BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 360 (Brownley)
As Amended June 27, 2011
Hearing Date: July 5, 2011
Fiscal: No
Urgency: No
TW
SUBJECT
Charter Schools: Governing Boards: Conflicts of Interest
DESCRIPTION
Existing law requires a public school district to comply with
the open meeting and public disclosure requirements under the
Ralph M. Brown Act (Brown Act), Bagley-Keene Open Meeting Act
(Bagley-Keene Act), and the California Public Records Act
(CPRA), and the conflict of interest disclosure requirements
under the Political Reform Act (PRA). This bill would extend
these requirements to a charter school. This bill also would
exempt from criminal liability certain financial transactions,
as specified, between a board member and the charter school.
This bill would become operative on July 1, 2012.
BACKGROUND
In 1992, the Legislature enacted the California Charter Schools
Act in order to provide communities with the opportunity to
establish schools that could operate freely from the structural
programs of public school districts. (SB 1448 (Hart, Ch. 781,
Stats. 1992).) Charter schools are intended to provide a unique
learning environment, giving students a different approach to
scholastic achievement. In the 2007-2008 State of California
Education report, 675 charter schools were in operation, serving
almost 250,000 students. (Education Data Partnership, May 22,
2009.) In the 18 years of charter school existence in
California, many reports of widespread financial mismanagement
of charter schools' public funds have led to the belief that
public disclosure and conflict of interest laws need to be
established for charter schools.
(more)
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As reported by the Los Angeles Times, in 2005, the
Superintendent of Public Instruction and various California
County Offices of Education commissioned an outside audit of
Options for Youth, Inc. (OFY) and Opportunities for Learning,
Inc. (OFL) Charter Schools. The audit revealed OFL and OFY had
contracts with many companies which were owned by overlapping
family members, had several of the same corporate officers,
directors, and staff of OFL and OFY, and all sold and purchased
goods and services from each other. Although financial
interests in transactions between the companies were disclosed,
some of the related party arrangements were questionable. The
audit concluded that both OFY and OFL schools had inadequate
conflict of interest policies and therefore could not be
protected against improper transactions. (Cleeland, Audit
Faults Chain of Charter Schools (Aug. 10, 2006) Los Angeles
Times (as of June 24,
2011).)
In 2007, the Los Angeles Times reported that the Los Angeles
County Office of Education hired an outside auditor to examine
the Gorman Learning Center Charter School. The audit showed
that for the three years audited, the Gorman Learning Center
Charter School provided false information on State Schools Funds
applications and received $7.7 million more than the school
should have received. The audit further revealed that the
school spent thousands of dollars on questionable items, such as
a $14,000 board retreat that included helicopter and yacht
rentals, and horseback riding and diving lessons for board
members and their families. As reported, the school's chief
executive officer inappropriately hired family members and the
director of human resources received $18,000 in school funds to
pay for her rent. (Rubin, School misused funds, audit finds
(Mar. 17, 2007) Los Angeles Times <
http://articles.latimes.com/2007/ mar/17/local/me-school17> (as
of June 24, 2011).)
Another Los Angeles Times article reported that Charles Cox,
head and founder of California Charter Academy, was indicted and
charged with the misuse of over $5 million in school funds,
using the money as compensation in the form of wages to himself,
friends, and family members, and to make extravagant purchases
unrelated to the chartered school. Cox was also charged with
inappropriately entering into school service contracts with a
company he owned. (Reston and Landsberg, Charter schools'
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founder indicted (Sept. 5, 2007) Los Angeles Times
(as
of June 24, 2011).)
Over the years, the Legislature has made clear that public
agency actions should be open to the scrutiny of the public.
In 1961, the Legislature enacted the Brown Act, which provided
public access to local public agency information. In 1967, the
Legislature enacted the Bagley-Keene Act, which provided public
access to state public agency information. In 1975, the Brown
Act was amended to provide for disclosure of public agency acts
taken during closed meetings. In 1986, the Brown Act, among
other things, was amended to provide for the posting of public
agency agendas. In 2004, Proposition 59 added to the California
Constitution the people's right of access to public body
information. (Cal. Const., art. I, sec. 3(b)(1).)
This bill is substantially similar to AB 2115 (Mullin, 2008) and
AB 572 (Brownley, 2010), which were both vetoed by Governor
Schwarzenegger.
This bill, sponsored by California School Boards Association,
would address the reports of fiscal mismanagement by subjecting
a governing board of a charter school to the same open meetings,
public records disclosure, and conflict of interest laws that
govern public schools and school districts. This bill would
become operative on July 1, 2012.
