BILL ANALYSIS
SB 592
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Date of Hearing: August 19, 2009
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 592 (Romero) - As Amended: June 9, 2009
SENATE VOTE : 34-0
SUBJECT : Charter Schools Facilities Program
SUMMARY : Expands the entities authorized to hold title to a
facility constructed with state education bond funds through the
Charter Schools Facilities Program (CSFP). Specifically, this
bill :
1)Authorizes the additional following entities to hold title to
a charter school facility:
a) A local governmental entity, including, but not limited
to, a county board of education, a city, a county, or a
city and county, subject to the both of the following
conditions:
i) The local governmental entity shall not exercise any
control over the operation of the charter school; and,
ii) The local governmental entity shall comply with the
uniform terms and conditions established by the
California School Finance Authority (CSFA).
b) Upon approval by the State Allocation Board (SAB), a
charter school to hold fee simple title on which a lien
shall be recorded in favor of the SAB for the total amount
of CSFP funds allocated. Requires the charter school to
include in its request to the SAB a statement outlining the
reasons why ownership of the facilities is not vested with
a school district or a local governmental entity. Requires
the SAB to, prior to releasing any project funds, make
findings that the applicant has submitted all required
information.
2)Authorizes a charter school to request a school district to
transfer title of project facilities to a local governmental
entity or the charter school if the school district entered
into an agreement, prior to January 1, 2010, to hold title to
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those facilities. Authorizes a school district to transfer
the title to the entity requested by the charter school
pursuant to terms and conditions mutually agreed upon by the
district and the charter school.
3)Specifies that if the facility is subsequently no longer
needed for public school purposes, the titleholder shall
dispose of the facilities in a manner otherwise applicable to
the disposal of surplus public schoolsites.
4)Specifies that any funds remaining from the proceeds from the
sale of the property, after any security interest has been
satisfied, shall be paid to the school district in which the
facility is located to be used for capital improvements in the
district.
5)Contains an urgency clause and states that the urgency clause
is needed in order to expedite the construction of charter
school facilities by facilitating the allocation of state
general obligation bond proceeds authorized by voters to be
used for purposes of the CSFP at the earliest possible time.
EXISTING LAW :
1)Requires, under the Leroy F. Greene School Facilities Act of
1998, the SAB to allocate to applicant school districts,
prescribed per-unhoused-pupil state funding for construction
and modernization of school facilities, including hardship
funding, and supplemental funding for site development and
acquisition.
2)Requires a 50% local match for new construction grants and 40%
local match for modernization grants.
3)Establishes the CSFP and specifies funding, eligibility, and
operational requirements.
4)Requires the CSFA to work with the SAB on the administration
of the CSFP, including verifying that a charter school is
financially sound, and administer the loan program.
5)Requires that title to project facilities be held by the
school district in which the facility is to be physically
located, in trust, for the benefit of the state public school
system.
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FISCAL EFFECT : According to the Senate Appropriations
Committee, both the Legislative Counsel and legal staff from the
Department of General Services believe the state should incur no
liability resulting from the purchase of a lien on a CSFP
charter school project and therefore, costs resulting from this
bill should be minimal. There may be some minor administrative
costs to adopt regulations and for review of required
documentation.
COMMENTS : AB 16 (Hertzberg), Chapter 33, Statutes of 2002,
enacted the Kindergarten-University Public Education Facilities
Bond Acts of 2002 and 2004, which voters passed as Propositions
47 in 2002 and 55 in 2004. AB 16 established the CSFP and set
aside a total of $400 million for the construction and
rehabilitation of charter school facilities to be allocated
pursuant to future legislation. Proposition 1D, passed by
voters in 2006, provides another $500 million for charter school
facilities, for a total of $900 million. Pursuant to the AB 16
requirement, a legislative conference committee was convened to
develop the eligibility, funding, and operational requirements
for the CSFP, which resulted in the enactment of AB 14
(Goldberg), Chapter 935, Statutes of 2002.
