BILL ANALYSIS Ó
AB 1531
Page 1
Date of Hearing: April 9, 2014
ASSEMBLY COMMITTEE ON EDUCATION
Joan Buchanan, Chair
AB 1531 (Chau) - As Introduced: January 21, 2014
SUBJECT : Charter schools: operating as or by a nonprofit
public benefit corporation.
SUMMARY : Requires charter schools operated as a nonprofit to
nominate, in the charter petition, twice the number of people
needed for their board of directors; and, requires the
chartering authority to appoint a majority of the members of the
board of directors for such charter schools from the nomination
list. Specifically this bill :
1)Requires that an authority that grants a charter school be
entitled to a single representative on the board of directors
of the nonprofit public benefit corporation.
2)Requires, for a charter school that elects to operate as a
nonprofit public benefit corporation, and that submits a
charter petition, charter renewal, or material revision
application on or after January 1, 2015, all of the following
apply:
a) The initial chartering authority shall appoint a
majority of the members of the board of directors of the
nonprofit public benefit corporation from persons publicly
nominated in the charter petition, charter renewal, or
material revision application. The number of persons
nominated shall be twice the total number of members that
comprise the board of directors. The majority calculation
required shall not include the representative appointed by
the chartering authority.
b) The initial chartering authority, during the term of the
charter, shall ensure that a majority of the members of the
board of directors of the nonprofit public benefit
corporation are members appointed by the chartering
authority. In the event that a member appointed no longer
serves on the board of directors, for reasons including,
but not limited to, death, disability, removal, or
resignation, the initial chartering authority shall appoint
a new member from persons nominated by the nonprofit public
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benefit corporation at the time the vacancy occurs, and by
submitting a material revision application.
c) Nothing in this provision limits or supersedes the
ability of a charter school to either use an election
process or other community involvement process to select
nominees for the board of directors of the nonprofit public
benefit corporation for consideration by the initial
chartering authority or to nominate persons for positions
on the board of directors of the nonprofit public benefit
corporation by using specified eligibility criteria. It
shall be the policy of the state to encourage and to
promote parental, educator, and community participation in
the governance of a charter school.
d) A member of the board of directors of the nonprofit
public benefit corporation is subject to removal from his
or her board position pursuant to Article 3 (commencing
with Section 3060) of Chapter 7 of Division 4 of Title 1 of
the Government Code and as otherwise provided by law.
3)Specifies that a charter petition shall contain a reasonably
comprehensive description of, if the charter school elects to
operate as, or be operated by, a nonprofit public benefit
corporation, the names and background information for all
persons whom the petitioner nominates to serve on the board of
directors of that nonprofit public benefit corporation.
FISCAL EFFECT : Unknown
EXISTING LAW:
1)Authorizes charter schools to elect to operate as, or be
operated by, a nonprofit public benefit corporation, formed
and organized pursuant to the Nonprofit Public Benefit
Corporation Law. Specifies the governing board of a school
district that grants a charter for the establishment of a
charter school shall be entitled to a single representative on
the board of directors of the nonprofit public benefit
corporation. Specifies an authority that grants a charter to
a charter school to be operated by, or as, a nonprofit public
benefit corporation is not liable for the debts or obligations
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of the charter school, or for claims arising from the
performance of acts, errors, or omissions by the charter
school, if the authority has complied with all oversight
responsibilities required by law, including, but not limited
to, those required by Section 47604.32 and subdivision (m) of
Section 47605. (Education Code 47604)
2)Requires charter school petitions to include a reasonably
comprehensive description of the manner by which staff members
of the charter schools will be covered by the State Teachers'
Retirement System (CalSTRS), the Public Employees' Retirement
System (CalPERS), or federal social security. (EC 47605
(b)(5)(K))
3)Specifies that if a charter school chooses to make the CalSTRS
Plan available, all employees of the charter school who
perform creditable service shall be entitled to have that
service covered under the plan's Defined Benefit Program or
Cash Balance Benefit Program, and all provisions of Part 13
(commencing with Section 22000) and Part 14 (commencing with
Section 26000) shall apply in the same manner as the
provisions apply to other public schools in the school
district that granted the charter. If a charter school offers
its employees coverage by CalSTRS or the CalPERS, or both, the
charter school shall inform all applicants for positions
within that charter school of the retirement system options
for employees of the charter school. The information shall
specifically include whether the charter school makes
available to employees coverage under CalSTRS, the CalPERS, or
both systems, and that accepting employment in the charter
school may exclude the applicant from further coverage in the
applicant's current retirement system, depending on the
retirement options offered by the charter of the charter
school. (EC 47611)
COMMENTS : This bill requires governing bodies of charter
schools operated as nonprofit corporations to be appointed by
the chartering authority. Specifically, the bill requires a
majority of the members of these governing bodies to be
appointed. Charter schools are required to nominate twice the
number of members necessary in their charter petition and the
AB 1531
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chartering authority shall appoint members to the charter school
body from the list of nominated members provided in the
petition. This bill is in response to recent Internal Revenue
System (IRS) proposed regulations and subsequent response by
California State Teachers Retirement System/California Public
Employees Retirement System (CalSTRS/CalPERS) to potentially
exclude charter schools from the retirement system because
nonprofit charter schools do not meet the "tests" which qualify
the school as a governmental entity. One such test is whether
the governing body is elected or appointed by elected officials.
