BILL ANALYSIS Ó AB 787 Page 1 Date of Hearing: April 8, 2015 ASSEMBLY COMMITTEE ON EDUCATION Patrick O'Donnell, Chair AB 787 (Roger Hernández) - As Amended March 26, 2015 SUBJECT: Charter schools: operation: nonprofit public benefit corporations SUMMARY: Requires a charter school operated as a nonprofit to nominate, in the charter petition, twice the number of people needed for their board of directors; requires the chartering authority to appoint a majority of the members of the board of directors for such charter schools from the nomination list; and, prohibits a charter school from operating as a for-profit corporation. 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 benefit corporation, and that submits a charter petition, charter renewal, or material revision application on or after January 1, 2016, all of the following to apply: AB 787 Page 2 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. 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. 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 benefit corporation at the time the vacancy occurs, and by submitting a material revision application. c) Nothing 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 AB 787 Page 3 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. e) A charter school shall not operate as, or be operated by, a for-profit corporation. 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. 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 AB 787 Page 4 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 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) 4)Requires charter school petitions to include a reasonably AB 787 Page 5 comprehensive description of a declaration whether or not the charter school shall be deemed the exclusive public school employer of the employees of the charter school for purposes of the Educational Employment Relations Act (Chapter 10.7 (commencing with Section 3540) of Division 4 of Title 1 of the Government Code). (EC 47605 (b)(5)(O)) FISCAL EFFECT: Legislative Counsel has keyed this bill as a state-mandated local program. According to the Assembly Appropriations Committee, for a substantially similar bill, 1)General Fund /Proposition 98 (GF/98) state reimbursable mandated costs in the range of $750,000 to $2.1 million for school districts and county offices of education (charter authorizers) to review and appoint board members. This assumes review of five to 10 board members for each of the 738 charter schools currently operating as nonprofit public benefit corporations. The State Board of Education would also incur GF costs to review board members for at least two statewide public benefit charter schools. Costs would be incurred as each charter petition is renewed, every five years. 2)The 2012-13 Budget Act created the K-12 Mandate Block Grant. A school district, charter school, or county office of education may choose to receive a per-pupil allocation to conduct existing K-12 mandated activities, including activities related to charter school authorization and oversight. If the Commission on State Mandates determines the activities in this bill to be state mandated activities, these activities could be considered for inclusion in the block grant. Prior to the 2012-13 Fiscal Year, cost claims for mandated activities related to charter school authorization and oversight were approximately $1.9 million GF/98. 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 AB 787 Page 6 appointed. Charter schools are required to nominate twice the number of members necessary in their charter petition and the chartering authority shall appoint members to the charter school body from the list of nominated members provided in the petition. This bill addresses two recent issues. First, the bill addresses an argument made by California Virtual Academy (CAVA) before the Public Employment Relations Board (PERB), that they are not a "political subdivision of the state." Second, the bill addresses a recent Internal Revenue System (IRS) proposed regulation and subsequent response by California Public Employees Retirement System (CalPERS) that could 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. This bill also prohibits charter schools from being operated by a for-profit corporation. According to the California Charter School Association, there are currently six for-profit charter schools operating in California. National Labor Relations Board & The Chicago Decision: 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 787 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." According to the author, "when the PERB sent a notice to CAVA notifying them that the teachers had voted to create a union under the EERA, attorneys from CAVA sent a May 29, 2014 response letter to PERB indicating that "PERB should defer to the NLRB," citing the 2012 NLRB decision from Chicago. CAVA made the argument that their employees were private employees. If CAVA AB 787 Page 7 management had been successful in making this assertion, there are lingering questions about the ability of their employees to collect a public pension or even for the school to collect public tax dollars. Additionally, a decision like this about a charter school in California would have an impact on many other charter school educators, who have formed their unions within the framework of the EERA." According to the California Teachers Association, "The Chicago Mathematics case began when an American Federation of Teachers affiliate organized employees of the charter school under the Illinois public sector bargaining statute, which is applicable to Illinois charter schools by express statutory provision. In response, the charter school filed a representation petition with the NLRB, arguing that the charter school is not exempt from the NLRB's jurisdiction as a "political subdivision of the state." The Board unanimously ruled that the charter school is an "employer" under the NLRA and not a "political subdivision of the state." In so doing, the Board employed a very narrow analysis that looks only to the manner in which the school's governing board is selected. The Board reasoned that because the members of the charter school's governing board were not popularly elected or appointed by public officials and are not removable by the electorate or by public officials, the charter school is not administered by persons who are responsible to government officials or the public so as to constitute an exempt political subdivision. In California, the Legislature and the charter school community acknowledge that charter schools should be covered in the EERA, and as a result there is a need to change state law to allow continued coverage." The NLRB has two additional cases before it regarding their jurisdiction once charter schools in New York and Pennsylvania. CalPERS Application Changes: In response to advance notice of proposed rulemaking by the IRS, CalPERS changed their AB 787 Page 8 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? 