BILL ANALYSIS Ó
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|Hearing Date:April 25, 2011 |Bill No:SB |
| |619 |
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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
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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)
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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.
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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
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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
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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
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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
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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
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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
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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
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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