This bill was heard by the Senate Education Committee on June
22, 2011 and approved by a vote of 7-2.
CHANGES TO EXISTING LAW
1. Existing law provides that the people have the right of
access to information concerning the people's business and
requires meetings of public bodies and the writings of public
officials and agencies to be open to public scrutiny. (Cal.
Const., art. I, sec. 3(b)(1).)
Existing law , the Brown Act, provides statutory requirements
of local school districts to keep the public informed. (Gov.
Code Sec. 54950 et seq.) Existing law requires a school
district board to post notices and agendas of school district
board meetings. (Gov. Code Secs. 54953, 54954.2, 54954.6, and
54956.) Existing law requires a school district board to
publicly report any action taken in closed sessions. (Gov.
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Code Secs. 54957.1 and 54957.7.) Existing law requires a
school district board to disclose in an open meeting the items
to be discussed in closed sessions. (Gov. Code Sec. 54957.7.)
Existing law , the Bagley-Keene Act, provides statutory
requirements of state school districts to keep the public
informed. (Gov. Code Sec. 11120 et seq.) Existing law
requires state school district boards to post notices and
agendas of state public body meetings. (Gov. Code Secs.
11123, 11125, 11125.4, 11125.5, 11125.9, and 11126.) Existing
law requires state school district boards to publicly report
any action taken in closed sessions. (Gov. Code Secs.
11125.2, 11126, and 11126.3.)
Existing law provides that all meetings of the governing board
of the school district and the county board of education at
which the granting, revocation, appeal, or renewal of a
charter petition is discussed shall comply with the Brown Act.
(Gov. Code Sec. 47608.)
Existing law provides that a charter school is deemed to be a
"school district" for purposes of appropriations,
disbursements, and apportionment from state school and lottery
funding. (Ed. Code Secs. 47612, 47638, 47650.)
Existing law provides that a charter school is provided with
local operational funding that is equal to the total funding
that would be available to a similar school district serving a
similar pupil population. (Ed. Code Sec. 47630.)
Existing law requires a local school district board to hold
open meetings, unless otherwise exempt, as specified. (Ed.
Code Sec. 35147.)
This bill would require a charter school and its board to
comply with the open meeting requirements under the Brown Act
or Bagley-Keene Act, as appropriate according to whether the
charter school is operated by a local or state entity, and
Education Code Section 35147.
2. Existing law , the CPRA, governs the disclosure of information
collected and maintained by public agencies, including school
districts. (Gov. Code Sec. 6250 et seq.) Generally, all
public records are accessible to the public upon request,
unless the record requested is exempt from public disclosure.
(Gov. Code Sec. 6254.) There are 30 general categories of
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documents or information that are exempt from disclosure,
essentially due to the character of the information, and
unless it is shown that the public's interest in disclosure
outweighs the public's interest in non-disclosure of the
information, the exempt information may be withheld by the
public agency with custody of the information. (Id.)
Existing law authorizes the person whose request for a public
record under the CPRA is denied to file an action in superior
court for an order requiring disclosure. (Gov. Code Sec.
6258.) The test for a determination of whether a record may
be withheld from public access is whether the public's
interest in disclosure is outweighed by the public's interest
in withholding disclosure of the record. (Gov. Code Sec.
6255.)
This bill would require a charter school to comply with the
public disclosure requirements under the CPRA.
3. Existing law provides that a private person or organization
can provide funding to assist in the establishment or
operation of a charter school. (Ed. Code Sec. 47603.)
Existing law provides that a charter school can elect to
operate or be operated by a nonprofit public benefit
corporation. (Ed. Code Sec. 47604.)
Existing law provides that a state community college district
or state university can establish an auxiliary organization to
solicit funds for the benefit of the community college
district, and the board members of such auxiliary
organizations are subject to conflict of interest disclosure
requirements. (Ed. Code Secs. 72670 et seq. and 89907 et
seq.)
Existing law prohibits officers, board members, and employees
of a school district from having a financial interest in any
contract made by the officer, board member, or employee, in an
official capacity on behalf of the school district. Existing
law provides criminal penalties for such violations. (Gov.
Code Sec. 1090 et seq.)
Existing law provides that an officer will not be deemed to be
interested in a contract entered into by a board or school
district in which the officer, board member, or employee is a
member if that individual has only a remote interest in the
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contract and that interest is disclosed to the board or
district of which the individual is a member, as specified.
Existing law provides numerous financial transactions that
qualify as a "remote interest." (Gov. Code Sec. 1091.)
This bill would require a charter school to comply with these
restrictions on financial interests.
