BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: SB 592
AUTHOR: Romero
AMENDED: April 16, 2009
FISCAL COMM: Yes HEARING DATE: April 29, 2009
URGENCY: No CONSULTANT: Kathleen Chavira
SUBJECT : Charter School Facilities
SUMMARY
This bill authorizes a local government entity, including
but not limited to, a county board of education, a city or
a county, and authorizes a charter school to hold title to
a facility constructed with state bond funds under the
School Facility Program. The bill also requires a district
currently holding title to such facilities to transfer
title to these entities upon the request of the charter
school, unless the school district has contributed at least
50 percent of the local matching share or provided the land
for the project.
BACKGROUND
Current law establishes the School Facility Program (SFP)
under which the state provides general obligation bond
funding for various school new construction and
modernization projects. In 2002, Proposition 47 authorized
$11.4 billion dollars in general obligation bonds. Among
other things, it created the Charter Schools Facilities
Program (CSFP) and provided $100 million in funding for
this purpose. In 2004, Proposition 55 authorized $10
billion in general obligation bonds and provided an
additional $300 million for the new construction of
facilities for charter schools. Most recently, Proposition
1D made several changes and further expanded the CSFP,
providing an additional $500 million for charter school
facilities.
Current law requires that a school district hold title, in
trust, for the benefit of the state public school system,
to any project facilities constructed with state bond
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funds. Current law also provides for the continued use of
a charter school facility by another charter, or the school
district if the charter school funded under the CSFP ceases
to use the facility for a charter school purpose. If the
district declines to take possession of the facility or it
is no longer needed for public school purposes, the
district is authorized to dispose of the facility in a
manner applicable to the disposal of surplus public school
sites.
ANALYSIS
This bill authorizes a local government entity, including
but not limited to, a county board of education, a city or
a county, and authorizes a charter school to hold title to
a facility constructed with state bond funds under the
School Facility Program. More specifically it:
1) Creates new conditions which must be met prior to the
release of funds for a school facility project under
the Charter School Facility Program (CSFP) by
requiring that an applicant for these funds provide
one of the following:
a) Documentary evidence that a school
district in which the facility is to be
physically located holds title to the project
facilities.
b) Documentary evidence that a local
governmental entity, including but not limited
to, a county board of education, a city or a
county holds title to the facilities in trust for
the benefit of the state public school system.
c) A request that the charter school
be authorized to hold fee simple title to the
property, to be submitted with a statement
outlining the reasons that ownership of the
facilities cannot be vested with the district or
local governmental entity.
2) Prohibits a local governmental entity that holds title
to a project facility from exercising any control over
the operation of the charter school and requires
compliance with CSFP adopted regulations.
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3) Requires a charter school requesting authority to hold
title to a project facility to record a lien in favor
of the State Allocation Board for the total amount of
funds allocated under the CSFP.
4) Requires a school district which entered into an
agreement to hold title to a charter school facilities
project prior to January 1, 2010, to transfer title to
a local government entity or the charter school, upon
the request of the charter school unless the district:
a) Contributed no less than 50
percent of the local matching share, as
specified.
b) Purchased and retains ownership,
in whole, of the site upon which the charter
school facility project is located.
5) Authorizes, the titleholder, rather than the school
district, to dispose of the facilities in a manner
otherwise applicable to the disposal of surplus public
school sites, if a district declines to use the
facility as a school site or it is no longer needed
for public school purposes.
6) Makes other conforming changes.
STAFF COMMENTS
1) What is the problem ? In order to participate in the
Charter School Facility Program (CSFP), the California
School Finance Authority (Authority) requires three
agreements: the Memorandum of Understanding (MOU),
which outlines the roles and responsibilities of all
parties involved in the CSFP project; the Funding
Agreement, which sets forth the repayment terms of the
local matching share amount (templates for these
agreements were adopted by the State Allocation Board
(SAB) in January 2007); and the Use Agreement, which
is negotiated and entered into by the school district
and charter school. As titleholders for facilities
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constructed under the CSFP, school districts must sign
both the MOU and the Use Agreements. All three
agreements must be executed prior to any fund release.
Charter schools contend that the time involved in
negotiating the Use Agreements is excessive, resulting
in delays in initiating projects or acquiring land.
In addition, charters have expressed concern that
school districts have placed "onerous" conditions upon
them in these agreements and have extracted
unreasonable concessions such as rights for parking,
use rights for adult school programs or other
non-charter programs, and that they have been required
to waive all rights to request any other property from
the district for the term of the lease. This bill
attempts to address this issue by authorizing both
local government entities and charter schools to be
eligible to hold title to the facilities. The
committee may want to explore further whether they
concur that the conditions imposed by districts are
"onerous."
