BILL ANALYSIS Ó AB 948 Page 1 Date of Hearing: May 1, 2013 ASSEMBLY COMMITTEE ON EDUCATION Joan Buchanan, Chair AB 948 (Olsen) - As Introduced: February 22, 2013 SUBJECT : Charter schools: school facilities: Charter School Facility Grant Program SUMMARY : Expands eligibility and authorized uses, and makes other changes to the Charter School Facility Grant Program (CSFGP). Specifically, this bill : 1)Deletes the provision specifying that the purpose of the program is to provide assistance with facilities rent and lease costs and instead specifies that the program is intended to provide assistance with facilities costs for pupils in charter schools. 2)Deletes the requirement that an amount of up to, but not more than $750 per unit of average daily attendance (ADA), as certified at the second principal apportionment, is provided up to, but no more than 75 percent of the annual facilities rent and lease costs for a charter school, and instead specifies that an eligible charter shall receive the lesser of the following: a) The actual eligible annual facility costs; b) $750 per unit of ADA attendance for a classroom-based charter school; or, c) $375 per unit of ADA for nonclassroom-based charter school. 3)Specifies that the initial payment shall be based on prior year ADA, as certified at the second principal apportionment, for a charter school that operated in the prior year, and shall be based upon the ADA approved as specified for a charter school in its first year of operation. The final payment shall be based upon ADA, as certified at the second principal apportionment. 4)Requires the California Department of Education (CDE) to inform and provide charter schools with an application for the grant program by July 1 of each year. AB 948 Page 2 5)Specifies that in any year in which additional funds remain after funds have been allocated to eligible applicants, the CDE shall expand eligibility to additional charter schools by reducing the free and reduced-price meals threshold one percentage point at a time, until all available funds are allocated. 6)Deletes an obsolete provision requiring the CDE to submit a report to the Legislature. 7)Strikes the provision prohibiting grant funds to be appropriated to units of ADA generated through nonclassroom-based instruction. 8)Authorizes charter schools to receive grants for school facility costs not associated with existing school district or county office of education (COE) facilities if the school district or COE is otherwise required to provide the charter school with facilities pursuant to Proposition 39 of 2000. 9)Authorizes charter schools to receive grants for school facility costs not associated with reasonably equivalent facilities provided by a school district pursuant to Proposition 39. 10)Expands allowable use of funds to include facility purchases and debt service related to facilities. 11)Deletes the provision specifying that if an existing charter school located in an elementary attendance area in which less than 50 percent of pupil enrollment is eligible for free and reduce-price meals relocates to an attendance area determining eligibility under the grant program, admissions preference shall be given to pupils who reside in the elementary school attendance area into which the charter school is relocating. 12)Deletes the provision expressing the intent of the Legislature that not less than $18 million annually be appropriated for the grant program. 13)Requires the Superintendent of Public Instruction to provide an initial payment of at least 75 percent of the eligible facilities costs. The final payment shall be apportioned on or before August 1 of the year following the fiscal year in which the costs were incurred and shall equal the difference AB 948 Page 3 between the actual total eligible facilities costs and the initial payment. 14)Requires the eligibility for grant program funds and the amount of grant program funds received by a charter school to be included in the scope of the annual, independent financial audit of the charter school. EXISTING LAW : 1)Establishes the CSFGP intended to provide assistance with facilities rent and lease costs for pupils in charter schools. 2)Specifies that subject to the annual Budget act, eligible schools shall receive an amount up to, but not more than $750 per unit of ADA to provide an amount up to, but not more than, 75% of the charter school's annual facilities rent and lease costs. Specifies that in any fiscal year in which there are insufficient funds to fully fund the approved amounts, the SPI shall apportion the available funds on a pro rata basis. 3)Specifies that eligibility is based on the geographic location of the charter schoolsite, pupil eligibility for free or reduced price meals, and a preference in admissions, as appropriate. Specifies that charter schoolsites are eligible for funding if the charter schoolsite meets either of the following conditions: a) The charter schoolsite is physically located in the attendance area of a public elementary school in which 70% or more of the pupil enrollment is eligible for free or reduced price meals and the schoolsite gives preference in admissions to pupils who are currently enrolled in or reside in the attendance area where the charter schoolsite is located. b) Seventy percent or more of the pupil enrollment at the charter schoolsite is eligible for free or reduced price meals. 4)Prohibits grant funds to be apportioned for any of the following: a) Units of ADA generated through nonclassroom-based instruction. AB 948 Page 4 b) Charter schools occupying existing school district or county office of education facilities. c) Charter schools receiving reasonably equivalent facilities from their chartering authority. 