This bill would add to the list of financial transactions that
qualify as a "remote interest" certain loan or lease
agreements, as specified, entered into between a charter
school employee or board member and the charter school.
This bill would allow an individual to serve as a board member
of a charter school in the event the individual provides a
loan to a charter school, signs for a line of credit on behalf
of the charter school, or enters into a lease agreement with a
charter school as long as the following criteria are met:
the governing board of the charter school declares and
describes the existence of a fiscal emergency by adopting a
resolution at a public meeting of the governing board; and
the terms of the loan agreement, line of credit, or
lease of real property are disclosed and approved by the
governing body, excluding a vote by the interested
individual.
4. Existing law , the PRA, requires public officials to file
annual statements of financial interest. (Gov. Code Sec.
81000.)
This bill would require a charter school to comply with
financial interest disclosure requirements under the PRA.
5. Existing law prohibits an employee of a school district from
serving as a board member of the school district. (Ed. Code
Sec. 35107(b).)
This bill will allow an individual to be employed as a teacher
in a charter school and also serve as a member on the school's
governing body provided the individual abstains from voting on
all matters uniquely affecting his or her own employment.
6. Existing law prohibits a board member of a school district
from voting on personnel matters affecting a relative of the
individual. (Ed. Code Sec. 35107(e).)
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This bill would provide this same restriction for a board
member of a charter school.
7. This bill would become operative on July 1, 2012.
COMMENT
1. Stated need for the bill
The author writes:
�S]tatewide there are a handful �of] charter schools that are
run by non-profit corporations that have a symbiotic
relationship with a for-profit corporation. These non-profit
corporations contract with a single for-profit corporation for
everything from curriculum to business services. Some of
these non-profits have a single board making financial
decisions for both the corporation as well as the school.
Because the same board runs the corporation and the school,
these boards are often fraught with conflicts of interest. It
is not appropriate for boards that govern state dollars to be
financially interested in the decisions made by the board.
�This] bill will continue the long standing tradition that
charter schools have greater autonomy than traditional public
schools, but at the same time, provide greater transparency to
parents and the public regarding the use of public funds by
charter schools for the educational benefit of their students.
. . . AB 360 will align conflict of interest standards for
charter school boards with that of school district boards.
The California School Boards Association, the sponsor of this
bill, writes:
Unfortunately, fiscal management is a common reason for the
closure of charter schools. The most egregious abuses have
occurred when charter school board members have benefitted
financially from decisions made by their own board. Charter
schools are public schools, and as such, should do business in
an open, transparent manner, free of conflicts of interest.
2.Charter schools' use of public funds should be subject to
public disclosure
This bill would require a charter school to hold open meetings
and provide public access in the same fashion as public school
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districts. Existing law provides that the people have the right
of access to information concerning the people's business and
requires meetings of public bodies and the writings of public
officials and agencies to be open to public scrutiny. (Cal.
Const., art. I, sec. 3(b)(1).) The Legislature has declared a
charter school to be a school district, and thus a public
agency, for purposes of state and local funding. (Ed. Code
Secs. 47612, 47630, 47638, 47650.) When public agencies receive
state and local funds, it becomes necessary to provide public
access and scrutiny over the use of these funds to ensure that
the public's business is being properly conducted.
a. Open Meetings Requirement
Existing law, the Brown Act, provides statutory requirements
for local school districts to keep the public informed by
holding properly noticed public meetings and requiring certain
disclosure of information before and after closed meetings.
(Gov. Code Sec. 54950 et seq.) Existing law, the Bagley-Keene
Act, provides similar statutory requirements for state school
districts. (Gov. Code Sec. 11120 et seq.)
The California Federation of Teachers AFT, AFL-CIO, a
supporter of this bill, argues that "�w]ithout this bill, many
decisions will be made without the public knowing where their
money is going and what their money is being spent on.
Charter schools which receive public funds should be held to
the same transparency and abuse prevention rules by which
every other public agency must abide." This bill would
require a charter school and its board to comply with the open
meeting requirements under the Brown Act or Bagley-Keene Act,
as appropriate according to whether the charter school is
operated by a local or state entity, and Education Code
Section 35147. The author argues that a charter school should
be required to conduct properly noticed, open public meetings
to provide students, parents, and communities with
transparency and information regarding the use of public
funds.
b. Public disclosure of information pursuant to the CPRA
Existing law, the CPRA, governs the disclosure of information
collected and maintained by public agencies, including school
districts. (Gov. Code Sec. 6250 et seq.) Generally, all
public records are accessible to the public upon request,
unless the record requested is exempt from public disclosure.