2) Who should hold title ? This bill authorizes cities
and counties to hold title to CSFP facilities in trust
for the state public school system and prohibits them
from controlling the operation of the charter school.
Is this sufficient to ensure that assets that derive
from funds provided by voters for the purpose of
constructing school facilities serve this purpose?
Could/should the local entities' financial interest in
these facilities be used to underwrite other local
government priorities? What happens if a city or
county declares bankruptcy? Would/should the facility
be available as an asset to satisfy a city or county's
debt obligations? Should titleholders be restricted
to those who can grant charters, i.e. districts,
county offices of education and the State Board of
Education?
3) Just ask ? As drafted, the bill appears to require a
simple request from a charter to hold title as
sufficient documentary evidence to release funds for a
charter school facility project. Staff recommends the
bill be amended to clarify that the SAB has reviewed
and approved such a request prior to any fund release.
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4) New role for SAB ? This bill requires a charter that
requests to hold title to submit a statement outlining
the reasons ownership is not vested in a district or
other local entity. Presumably, this would occur when
there is a lack of consensus around a Use Agreement
between the two entities. Is it the intent that the
SAB assess the "reasonableness" of each party's
conditions/concerns? Is this "arbiter" function over
Use Agreements an appropriate role for the State
Allocation Board (SAB)?
1) Surplus property . This bill authorizes the
"titleholder" to dispose of the facilities if a
district declines to use the facility as a school site
or it is no longer needed for public school purposes.
What happens to the proceeds from the sale? Does a
school district retain any excess proceeds if the
property is sold or can a charter school or other
local government entity retain the proceeds? What
assurance is there that proceeds from the sale of
assets constructed with funds authorized for public
school facility purposes will be used to meet voters'
original intent? Staff recommends the bill be amended
to clarify that the excess proceeds from the sale of
any charter school facility shall be transferred to
and retained by the school district in which the
charter facility is located, or that granted the
charter, to be used for capital facilities purposes of
a school district.
1) Gift of public funds ? This bill also requires that a
district transfer title to a charter school upon
request of the charter, unless a district contributed
at least 50 percent of the local match or land for the
project. Should a school district's resources, in any
amount, be transferred to a charter? Does this
constitute a gift of public funds to the charter?
Staff recommends the bill be amended to require that
the charter school reimburse the school district for
any funds or the value of land provided by the
district prior to transfer of title in order to avoid
any possibility of a gift of public funds.
2) Abrogate a contract ? Currently, districts hold title
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to charter facilities funded under the Charter School
Facility Program (CSFP) and enter into Use Agreements
with charters for use of these facilities. This bill
proposes to invalidate existing agreements by
requiring a district to comply with a charter school's
request to have title transferred to a local
government entity or to the charter school itself, in
essence, abrogating a contract entered into by a
school district. Arguably, it may be within the
State's authority to abrogate or modify any contract
which its political subdivision or agency, the
district, has entered into on the State's behalf. But
is it prudent for the State to unilaterally overturn
the local district's authority in this regard?
Shouldn't the district retain some discretion? Who is
responsible for the related transaction costs to
transfer title? Staff recommends the bill be amended
to apply to contracts entered into prior to January 1,
2010 only if mutually agreed to by the district and
the charter school facility.
3) Protection of the state's interests . This bill
authorizes a charter school to hold title to
facilities constructed with state bond dollars and
requires that the charter hold "fee simple title" and
record a lien against the property by the SAB for the
total amount of funds allocated.
Does "fee simple title" provide the best protection
for the state? Are other methods or conditions for
holding title more appropriate? Staff recommends the
bill be amended to ensure that the charter holding
title is conditioned upon the continued use of the
facility for school purposes and automatically ends
the charter's interest in the property if that
condition is not met.
Is a lien against the property for the total amount of
funds allocated sufficient protection of the state's
interest in the property? Are the state's interest
ensured if they have a lien against only half a
building? What risk or liability does the state incur
if it holds a lien against the title? Under the Lease
Purchase Program (LPP), which preceded the current
School Facility Program, the state held lease to
property constructed with state bond funds and
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districts purchased the property from the state over
time. The LPP contained various provisions of law to
protect the State Allocation Board from any liability
actions or damages arising from district construction
related contracts and to ensure that the state's
interest in properties and equipment purchased with
state bond funds was assured. Staff recommends the
bill be amended to require a lien for the full value
of the building. Staff further recommends the bill be
amended to add language patterned after Education Code
Sections 17029.5 and 17030, which applied to the LPP,
in order to provide these same protections of the
state's interest in Charter School Facility Program
projects.
SUPPORT
California Charter School Association
Department of General Services
EdVoice
Green Dot Public Schools
Los Angeles Unified School District
OPPOSITION
None received.