5)Specifies that grant funds shall be used for costs associated with facilities rents and leases and may also be used for costs associated with remodeling of a building, deferred maintenance, initially installing or extending service systems and other built-in equipment, and improving sites. FISCAL EFFECT : Unknown COMMENTS : Charter School Facility Grant Program . The CSFGP was established by SB 740 (O'Connell), Chapter 892, Statutes of 2001, to provide charter schools serving low-income areas with assistance in rent and lease payments. Eligible charter schools may receive up to $750 per unit of ADA, but may not receive more than 75% of the school's annual rent or lease costs. If the program is oversubscribed, the funds would be distributed on a pro-rata basis. Eligibility is limited to: 1)A charter school physically located in the attendance area of a public school with at least 70% of its students eligible for free or reduced price meals, and the school gives preference in admissions to pupils who are currently enrolled in that public elementary school and to pupils who reside in the attendance area where the charter school is located (called the Expanded Eligibility criterion), or 2)A charter school in which 70% or more of its pupil enrollment is eligible for free or reduce price meals. Funds may be used for costs associated with facilities rents and leases, but may also include remodeling, deferred maintenance, initially installing or extending service systems and other built-in equipment, and improving sites. The enacting legislation stated the Legislature's intent to appropriate $10 million for the program for the 2001-02, 2002-03, and 2003-04 fiscal years (FY). Funds for this program have increased substantially over time, with the bulk of the funding coming from the transfer of funds from the phase out of the Year-Round Operational Grant Program. SB 658 (Romero), AB 948 Page 5 Chapter 271, Statutes of 2008, required all funds appropriated for the Year-Round School Grant Program at the FY 2007-08 level, which, at the time, was $97 million, to be transferred to the CSFGP at a rate of 20% each year. The FY 2009-10 budget reduced allocations to categorical programs, including this program, by approximately 35%. The program received $92 million in FY 2012-13. Up until FY 2010-11, the CSFGP was a reimbursement-based program. The FY 2010-11 budget contained language authorizing charters to receive grants at the beginning of the fiscal year based on prior year average daily attendance and estimated costs. This bill makes a number of eligibility, funding and programmatic changes to the CSFGP. Eligibility and funding changes . Cap of 75 percent of costs . This bill removes the cap of 75 percent of annual facilities rent and lease costs, thereby increasing the amount of funds provided to each charter to potentially 100 percent of facilities rent and lease costs. It is unclear what the rationale is for removing the 75 percent cap. Nonclassroom-based charters . Current law prohibits grants for nonclassroom-based charters. This bill expands eligibility to nonclassroom-based charters. Under the bill, funds will be based on the lesser of 1) the actual annual facility costs or 2) $750 per unit of ADA for a classroom-based charter or $375 per unit of ADA for a nonclassroom-based charter. The author's office states that the funds for nonclassroom-based charters will only be provided for instructional space. However, that is not in the bill. A previous proposal allowed only the portions of facilities used by charters and only for the amount of time pupils actually spend in a facility. This proposal reduces the amount of funds per ADA, but allows a nonclassroom-based charter school to receive funds for all pupils regardless of the amount of time spent in a facility and regardless of how much of the facility is actually being used for instructional purposes. Eligibility based on low-income students . This bill expands eligibility to schools located in attendance areas enrolling less than 70 percent free and reduce-price meal students by AB 948 Page 6 lowering the percentage point one point at a time until all available funds are allocated in any year where additional funds remain. Funding needed . According to the CDE, grant requests have increased since the program was changed to a grant program instead of a reimbursement program. In 2011-12, the CDE received 389 new applications totaling $58 million in requests. The 2012-13 budget allocated $92 million for this program. The author's office states that when additional funding was approved in 2008, it was anticipated that at some point, it would be necessary to revise the eligibility requirements and the permissible expenses in order to align the funding. On the contrary, there was not such an agreement. If funds cannot be fully used, funds should be returned to the General Fund for use for other purposes. The reversion account was established for this purpose and every year, millions of dollars are reallocated. Staff recommends striking the provisions eliminating the 75 percent cap, expanding the CSFGP to nonclassroom-based charters, and lowering the free and reduce-price meal eligibility threshold beyond 70 percent. Use of funds for purchase of facility and debt service . This bill expands the authorized use of grant funds to include facility purchases and debt service. This provision changes the intent of this program. The purpose of this program is to provide assistance with facility rent and lease. There is another program through state bonds funds, which have provided $900 million for the acquisition and construction of charter school facilities. Purchase and paying debt service should remain with state bond funds. Allowing the CSFGP, funded by state general funds, to pay for the purchase and debt service of charter school facilities raises issues of concerns. Under the bond program, a charter is reviewed to ensure that it is "financially sound" and to ensure it has the ability to incur such debt. Facilities must meet state building regulations, including seismic standards under the Field Act. This program does not require the same level of financial review or require the same level of building safety standards. The bond program requires a 50 percent local match. This bill proposes to fund up to 100 percent of lease or rent costs. Because the state would not hold title to the facilities purchased using funds from this program, there is no process to recoup the funds if a charter school closes. Under the bond program, a process is established to return the facility to the school district or to AB 948 Page 7 the state. A question can also be raised on whether it is good policy to encourage long-term indebtedness using state funds that may or may not be available from year to year. Lastly, if a charter school closes or is not renewed by its chartering authority, and the charter authority uses the facilities for private purposes, it may constitute a gift of public funds. If the Committee chooses to pass this bill, staff recommends amendments to require the facility to be used only for instructional purposes and to meet safety standards, including the Field Act standards, and to establish a process for disposal of the property, similar to the requirements and process under the bond program. Expanding eligibility to