This bill seeks to correct the exclusion of charter schools
from CalSTRS/CalPERS by requiring nonprofit charter schools to
have a majority of their governing body members appointed by the
chartering authority, which is generally an elected board.
According to the author, "Charter school employees deserve to
participate in CalSTRS and CalPERS. The US Internal Revenue
Service (IRS) is clarifying the definition of "governmental
plans" which are eligible for the special tax rules. CalSTRS and
CalPERS are governmental plans that are impacted by this
rulemaking. Under the IRS proposed regulations, all individuals
who benefit from one of these state retirement systems would
have to be employed by a governmental entity, such as the state,
an elected school board, or the federal government.
Additionally, no private interests may benefit from these tax
rules extended only to employees of the government. This is why
AB 1531 requires that all public schools, including charter
schools, are governed by boards that are either elected by the
public or appointed by public officials who are accountable to
the electorate. Currently, existing law provides no specific
requirement for charter school governing boards to be controlled
by a state or political subdivision. This charter school
exemption allows the IRS rulemaking to threaten charter school
employees' eligibility in a governmental plan, such as CalPERS
or CalSTRS."
CalSTRS Response to IRS : In response to advance notice of
proposed rulemaking by the IRS, CalSTRS issued a 2012 report
asking a critical question: "What happens if a charter school
does not meet the test for its employees to participate in a
governmental plan?" The report indicated that the proposed
regulations will include multiple facts and circumstances to
determine whether an entity is an agency or an instrumentality
of a state or political subdivision and thus eligible to have
its employees participate in a governmental plan, including but
AB 1531
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not limited to whether:
1)The entity's governing board or body is controlled by a state
or political subdivision.
2)The members of the entity's governing board or body are
publicly nominated or elected.
3)A state or political subdivision has fiscal responsibility for
the general debts and other liabilities of the entity,
including the responsibility for funding the entity's employee
benefits plans.
4)The entity's employees are treated in the same manner as
employees of the state or political subdivision for purposes
other than providing employee benefits.
5)The entity is designated the authority to exercise sovereign
powers, which generally means the power of taxation, eminent
domain or police power.
CalSTRS determined that "most California public charter schools
likely would not pass these main tests, primarily because the
presence of a nonprofit operator introduces a layer of oversight
and management separate from that of the school district which
eventually leads to ineligibility under these tests." According
to CalSTRS, the agency does not have plans to change eligibility
until the final rulemaking has occurred at the federal level.
According to the author, "The IRS has not yet concluded their
rulemaking process. However, the 2012 report indicates that
CalSTRS has been monitoring the development of the IRS proposal
and concluded that public charter schools in California operated
by or as non-profit organizations probably would not be
considered agencies or instrumentalities of the state or a
political subdivision. These new rules would compel CalSTRS to
prohibit the participation of charter schools in its benefit
program, so that the CalSTRS would not lose their governmental
plan status under IRS section 414(d). AB 1531 will ensure that
charter schools operate with integrity and transparency to the
public to ensure that their employees are not deemed ineligible
to participate in governmental pension plans by the IRS, and
also to assure the public about its fiduciary responsibility.
Charter school employees are part of the public education system
and should be treated equitably by receiving the protections and
benefit plans afforded to all public educational employees,
including participation in CalSTRS. Unless we take immediate
action, the retirement benefits of these employees is in
jeopardy."
CalPERS Application Changes : In response to advance notice of
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proposed rulemaking by the IRS, CalPERS changed their
application process in May 2013. They issued a letter explaining
the change which states, "Although the Proposed Regulations are
not final, and could be revised during the official regulatory
process, in order to mitigate potential risks to the CalPERS
Plans, its members and employers, CalPERS has decided to
incorporate the Proposed Regulations into our existing
eligibility review process." Several modifications were made to
the CalPERS applicant questionnaire and eligibility criteria,
which resulted in new questions to those who seek participation,
including but not limited to:
1)Please indicate whether the members of the Employer's
governing board or body are Elected or Appointed? If
appointed, who has the power to appoint members of the
Employer's governing board or body?