The CSFP permits a charter school to apply for funding or a
school district to apply for funding on behalf of a charter
school, although the title of the property remains with the
school district, regardless of who submits the application. AB
14 requires the CSFA within the State Treasurer's office to
ensure that a charter school is financially sound and has been
in operation for at least 24 months prior to submission of an
application. A charter school that has not been in operation
for at least 24 months may receive funding if the charter school
is managed by staff that has at least 24 months of documented
experience, based on criteria established by the CSFA. CSFP
regulations stipulate evaluation of several additional
indicators in determining financial soundness, including whether
the applicant is able to maintain stable financial operations
and make estimated lease payments and evidence that the
applicant is meeting the terms of the charter and is not in
danger of having its charter revoked.
A charter school may receive a preliminary apportionment that
must be converted to a final apportionment within four years,
but may receive a one-year extension. This process is similar
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to the process used for funds from the Critically Overcrowded
Schools program, which enables applicants to learn of their
eligibility prior to securing a site for a school. Charter
schools receiving state bond funds must comply with all
requirements of the School Facility Program, including receiving
plan approvals by the California Department of Education,
Department of Toxic and Safety Control, and the Division of the
State Architect and providing a 50% local match for new
construction. Since charter schools, unlike school districts,
are unable to issue local bonds or make other assessments on
taxpayers for the local match, AB 14 authorizes charter schools
to make lease payments in lieu of a local match, through a loan
program administered by the CSFA.
According to the Office of Public School Construction, the
current funding process includes three formal documents: 1) a
Memorandum of Understanding (MOU) between the state, district
and charter outlining the responsibilities of each entity; 2) a
Funding Agreement between the state and the charter; and 3) a
Use Agreement between the district and charter.
The SAB has apportioned a total of $849 million to 63 charter
schools. Three charters schools have completed construction and
are in operation and one is anticipated to open within the next
two months. The SAB, at the May, 2009 board meeting, made
available $50.9 million for new applications.
This bill expands the entities authorized to hold title to a
charter school facility constructed with state bond funds. The
conference committee that drafted AB 14 requires school
districts to hold title to charter school facilities. This bill
authorizes a local governmental entity, defined as a county
board of education, a city, a county, or a city and county, and
charter schools to hold title. According to the author, this
bill is needed because requiring districts to hold title
subjects the viability of the facility on the willingness of
districts to hold title. The author states, "Due to liability
and other concerns, many school districts have been unwilling to
assume title hold responsibility. In some instances, school
districts have agreed to assume title but only with extremely
onerous conditions placed on charter schools. These issues have
contributed to delay in charter school facility construction."
Charter schools also state that long delays could prevent the
charter from meeting required timeframe to convert a preliminary
apportionment to a final apportionment.
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Some districts, especially smaller districts, may delay
agreement to hold title due to unfamiliarity with drafting Use
Agreements and/or uncertainty with the ramifications with
holding title. Districts also state that holding title of
charter school facilities subjects them to liability and legal
challenges they have no control over. For example, one district
that holds title to a facility was sued by a construction
contractor because the charter had defaulted on payments.
While there are standard forms and language for the MOU and
funding agreement, there are no standards for Use Agreements
between districts and charters. Some Use Agreements are lengthy
while others are just a few pages. Most contain clarification
on responsibilities of districts versus those of charters (e.g.,
a provision that stipulates that charters are responsible for
paying fees and premiums) and clauses that indemnify and hold
the district harmless for any cost, damages, and liability
related to the facility.
According to supporters, this bill provides options for charters
in the event a district is reluctant to hold title.
Local governmental entity holding title . It is unclear whether
local governmental entities are interested or willing to hold
title on behalf of a charter school. However, it is likely that
a local governmental entity would require Use Agreements similar
to those developed by school districts. The bill requires local
governmental entities to comply with the following two
conditions:
1)The local governmental entity shall not exercise any control
over the operation of the charter school. According to the
author, this provision was incorporated to respond to Section
6 of Article IX of the California Constitution, which states,
in part, "No school or college or any other part of the Public
School System shall be, directly or indirectly, transferred
from the Public School System or placed under the jurisdiction
of any authority other than one included within the Public
School System."
It is unclear whether the language prohibiting a local
governmental entity from exercising any control over operation
of a charter school would prohibit a local governmental entity
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from seeking a Use Agreement that may impose specified
requirements (e.g., specifying that the charter shall have
insurance coverage). It should not be the intent of this bill
to prohibit Use Agreements. Staff recommends clarifying that
the prohibition over exercising control over the operation of
a charter school is pursuant to the prohibition contained in
Article IX, Section 6 of the California Constitution, which
speaks to the operation of a school generally.
