BILL ANALYSIS
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|Hearing Date:August 9, 2010 |Bill No:AB |
| |1140 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 1140Author:Niello
As Amended:June 29, 2010 Fiscal: Yes
SUBJECT: California Private Postsecondary Education Act of 2009
(Act): Flight schools and aircraft maintenance programs.
SUMMARY: An urgency measure, this bill provides for an eighteen month
delay in implementation of the Act, beginning July 1, 2010, for
institutions that offer flight instruction or an institution that
offers Federal Aviation Administration (FAA) certified educational
programs in aircraft maintenance. The bill also requires the
Legislature to hold public informational hearings for the purpose of
reviewing the appropriateness of regulating these programs.
Existing law:
1)Establishes the Bureau for Private Postsecondary Education (Bureau)
within the Department of Consumer Affairs (DCA) and provides for
Bureau oversight and regulation of California private postsecondary
institutions.
2)Exempts the following from oversight by the Bureau:
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.
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d) An institution offering test preparation for examinations
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)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.
4)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.
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.
6)Requires the Bureau to provide annual progress updates to the
Legislature, as specified, in the form of oversight hearings by
appropriate policy and fiscal committees.
7)Requires the Legislative Analyst's Office (LAO), by October 1, 2013,
to report to the Legislature and the Governor on the appropriateness
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of the exemptions provided by the bill.
8)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.
This bill:
1) Provides for an 18-month delay in implementation of the Act,
beginning July 1, 2010, for institutions that offer flight
instruction or an institution that offers FAA certified educational
programs in aircraft maintenance and requires the Legislature to
hold public informational hearings for the purpose of reviewing the
appropriateness of regulating these programs.
2) Adds an urgency clause.
FISCAL EFFECT: Unknown. This bill is keyed fiscal.
COMMENTS:
1.Purpose. This measure is sponsored by the National Air
Transportation Association (NATA) According to the Author, the
former Bureau had a Memorandum of Understanding (MOU) with the FAA
that exempt flight instructors and flight schools from most of the
regulatory authority of the Bureau. AB 48 did not renew this
agreement with the FAA, although there are provisions in AB 48,
including an exemption for 'recreational or avocational' instruction
that would likely exempt many individual flight instructors and
flight schools.
The Author believes that there is confusion on the part of the Bureau
and the flight instruction industry over how broadly this exemption
can be applied. The Author notes that many instructors and schools
are concerned that if they do not file an application with the
Bureau (applications were due on August 1, 2010), they could be
fined by the State for failure to operate with Bureau authority.
NATA argues that, "The Act is structured to provide oversight for
typical 'brick and mortar' private postsecondary educational
institutions. That structure is not well suited to provide oversight
for an industry as diverse and unique as ours. As a result, AB 48
and the regulations being promulgated by the BPPE threaten to
irreparably harm the aviation industry in the state as many flight
training facilities will be forced to close. The job losses and
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overall economic harm caused by such a fate would devastate the
already fragile California economy."
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 colleges comply with the law.
3.Flight Schools.
a) Exemptions and Requirements for Flight Schools 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,
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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
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
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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
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 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
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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
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. Merced County may try to collect
$700,000 in past and future rent from ASA based on a five year
lease it had with the school. In addition, Gemini Flight
Service, which sold the school gasoline, is still owed $56,000 in
unpaid bills.
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 force behind
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 schools. The first
indication for schools that they were subject to new regulations
came in the form of letters from the Bureau earlier this year
detailing requirements for application for approval. According
to NATA, "Under FAA regulations, flight training can occur under
two separate regulatory environments established by Title 14 of
the Code of Federal Regulations Part 61 and 141 (14 CFR Part 61
& 14 CFR Part 141). Known as Part 61 and Part 141 flight
training, these separate environments address the varying needs
of flight training students. The basic requirements for pilot
certification, including training topics, hour requirements, and
licensing test requirements are found in 14 CFR Part 61. The
regulatory structure of Part 61 allows for training to occur in a
variety of structures. These structures include instruction
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provided by an individual CFI to individual students, as well as
training provided by small and larger facilities employing or
contracting CFIs to provide instruction. These differing training
structures usually involve payment for services on a per-flight
basis (usually due after the training flight occurs), where the
student is charged an hourly rate for aircraft rental and
instruction."
b) 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 en masse at a
recent Bureau Advisory Committee meeting, presenting 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 argue that Bureau regulation, as contained in AB 48, 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, 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 state that they do not charge
fees up front but rather operate on a pay-as-you-go basis.
Flight schools have also reached out to members of the
Legislature and Governor's Office, attempting to amend this bill
to include an exemption to the requirements of AB 48.
In response to the flight schools, the Author recently amended
this bill to provide an eighteen month delay for institutions
that offer flight instruction or an institution that offers FAA
certified educational programs in aircraft maintenance and
require the Legislature to hold public informational hearings for
the purpose of reviewing the appropriateness of regulating these
programs.
1.Previous Related Legislation. 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 in
the Assembly Committee on Appropriations.
2.Should this bill be amended to mirror similar legislation previously
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passed by this Committee? On June 28, 2010, this Committee passed
AB 1889 (Portantino) on a 6-1 vote. That bill provided for a one
year delay in implementation of the Act for flight schools certified
by the FAA, and the same requirement contained in this measure for
the Legislature to hold public informational hearings to review the
appropriateness of regulating these programs. AB 1889 is currently
on the Senate Committee on Appropriations Suspense file and still
continuing in the legislative process.
Staff recommends amending this measure to allow for a one year delay
in implementation of the Act for flight schools, as consistent with
AB 1889.
On page 2, line 3, strike "December 31," and replace it with "July
1,".
SUPPORT AND OPPOSITION:
Support: National Air Transportation Association (Sponsor)
Opposition: None received as of August 4, 2010
Consultant:Sarah Mason