2)Does any person or entity have the power to remove members of
the Employer's Governing board or body?
3)Is the Employer treated as a governmental entity for any other
purposes? Please describe in detail. Examples: Is the Employer
subject to open meeting laws (such as the Brown Act), the
California Public Records Act or similar laws? Are the
Employer's employees subject to the California Political
Reform Act? Please provide a copy of the Employer's current
Conflict of Interest Code. Has any State or federal court or
administrative agency made a formal written determination that
the Employer is a governmental entity for any purpose?
According to CalPERS, AB 1531 may result in some nonprofit
charter schools becoming eligible for CalPERS, but it is not a
guarantee since each school is evaluated separately based on
many factors.
According to the author, "In June of 2013, one month after
changing their application process, CalPERS denied employees of
a California charter school, the Dehesa Charter School, the
opportunity to participate in the state pension plan. This was
the first time CalPERS has denied participation to any charter
school, but not the last. AB 1531 will ensure that charter
schools operate with integrity and transparency to the public to
ensure that their employees are not deemed ineligible to
participate in governmental pension plans by the IRS, and also
assure the public about its fiduciary responsibility. Charter
school employees are part of the public education system and
should be treated equitably by receiving the protections and
benefit plans afforded to all public educational employees.
Unless we take immediate action, charter school employees whose
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school is operated as or by a non-profit organization will
continue to be denied participation in CalPERS."
Exclusion of Charter Schools from CalPERS : Since CalPERS
changed their application process at least 9 charter schools
have been denied participation. Those schools include:
1)Dehesa Charter School, Escondido, CA
2)Rio Valley Charter School, Lodi, CA
3)IvyTech Charter School, Moorpark, CA
4)Synergy Education Foundation, Los Angeles, CA
5)Alliance College Ready Academy #18, Los Angeles, CA
6)Alliance Renee & Meyer Luskin Academy, Los Angeles, CA
7)Advanced Institute for Learning, Fallbrook, CA
8)Alliance College Ready Academy #14, Los Angeles, CA
9)Summit Leadership Academy, Hesperia, CA
National Labor Relations Board : According to the California
Teachers Association, "A 2012 decision by the National Labor
Relations Board (NLRB) suggests that charter school employees
are private employees, subject to the National Labor Relations
Act (NLRA). AB 1531 seeks to ensure that all of California's
charter schools are considered "political subdivisions of the
state" subject to the Education Employment Relations Act (EERA)
and not the NLRA. The EERA, and the extensive Public Employment
Relations Board (PERB) law that has developed under it, reflects
the unique context of California's public schools. For example,
the scope of bargaining under EERA specifically includes issues
like teacher evaluation procedures, and sets forth a duty to
consult on curriculum and textbooks."
Appointed Chartering Authorities : While the vast majority of
school boards, county boards of education are elected bodies,
there are a few charter authorizers that are appointed boards
instead of elected boards. These appointed boards include the
State Board of Education and the Los Angeles County Board of
Education. The committee should consider whether this bill will
correct the situation for nonprofit charters authorized by these
boards.
Authorizer Liability : The committee should consider whether
charter authorizers that authorize nonprofit charter schools and
appoint a majority of the charter school's governing body
members will be assuming more financial liability if the charter
school closes. Under existing law, it appears that charter
authorizers have some protection from liability of nonprofit
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charters they authorize, if they perform proper oversight;
however, it is unclear whether this bill erodes that protection
from liability since the authorizer would be appointing the
governing body of the charter school.
Arguments in Support : The California Teachers Association
supports the bill and argues, "Many charter schools are publicly
funded but privately governed. This private governance is
causing confusion about whether charter school employees are
public or private. This important legislation will ensure that
charter school employees will be able to participate in public
pension programs and are covered by the state's collective
bargaining laws that apply to other public education employees."
Arguments in Opposition : The California Charter School
Association opposes the bill and argues, "A charter school that
operates under the de facto control of the school board that
authorized it, as envisioned in AB 1531, would no longer be
independent. It would be operated by a governing body that
would reflect the interests of the school district's central
governing board, not the community from which the charter school
sprung. There is no doubt that this kind of charter board would
make decisions that were consistent with the pedagogical,
administrative, operational and funding priorities of the school
district board. The distinction between a charter school and a
traditional public school would be blurred to the point of
non-existence."
REGISTERED SUPPORT / OPPOSITION :
Support
California Teachers Association
Opposition
California Charter Schools Association Advocates
California Parents for Public Virtual Education
Charter School Capital
Green Dot Public Schools
EdVoice
K-12, Inc.
SIATech California
AB 1531
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Analysis Prepared by : Chelsea Kelley / ED. / (916) 319-2087