facility costs not provided by school district or COE . This bill expands eligibility to charter schools already receiving facilities from a school district or county office of education (COE) pursuant to Proposition 39 of 2000, which, in part, requires school districts to provide reasonably equivalent facilities to charter schools. Existing law prohibits charter schools occupying existing school district or COE facilities, or charter schools receiving reasonably equivalent facilities from their chartering authority pursuant to Proposition 39 from receiving CSFGP funds. The bill authorizes facilities costs not associated with occupying district or COE facility to be eligible for grant funds. The bill also authorizes facilities costs associated with a charter school occupying reasonably equivalent facilities from a school district , rather than from their chartering authority, pursuant to Proposition 39, to be eligible for grant funds. Preference for enrollment . This bill deletes the provision requiring a charter school that relocates from an attendance area in which less than 50 percent of pupil enrollment is eligible for free and reduce-price meals to an attendance area eligible for the CSFGP to give admissions preference to the pupils residing in the new attendance area. The eligibility criteria for CSFGP funds requires a charter school to give preference to the pupils residing in the attendance area if the school itself does not enroll 70 percent of pupils eligible for free and reduce-price meals. According to the sponsor, the California Charter School Association Advocates, this provision was removed "to delete any state law dealing with preferences that gets crosswise with the feds. DOE [Department of Education] was threatening to withhold charter school grant money because we have some policies that are AB 948 Page 8 counter to recent fed law." However, according to the CDE, the federal government's concerns are policies when applying for the federal Public Charter School Grant program. This provision is specific to the CSFGP. Staff recommends reinstating the provision. Programmatic changes . The bill specifies that the initial payment to charter schools shall be based on prior year ADA, as certified at the second principal apportionment, for a charter school that operated the prior year, and upon the ADA approved pursuant to EC 47652. EC 47652 establishes the process for advance apportionment for charters operating in its first year based on an estimate of ADA for the current fiscal year. EC 47652 also specifies that not later than five business days following the first 20 days of school, a charter must report to the CDE its actual ADA for the first month, and the Superintendent of Public Instruction must adjust the apportionment accordingly This bill requires the CDE to provide at least 75 percent of estimated facilities costs in its initial payment and requires the final payment to be apportioned on or before August 1 of the year following the fiscal year in which the costs were incurred. According to the CDE, the August 1 requirement may be a challenge. Costs are incurred through the end of the fiscal year in June and the process for submitting and verifying receipts would require more than one month. This bill requires the eligibility for grant funds and the amount of grant program funds received by a charter school to be included in the scope of the annual, independent financial audit of the charter school. Staff recommends an amendment to incorporate the enforcement of the CSFGP funds in the audit guide. Governor's proposed 2013-14 budget . The Governor's 2013-14 budget proposes to transfer the administration of the program from the CDE to the California School Finance Authority under the Treasurer's office. The Governor also proposes some changes that are similar to some of the proposals contained in this bill. The Governor proposes to fund nonclassroom-base charter school facilities, but only the portions that are used to provide direct instruction and instructional support. The Governor's proposal also allows charter schools that receive district or COE facilities to receive funds for the portions of AB 948 Page 9 their facilities that are not existing district or COE facilities or reasonably equivalent facilities received from their chartering authority. The Governor's proposal moves, from October 1 to August 31 or no later than 30 days after enactment of the Budget Act, by which grant funds must be allocated to charter schools. Rather than including the CSFGP funds in the charter school's audit, the Governor's proposal incorporates the enforcement in the audit guide. The author states, "Providing appropriate facilities for charter schools continues to be a substantial challenge. Unlike traditional public schools, charter schools do not have a range of tools available for securing facilities. One of the most successful facility program is the "SB 70" program, which was enacted in 2001 and provides reimbursement for facility rent and lease costs to eligible charter schools." Previous legislation . SB 645 (Simitian) creates charter school academic accountability measures for renewal; expands eligibility for Charter School Facility Grant Program; and, authorizes the California School Finance Authority to refinance working capital for charter schools. The bill was held in the Assembly Appropriations Committee suspense file in 2011. AB 2047 (Huff), strikes the provision of law stating the intent of the Legislature to appropriate $10 million for the CSFGP for the 2001-02, 2002-03, and 2003-04 fiscal years, and specifies that for the 2006-07 fiscal year and each fiscal year thereafter, the program shall be funded at the level appropriate in the annual Budget Act, or other statute. The bill was held in the Assembly Appropriations Committee suspense file in 2006. AB 2323 (Huff) expands eligibility to charter schools located in attendance areas of public schools where 50 percent or more but less than 70 percent pupils are eligible for free and reduce-price meals and the charter school gives preference to students enrolled in the public school or the charter school enrolls 50 percent or more but less than 70 percent of pupil enrolled at the charter school are eligible for free and reduce-price meals. The bill was held in the Assembly Appropriations Committee in 2006. REGISTERED SUPPORT / OPPOSITION : AB 948 Page 10 Support California Charter Schools Association Advocates Opposition None on file Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087