BILL ANALYSIS Ó
AB 787
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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:
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Numerous Individuals
Analysis Prepared by:Chelsea Kelley / ED. / (916) 319-2087