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(Gov. Code Sec. 6254.)
Charter schools, financed by the State School Fund, are deemed
school districts for purposes of funding, but are free from
many of the constrictions placed on school districts in order
to increase the learning opportunities for all students. (Ed.
Code Secs. 47601, 47650.) Although charter schools are able
to operate independently from school district construction,
charter schools are still considered to be members of the
public school system and under the control of the officers of
the public school system. (Ed. Code Sec. 47615.)
Proponents assert that since charter schools are funded by
taxpayer money, it is the public's business to ensure that its
taxes are being spent in a proper manner. Therefore, actions
taken by a charter school and its financial administration
should be available for public scrutiny. Subjecting charter
schools to the CPRA would allow access to their records, hence
the scrutiny required to prevent misconduct and
misappropriation of public funds.
c. Disclosure of conflicts of interest pursuant to the PRA
Existing law, the PRA, requires public officials to file
annual statements of financial interest. (Gov. Code Sec.
81000.) The Legislature declared this necessary because
"�p]ublic officials, whether elected or appointed, should
perform their duties in an impartial manner, free from bias
caused by their own financial interests or the financial
interests of persons who have supported them." (Gov. Code
Sec. 81001.)
The Los Angeles Unified School District (LAUSD), a supporter
of this bill, argues that "the integrity and promise of
charter schools are compromised when situations of
self-dealing and personal gain appear to be permissible - when
this is so clearly not the case for any other public schools
in our state. . . . AB 360 . . . will provide additional legal
weight to ensuring that charters follow the same minimum
integrity standards that are required of all of us who hold a
position of public trust in serving California's children."
In order to ensure that charter school board members are not
receiving inappropriate gifts for the purpose of compromising
the board member's decisions relating to the charter school,
this bill would require a charter school and its board members
to comply with financial interest disclosure requirements
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under the PRA.
1.Disclosure of financial interests in charter school contracts
This bill would provide disclosure requirements when a charter
school employee or board member contracts with a charter
school. Existing law prohibits officers, board members, and
employees of a school district from having a financial interest
in any contract made by the officer, board member, or employee,
in an official capacity on behalf of the school district.
Existing law provides criminal penalties for such violations.
(Gov. Code Sec. 1090 et seq.) However, certain financial
transactions involving a "remote interest" of a board member
are exempt from this prohibition. (Gov. Code Sec. 1091.)
The Santa Clara County Office of Education, in support of this
bill, argues that "charter schools are currently exempt from
many state requirements. While many of these exemptions allow
charters to innovate, some of them jeopardize our public tax
dollars . . . . �A]s public schools, charter schools should
do business in a transparent manner, free from conflicts of
interest. It is important that financial transactions between a
charter school and its board members be prohibited. A charter
board member should not attempt to influence a decision of the
board in which it has a financial interest."
The LAUSD reports that its Inspector General identified a number
of conflict of interest situations in Los Angeles charter
schools:
a charter school director transferred public funds in
excess of $230,000 to a private corporation in which the
director had a financial interest;
a husband and wife team served together as board members
for a charter and then conducted a lease transaction for
the charter with another organization of which they were
officers; and
charter board directors wearing additional hats as
officers and employees of the same charter school.
Under Corporations Code conflict of interest laws, the board of
directors of a nonprofit organization may have up to 49 percent
interested directors. (Corp. Code Sec. 5227.) The board may
enter into transactions where its members are financially
interested, as long as each member's financial interest is
disclosed to the board and the member does not participate in
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the decision making. (Corp. Code Sec. 5233.) In comparison,
under Government Code Section 1091, which governs public school
districts, no director may have a material financial interest in
a decision made by the Board.
Proponents argue that the cases of the California Charter
Academy and Options for Youth and Opportunities Learning (see
Background) demonstrate why it is not appropriate to allow even
an incorporated nonprofit charter school to follow the more
lenient conflict of interest laws under the Corporations Code.
They argue that these cases and others demonstrate that giving
charter school board members more flexibility in the management
of finances has led to the misappropriation of funds and
unethical personal gain, resulting in the closing of some
charter schools. Proponents assert that requiring charter
schools to comply with the more stringent standard under the
Government Code is necessary in order to protect the public from
financial mismanagement of taxpayer money, and the students from
an unstable learning environment.
