifications for chief and assistant instructors; minimum record keeping and SB 619 Page 5 office-base requirements; submission to inspection by the FAA; more intensive requirements including instruction syllabus; and a requirement that its graduates recommended for pilot licensure maintain an 80% first-time passage rate on a practical or knowledge test required for pilot licensure. b) Exemptions and Requirements for Flight Schools in California under the Former Act. Section 94930 of the Education Code, which contained provisions of the Former Act, specifically referenced the regulation of flight training providers in California and provided certain exemptions. It specified that all institutions that were certified to offer flight instruction by the FAA, and that operated in California on December 31, 1990, receive approval from the former Bureau for Private Postsecondary and Vocational Education (BPPVE) for a period not to exceed three years. It also required that on or before June 30, 1999, the BPPVE to work in cooperation with the FAA on reviewing each of these institutions to determine whether the institution was in compliance with the requirements of the Former Act. It provided Legislative intent that all institutions whose cumulative gross student loan default rate was above 40 percent, as determined by the Student Aid Commission, be reviewed by the FAA and the BPPVE to determine if these institutions were in compliance with the requirements of the Act and eligible for approval to offer educational programs in California. Section 94930 further provided that institutions certified to offer flight instruction by the FAA, or its successor agency, shall comply with certain specified student protection requirements of the Act, but shall not be required to file any materials with the BPPVE that are not required by the FAA or its successor agency, except those minimally necessary to administer the student Tuition Recovery Fund as determined by the BPPVE. The responsibility for monitoring and enforcing institutional compliance for these instructions was the responsibility of the BPPVE. While the Former Act provided Legislative intent for the BPPVE to enter into a MOU with the FAA to "delineate the responsibilities of each agency for the approval and monitoring of these institutions," the statute did make clear that flight schools would be subject to the following requirements: Operations and maintenance standards (financially SB 619 Page 6 capable, issues some type of degree or certificate upon completion, and provides instruction as part of the educational program.) Specified requirements for written contract. Catalog or brochure requirements. School performance fact sheet. 60% pro rata refund policy. Alternate refund policy. Tuition refund upon cancellation prior to first day of instruction. Written refund policy. Timely refunds. Schedule of charges. Alternative refund calculation. Right to withhold transcript for non payment. Maintenance of student records. a) The Memorandum of Understanding with the FAA has Expired. The most recent MOU between the Western-Pacific Region of the FAA and Former Bureau, signed in 2000, established that the FAA would "assume full responsibility for oversight, regulation and consumer protection authority for nondegree-granting private postsecondary institutions operating under Federal Aviation Regulations (FAR) parts 141, 142, 65 and 147 of the FAA". The MOU went on to clarify that: The FAA would be the entity with the exclusive authority to certificate institutions to provide approved pilot training courses. Certification by the FAA constituted the approval and requirement to engage in education and training. The FAA would maintain exclusive jurisdiction over SB 619 Page 7 approval and renewal. FAA certified private institutions were not required to comply with the requirements and standards of the Act but shall endeavor to use those requirements and standards as guidance in their operations. Reimbursement of tuition in the event of early termination or training or closure of an institution would not be guaranteed by the FAA or the Former Bureau. With the sunset of the Former Bureau in 2008, the MOU expired. a) Problems with Flight Schools. There are recent cases of abrupt flight school closures and lack of appropriate disclosures by flight schools in California. Silver State Helicopters was a helicopter flight training, sight-seeing tours, and charter air operator that at one time had flight schools located in 34 cities around the nation. In most instances, students paid upwards of $70,000 in advance for the Silver State program. Silver State was known throughout the industry for using aggressive sales tactics to recruit students to the program. Silver State also experienced a number of crashes throughout the nation. On February 3, 2008, the company's owner and founder notified employees that their company would be out of business effective at 5:00 P.M. that same day and jobs would be terminated at that time. Two days later came the announcement that Silver State had filed for protection from its creditors under Chapter 7 bankruptcy laws. That action, in effect, left more than 800 employees without jobs and more than 2,500 flight students with millions in debt. There are currently a number of lawsuits pending against the company's owner, as well as Federal investigations into the company's structure and practices. American School of Aviation (ASA) was a commercial flight school that operated in Atwater, California and trained international students from India. The school opened in 2005 at the Castle Commerce Center, located on a former Air Force Base, and closed in May 2008. Most students paid approximately $40,000 in tuition in advance which was supposed to be placed in a trust fund and would be withdrawn as the students progressed through the training. In May of 2008, the school was forced to close due to a lack of insurance. Soon after, students living in the school's dorms were evicted because the school failed to pay its water bill and the water was shut off. Approximately 100 students were SB 619 Page 8 left without their licenses despite paying the tuition. A number of students are suing the owner of the school for $2.2 million in punitive damages; however, the case was stalled because the owner was unable to be located. The experience of Silver State, ASA and other sudden flight school closures, that left many students with no return on thousands of dollars in paid tuition, was the primary reason for the Legislature's inclusion of flight training institutions for regulation by the Bureau under AB 48. However, these institutions did not take part in negotiations on that measure throughout the legislative process, nor were they aware of the new policy requiring Bureau oversight of these schools. The first indication for schools that they were subject to new regulations came in the form of letters from the Bureau in 2010, to just over sixty schools listed as "Pilot Schools" on the FAA's website, detailing requirements for application for approval. b) Legislative Response to Flight Schools Concerns. The flight instruction community in California has expressed serious concerns and dismay that they would now be subject to Bureau oversight after years of exemption through the Former Bureau's MOU with the FAA. Flight school