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, and they went on to deny at least 9 others. In January of 2015, the IRS issued a new draft proposal of rulemaking with tests for charter school participation in their State or local retirement system which include the following: The entity satisfies either paragraph 1) or 2) below: 1)The entity's governing board or body is controlled by a State, political subdivision of a State, or agency or instrumentality AB 787 Page 9 of a State or of a political subdivision of a State. For this purpose, either (i) a State, political subdivision of a State, or an agency or instrumentality of a State or political subdivision of a State must have the power to nominate, appoint, remove, and replace a majority of the members of the entity's governing board or body, or (ii) a majority of the members of the entity's governing board or body must be publicly nominated and elected. 2)In lieu of satisfying the requirements in paragraph 1), the entity satisfies the following requirements: a) The primary source of the entity's funding is from a State, political subdivision of a State, or agency or instrumentality of a State or political subdivision of a State. b) The rights of the entity's employees to their accrued benefits under the State or local retirement system are not dependent on whether the entity continues to participate in the system and, in the event the entity ceases participation, a governmental entity has responsibility for the accrued benefits of the entity's employees, including the continued funding of the accrued benefits, to no lesser extent than a governmental entity has responsibility for the continued funding of the accrued benefits of the employees of any other participating employer in the system in the event that other employer were to cease to be a participating employer. c) The entity is part of a local educational agency, as defined in 20 U.S.C. 7801(26) (or is its own local educational agency), and is subject to the significant regulatory control and oversight by a State, political subdivision of a State, or agency or instrumentality of a State or political subdivision of a State, as described in paragraphs i) and iii) below: i) The entity is held accountable by an authorized public chartering agency as defined in 20 U.S.C. § 7221i(4), which has the power to approve, renew, and revoke the charter of the entity. For this purpose, the authorized public chartering agency must be authorized under State law to approve charters for the creation of AB 787 Page 10 independent public schools and to hold the entity accountable for results. ii) The entity is required to comply with health and safety standards, as well as academic and financial accountability standards, that are similar to those that are generally applicable to other public schools in the State. Based on this draft rulemaking, CalPERs is planning to update their application criteria and review the 10 charter schools they previously denied as well as the additional 33 applications they have currently pending. It is unclear whether all charter schools will meet the test above. The committee should consider whether all charter schools will meet paragraph 2) above, or whether this bill is a more appropriate solution to this problem. Appointed Chartering Authorities: While the vast majority of school boards and 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 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 states, "Many charter schools are publicly funded but privately governed. This private governance is AB 787 Page 11 causing confusion about whether charter school employees are public or private. This important legislation will ensure that charter school employees are public employees, with the ability to participate in public pension programs, working in schools that can receive public tax dollars, 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 Advocates opposes the bill and states, "According to his fact sheet on the bill, the author claims that the bill is intended to ensure that charter school employees are covered under the state's Education Employment Relations Act (EERA). We are perplexed as to what is actually missing in the law, since the EERA already expressly applies to charter school employees. We are further perplexed as to what relationship this bill has to EERA, since EERA is not mentioned in the bill." Committee Amendment: Staff recommends the bill be amended to specify in Education Code Section 47604 (3): "It shall be the policy of the state to encourage and to promote parental, educator, geographic & ethnic diversity and community participation in the governance of a charter school." REGISTERED SUPPORT / OPPOSITION: Support California Federation of Teachers California Labor Federation AB 787 Page 12 California Teachers Association Opposition Caliber Schools California Charter Schools Association Advocates Clayton Valley Charter High School EdVoice KIPP Academy of Innovation KIPP Bay Area Schools KIPP Empower Academy KIPP Iluminar Academy KIPP Vida Preparatory Academy AB 787 Page 13 KIPP: LA Schools Odyssey Charter School Orange County Conservation Corps Palisades Charter High School Partnerships to Uplift Communities San Jose Charter Academy Shasta Charter Academy SIATech StudentsFirst The Language Academy of Sacramento Valley Preparatory Academy Charter School Ventura Charter School Willow Creek Academy AB 787 Page 14 Numerous Individuals Analysis Prepared by:Chelsea Kelley / ED. / (916) 319-2087