Accordingly, in order to expose potential conflicts of interest
for the personal gain of a board member, this bill would
prohibit a charter school board member from being a party to a
contract with a charter school in which the board member has a
financial interest. However, because charter schools operate
with both public and private funds, this bill would allow a
board member to provide a loan to a charter school, sign for a
line of credit on behalf of the charter school, or enter into a
lease agreement with the charter school as long as the following
criteria are met:
the governing board of the charter school declares and
describes the existence of a fiscal emergency by adopting a
resolution at a public meeting of the governing board; and
the terms of the loan agreement, line of credit, or
lease of real property are disclosed and approved by the
governing body, excluding a vote by the interested
individual.
EdVoice and California Business for Education Excellence,
opponents of this bill, argue that it will subject a
"philanthropic board member" to "a felony punishable by
imprisonment in a state prison and disqualification from holding
any office" for providing a no-interest or low-interest start-up
loan or facility to help the charter school. In response, the
author argues that the exemption for loans created under this
bill would include start-up loans. In the event the charter
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school has not received federal or state funding prior to the
school opening, the board can declare a fiscal emergency in
order to receive start-up loan funding.
Further, the author argues that "�i]t is not appropriate for
boards that govern state dollars to be financially interested in
the decisions made by the board. Charter schools must operate
with integrity and transparency in order to assure the public
about its fiduciary responsibility as well as cast a bright
light on those who might violate their fiduciary trust."
Accordingly, this bill provides conflict of interest protections
and disclosure requirements so that charter school communities
will be better informed as to who is involved in financial
transactions with the charter school and how the charter school
monies are utilized.
4. Author's recent amendments to address opposition's concerns
The California Charter Schools Association (CCSA), previously
opposed to this bill, argued that there is no demonstrated need
for the bill since existing law has provided oversight and
transparency such that financial impropriety has been
identified, and "�i]f there are shortcomings in the
identification of fiscal management and malfeasance, it is not
due to a lack of tools or recourse; it is due to the failure of
charter school authorizers to effectively exercise their
oversight responsibilities." Further, CCSA argued that
prohibiting "key leaders of the community from serving on a
nonprofit charter school if they have any interest in a
contractual relationship with the school" would "cut to the
heart of traditional charter school governance and contradicts
longstanding charter law."
To address the concerns of CCSA, the author has amended the bill
to provide exemptions from conflicts of interest for board
members who loan money to, sign for a line of credit on behalf
of, or lease property to the charter school and disclose these
financial arrangements in a public meeting and recuse themselves
from voting on such arrangements. Accordingly, CCSA is now in
support of this bill.
5. Governor Schwarzenegger's veto of AB 572 and AB 5112
This bill is substantially similar to the enrolled version of AB
572 (Brownley, 2010). In vetoing AB 572, Governor
Schwarzenegger stated:
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Charter school educators have proven that poverty is not
destiny for students that attend public schools in California.
Repeatedly, charter schools with high proportions of
disadvantaged students are among the highest performing public
schools in California. Any attempt to regulate charter
schools with incoherent and inconsistent cross-references to
other statutes is simply misguided. Parents do not need
renewed faith in charter schools as suggested in this bill.
On the contrary, tens of thousands of parents in California
have children on waiting lists to attend a public charter
school. Legislation expressing findings and intent to provide
"greater autonomy to charter schools" may be well intended at
first glance. A careful reading of the bill reveals that the
proposed changes apply new and contradictory requirements,
which would put hundreds of schools immediately out of
compliance, making it obvious that it is simply another veiled
attempt to discourage competition and stifle efforts to aid
the expansion of charter schools.
This bill is substantially similar to the enrolled version of AB
2115 (Mullin, 2008). In vetoing AB 2115, Governor
Schwarzenegger stated:
Not only would this bill create state mandated costs for
charter schools to comply with its provisions, the measure
runs counter to the intent of charter schools, which were
created to be free from many of the laws governing school
districts.
Support : California Charter Schools Association; California
Federation of Teachers AFT, AFL-CIO; California Newspaper
Publishers Association; California School Employees Association;
Californians Aware; Kern County Superintendent of Schools; Los
Angeles County Office of Education; Los Angeles Unified School
District; Public Advocates; San Francisco Unified School
District; Santa Clara County Office of Education; United
Teachers Los Angeles
Opposition : California Business for Education Excellence;
EdVoice
HISTORY
Source : California School Boards Association
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Related Pending Legislation : None Known
Prior Legislation :
AB 572 (Brownley, 2010) See Background.
AB 2115 (Mullin, 2008) See Background.
SB 1448 (Hart, Ch. 781, Stats. 1992) See Background.
Prior Vote :
Senate Education Committee (Ayes 7, Noes 2)
Assembly Floor (Ayes 50, Noes 27)
Assembly Education Committee (Ayes 7, Noes 3)
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