2)The local governmental entity shall comply with the uniform
terms and conditions set forth in Education Code (EC) Section
17078.57. EC 17078.57 specifies the process through which a
charter school may make lease payments in lieu of the local
match and directs the CSFA to adopt regulations to establish
the process and procedures, including how interest is to be
calculated. It is unclear how this section is applicable to a
local governmental entity. Staff recommends deleting this
provision.
Charter schools holding title . This bill authorizes a charter
school to hold fee simple title with a lien by the SAB for the
total amount of funds allocated to the project. It is unclear
whether this includes any loan the charter school may have
received through the CSFA. Staff recommends clarifying that the
lien includes other state financing, in addition to the
apportionment granted by the SAB.
Should allowing the charter to hold title be conditioned upon
the charter using the facility only for public school purpose?
Staff recommends adding a Restrictive Covenant in the recording
of the title specifying that the property shall only be used for
public school purposes as authorized under the Education Code.
Under the former school facilities funding program, the Lease
Purchase Program (LPP), the state initially held title to
property. LPP statutes provided protections to the state from
any liability or damages arising from contracts between the
school district and its construction contractors, construction
managers, architects, or engineers. While such protections are
contained in the MOU and the Use Agreements, should similar
protections be incorporated in statute?
Disposable of property . If a charter school no longer needs the
facility, current law establishes a priority for use and
disposable of the property as follows:
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1)If the district where the charter school is located has
revoked or declined to renew the charter, the district may not
immediately occupy the facility, but must first provide a
reasonable time, not to exceed six months, for the charter to
appeal the decision.
2)As a second priority, the successor charter school shall be
allowed to use the facility under the same terms as the prior
charter school.
3)As a third priority, the school district may take possession
and continue using the facility for public school purposes by
paying the balance of the loan or continuing to make lease
payments. Lease payments may be reduced or eliminated if the
school district is a hardship district eligible for 100%
facility funding or if the district certifies that it will
utilize the facility for public school purposes for at lease
five years.
4) If the district has no need for the facility, it shall
dispose of the facility using the process for disposal of
surplus school property.
This bill makes no changes to the first three provisions. These
priorities provide directions to a school district. If title is
held by a local governmental entity or a charter school, should
the school district continue to be responsible for the first
provision? In regards to the disposal of the property, this
bill requires the titleholder, whether district, charter school
or local governmental entity to dispose of the property using
the process for disposal of surplus school property, with any
remaining proceeds, after satisfying any security interest,
going to the school district for capital improvements in the
district. The process for sale of surplus property is not a
simple one. Under current law, a district is first required to
establish an advisory committee that includes community members
to advise the governing board on uses of surplus property (EC
17388 through 17391). If the property is to be sold, the
district must ensure that the property is first offered to
specified entities for specified uses, including local
governments for park or recreational purposes (EC 17464). If
title is held by a city or county interested in acquiring the
property, there may be potential conflicts of interest. If
title is held by a charter school, it is unclear how a charter
can meet these requirements. If title is held by a local
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governmental entity or a charter school, staff recommends
requiring the title be transferred back to the district to
enable the district to dispose of the property. If the district
declines to dispose of the property, the responsibility for
disposal of the property can be shifted to the SAB/state.
According to the Legislative Counsel, the title transfer to a
district or state can be achieved by inserting a Reversionary
Interest in the recording of the title.
Arguments in Support . The California Charter Schools
Association states, "Title has been a conundrum for charter
schools and school districts because of the obligations that
flow from being a titleholder. For example, a school district
may not want to hold title to a facility that is located in a
neighborhood where the district does not need a school facility.
There are virtually no other options for the charter school
when a school district is reluctant to hold title to the charter
school facility."
The Coalition for Adequate School Housing has a Support if
Amended position and seeks amendments to provide further
protections to the state and prevent conflicts of interests in
the disposal of surplus property if a local governmental entity
or charter school holds title.
REGISTERED SUPPORT / OPPOSITION :
Support
California Charter Schools Association
Department of General Services (sponsor)
Los Angeles Unified School District
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087