owners and flight instructors appeared at the Bureau Advisory Committee meeting in 2010, explaining the tremendous burden placed on them by having to meet requirements of Bureau oversight, specifically a costly application fee and a requirement to submit audited financial statements. Flight schools argued that Bureau regulation will force them to shut down their operations, leading to the demise of the industry in this state and negative economic impact that will result from firing their employees, to no longer purchasing jet fuel with taxes to local government, and the potential closure of small airports in the state. According to these individuals, many offer flight training as a hobby and means of furthering their passion for flying. Many explain that they do not charge fees up front but rather operate on a pay-as-you-go basis. Flight schools reached out to members of the Legislature and Governor's Office in 2010, attempting to include an exemption to the requirements of the Act. In response to the flight schools, two bills, AB 1889 (Portantino, 2010) and AB 1140 (Niello, 2010) were amended to provide a delay implementation of the Act for institutions that offer flight instruction, or an institution that offers FAA certified educational programs in aircraft maintenance. AB 1889 was vetoed by the Governor due to provisions unrelated to the SB 619 Page 9 flight school exemption; AB 1140 was placed on the Senate Floor inactive file and was not considered by the Senate as a whole with the flight school exemption. SB 856 (Senate Committee on Budget and Fiscal Review, Chapter 719, Statutes of 2010), one of the budget trailer bills to last year's budget, contained language from AB 1889 and AB 1140 to provide an exemption to the Act for an institution that offers flight instruction or an institution that offers FAA certified educational programs in aircraft maintenance until July 1, 2010. c) Other States. There are currently no other states that regulate flight instructors or flight training institutions as postsecondary or vocational institutions. In 2010, the Arizona State Board for Private Postsecondary Education considered, but unanimously rejected, a proposal to consider Part 61 flight schools as vocational programs. Doing so would have made the generally smaller and less-federally-regulated schools subject to financial performance regulations and annual fees, aimed at least partly at ensuring students would be protected if the school suddenly ceased operations. Aviation groups and flight instructor organizations claimed that the new rules might have forced otherwise upstanding and successful flight schools out of business. 1.Related Legislation. SB 498 (Liu) abolishes the Bureau and transfers the Bureau's powers and duties under the Act to CPEC. The bill is a two-year bill pending hearing in this Committee. SB 675 (Wright) is also being heard by the Committee on April 25, 2011. That bill requires that private postsecondary institutions subject to the Act administer a test of English language proficiency to a nonnative speaker of English, as defined, prior to enrolling the student. Establishes various related requirements, rights, remedies and investigative authorities. AB 797 (Conway) exempts schools of cosmetology, as defined, from the Act. The bill has not been set for hearing in the Assembly Committee on Higher Education. AB 1013 (Assembly Committee on Higher Education) clarifies provisions of the Act, including authorization for the Bureau to publish a list of eligible examinations for (ATB) students, if DOE does not have an approved examination relevant to the specific occupational training program and ensuring students are provided until the first class day SB 619 Page 10 or the seventh day after enrollment, whichever is later, to cancel a program and receive a refund. This bill is on consent on the Assembly Second Reading file. AB 2393 (Ammiano, 2010) altered the definition of "graduates employed in the field" for apprenticeship and nursing programs. The bill was vetoed by the Governor. AB 2746 (Niello) of 2008 was similar to AB 48, but it specifically exempted "an institution certified to offer educational programs in flight instruction and aircraft maintenance by the FAA" from regulation. That measure was held under submission in the Assembly Committee on Appropriations. 2. Arguments in Support. According to the Aircraft Owners and Pilots Association (AOPA), a 2003 economic impact study determined that nine percent of the state gross product and nine percent of the jobs in California are attributable to aviation. AOPA believes that the provisions contained in this bill reflect a thoughtful and reasonable solution to the problem of impact of regulation on small operators and independent, certified flight instructors. California Airports Council (CAC) supports this measure. The CAC "recognizes the need to protect students in the private postsecondary sector," but also argues that if the same types of regulations are imposed on flight schools they may "result in harmful impacts to the California flight school industry." They emphasize that "unlike other types of private postsecondary schools, flight schools are sometimes characterized by single instructors and limited school facility infrastructure. The group supports SB 619 as an "effective yet manageable regulatory structure for California flight schools." Also writing in support, California Pilots Association (CALPILOTS) believes this bill provides a remedy for the "unintended and far reaching consequences" of AB 48. CALPILOTS states that many of the more than 9,000 FAA certified independent flight instructors in the state have already ceased offering training pending clarification of the regulations related to flight training." According to the National Air Transportation Association (NATA), the flight training facilities that would be exempt by SB 619 charge for their services on a per lesson basis, collected at the completion of each individual lesson. NATA argues that students retain complete control of their training schedule and financial commitment when training with these types of flight training SB 619 Page 11 facilities, adding that "a student is free, without fear of financial loss, to stop training or switch training facility at any time and still retain credit for all training received through his or her pilot's logbook." 3. Policy Issue : Flight Schools In California Will Only Be Regulated By FAA. Exempting certain institutions and instructors from the Act will result in these only being overseen by the FAA. In order to obtain FAA certification, entities are required to meet certain standards and fulfill certain criteria. However, many of the student protections in the Act and California regulatory structure for private postsecondary schools and training programs, such as disclosures, enrollment agreement and tuition recovery, are not included in FAA oversight of flight schools and flight instruction. SUPPORT AND OPPOSITION: Support: National Air Transportation Association (NATA) (Sponsor) Aircraft Owners and Pilots Association (AOPA) Association of California Airports California Airports Council (CAC) California Pilots Association (CALPILOTS) National Air Transportation Association Pinnacle Aviation Academy Opposition: None on file as of April 20, 2011. Consultant:Sarah Mason