BILL ANALYSIS �
AB 1531
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1531 (Chau) - As Introduced: January 21, 2014
Policy Committee: EducationVote:4-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill requires charter schools operated as a nonprofit
public benefit corporation to nominate in the charter petition,
twice the number of people needed for their board of directors,
and requires the chartering authority to appoint a majority of
the members of the board of directors for these charter schools.
Specifically this bill:
1)Requires the initial chartering authority of a charter school
that elects to operate as a nonprofit public benefit
corporation to 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. Authorizes the
chartering authority to one member on the board of directors,
though the majority calculation required shall not include the
representative appointed by the chartering authority.
2)Requires the initial chartering authority, during the term of
the charter, to ensure that a majority of the members of the
board of directors of the nonprofit public benefit corporation
are members appointed by the chartering authority and sets
forth process for replacement of members, as necessary.
3)Authorizes the charter school to use an election process or
community involvement process to select nominees for the
board.
4)Requires a charter petition to include a reasonably
comprehensive description of the names and background
AB 1531
Page 2
information for all persons whom the petitioner nominates to
serve on the board of directors of that nonprofit public
benefit corporation.
FISCAL EFFECT :
1)General Fund /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.
The 2012-13 Budget Act created the K-12 Mandate Block Grant.
A school district, charter school, or COE 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 :
1)Purpose . This bill is in response to recent Internal Revenue
System (IRS) proposed regulations and subsequent response by
the California State Teachers Retirement System/California
Public Employees Retirement System (CalSTRS/CalPERS) to
potentially exclude charter schools from the retirement system
because nonprofit charter schools do not meet the "tests" that
qualify the school as a governmental entity. One such test is
whether the governing body is elected or appointed by elected
officials. According to the sponsor, the California Teachers
Association, charter school employees are part of the public
education system and should be treated equitably by receiving
the protections and benefit plans afforded to all public
educational employees, including participation in CalSTRS.
This bill seeks to correct the exclusion of charter schools
AB 1531
Page 3
from CalSTRS/CalPERS by requiring nonprofit charter schools to
have a majority of their governing body members appointed by
the chartering authority, which is generally an elected board.
2)Background. A charter school is a public school that may
provide instruction in any of grades K-12. It is usually
created or organized by a group of teachers, parents and
community leaders or a community-based organization. A charter
school may be authorized by an existing local public school
board, county board of education (COE), or the State Board of
Education (SBE). Existing law requires a potential charter
school to submit a petition to a governing board or SBE for
approval to establish the school.
In November 2011, the United States Internal Revenue System
(IRS) issued an advance notice of rulemaking to solicit
feedback from affected parties as it developed proposed
regulations to define the term "governmental plan" for
purposes of special tax eligibility. CalSTRS and CalPERS are
governmental plans impacted by this rulemaking. Under the IRS
proposed regulations, all individuals who benefit from one of
these state retirement systems would have to be employed by a
governmental entity, such as the state, an elected school
board, or the federal government. Additionally, no private
interests may benefit from these tax rules extended only to
employees of the government.
3)CalSTRS response . In response to advance notice of proposed
rulemaking by the IRS, CalSTRS issued a 2012 report examining
the proposed tests used by the IRS to determine whether an
entity is an agency or an instrumentality of a state or
political subdivision and thus eligible to have its employees
participate in a governmental plan. CalSTRS determined that
"most California public charter schools likely would not pass
the tests, primarily because the presence of a nonprofit
operator introduces a layer of oversight and management
separate from that of the school district which eventually
leads to ineligibility under these tests." According to
CalSTRS, the agency does not have plans to change eligibility
until the final rulemaking has occurred at the federal level.
4)CalPERS response . In response to advance notice of proposed
rulemaking by the IRS, CalPERS changed their 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
AB 1531
Page 4
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."
Since CalPERS changed their application process at least nine
charter schools have been denied participation. Those schools
include:
1) Dehesa Charter School, Escondido, CA
2) Rio Valley Charter School, Lodi, CA
3) IvyTech Charter School, Moorpark, CA
4) Synergy Education Foundation, Los Angeles, CA
5) Alliance College Ready Academy #18, Los Angeles, CA
6) Alliance Renee & Meyer Luskin Academy, Los Angeles, CA
7) Advanced Institute for Learning, Fallbrook, CA
8) Alliance College Ready Academy #14, Los Angeles, CA
9) Summit Leadership Academy, Hesperia, CA
1)Opposition . The California Charter School Association (CCSA)
opposes the bill, citing concerns that the independence of the
charter school would be compromised. They are concerned
"operating under the de facto control of the school board that
authorized the charter would reflect the interests of the
school district's central governing board, not the community
from which the charter school sprung." Further, CCSA contends
CalPERS "acted precipitously and unilateraly by beginning to
reject new charter school applications, even though the IRS
has changed no regulation regarding the eligibility of charter
schools for public pension programs. CalSTRS and every other
public pension fund in the country that has charter schools as
members have made no change in their practice and continue to
include charter schools as eligible employees."
2)Related Legislation . AB 913 (Chau) of 2013, requires charter
schools, beginning July 1, 2014, to comply with the state's
open meeting, conflict of interest, and disclosure laws in the
same manner as non-charter public schools. The bill was
introduced as an attempt to address the IRS proposed
rulemaking and clarify charter schools status as a
governmental entity. This bill is pending in the Senate
Education Committee.
Analysis Prepared by : Misty Feusahrens / APPR. / (916)
319-2081
AB 1531
Page 5