BILL ANALYSIS �
SB 1247
Page 1
Date of Hearing: August 6, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 1247 (Lieu) - As Amended: July 1, 2014
Policy Committee: Higher
EducationVote:9-2
B&P 9-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill extends the sunset date of the California Private
Postsecondary Education Act of 2009 from January 1, 2015 to
January 1, 2017, and make numerous changes to the Act,
including:
1) Transitioning the regulatory body for the Act from a
Bureau for Private Postsecondary Education (BPPE) within
the Department of Consumer Affairs (DCA) to an 11-member
appointed Board for Private Postsecondary Education
(Board), as specified, effective July 1, 2015.
2) Providing for the appointment by the board of an
executive officer and three to five deputies, as determined
necessary by the board.
3) Requiring the Board to establish a task force to
determine standards for educational and training programs
specializing in innovative subject matters and instructing
students in high demand technology fields for which there
is a shortage of skilled employees, and to report to the
Legislature, by January 1, 2016, regarding appropriate
levels of oversight of these institutions.
4) Requiring the Board to report to the Legislature by
October 1, 2015, on whether data reporting and disclosure
requirements under the Act are appropriately consolidated
with reporting required by other educational regulatory
bodies.
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5) Specifying that the Student Tuition Recovery Fund (STRF)
relieves or mitigates economic loss, as defined, suffered
by a student while enrolled in a nonexempt institution as a
result of that institution's violation of law, and requires
the Board to adopt regulations that ensure the students in
specified circumstances, and any other students deemed
appropriate, are eligible for payment from STRF.
6) Requires the Board to provide to the Legislature a copy
of an independent review of its staffing resources, along
with an overview of (a) how the Board intends to ensure
staff is sufficiently qualified for purposes of
implementing the Act, the estimated costs of meeting
staffing and other requirements to implement the Act, the
estimated fee revenue generated by the fee structure,
whether the annual fee structure should be subject to a
maximum, and whether there are more equitable ways to
assess annual fees to institutions, within 30 days of
completion of the independent review, but no later than
March 15, 2015.
7) Prohibiting a private postsecondary institution that
participates in veterans' federal educational aid funding
from claiming exemption from the Act.
8) Requiring an unaccredited institution offering a
"degree,"-as opposed to other evidence of completion such
as a certificate-that is approved by the bureau as of
January 2015 to provide evidence of accreditation by
January 2017, or by a later date if extended by the board
if an institution is making appropriate progress toward
obtaining accreditation.
9) Requiring the Board to ensure an institution that has
submitted a complete and compliant application receives
approval within 30 days of the application being deemed
compliant, or within an appropriate timeline as determined
by the Board.
10) Requiring the Board to contract with the Attorney
General's Office, or other appropriate state agency, to
establish training that ensures staff can investigate
complaints.
11) Requiring that announced and unannounced compliance
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inspections be conducted at least every five years, rather
than every two years, and requiring the Board to adopt
regulations setting forth inspection policies.
12) Requiring the Board to establish a timeline by which
complaints are processed, and to establish procedures to
prioritize complaints.
FISCAL EFFECT
1)Extension of the Act's sunset by two years will continue
expenditures to implement the Act over this period. The
bureau's operating budget for 2014-15 is $11.1 million for 76
positions. The bureau's operating fund is projected to have a
fiscal year-end balance of $10.8 million. In addition, $2
million is estimated in payments from the STFR, which is
projected to have a balance of $31.4 million as of July 1,
2015.
2)In addition to the base budget, DCA estimates the new
requirements of the Act, as described above, will require 11
permanent and three limited-term positions at an estimated
cost of $1.6 million in 2015-16, $1.3 million in 2016-17, and
$900,000 annually thereafter, assuming the new sunset date of
January 1, 2017 is subsequently extended or repealed.
3)Offsetting these additional costs, DCA estimates that, under
the requirement for currently exempt institutions to register
with the board in order to continue participating in federal
veterans educational financial aid (Title 38) programs, 45
additional institutions will have to register with the board,
resulting in one-time application fee revenues of $225,000 in
2015-16 and annual operating fee revenues of $1.1 million
thereafter.
COMMENTS
1) Purpose . According to the author, "this bill is
necessary to extend the sunset date of BPPE in order to
ensure continued oversight of private postsecondary
institutions that supports quality, innovative programs
which are approved in a timely manner, while also making
sure a robust government structure prevents predatory
practices and promotes student success."
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2) Background . There are over over 1,000 private for-profit
colleges in California, serving roughly 400,000 students.
The BPPE has oversight of all non-exempt, private
postsecondary institutions located in California, which
include accredited and nonaccredited institutions, and
degree-granting and nondegree granting programs, such as
vocational programs.
Only accredited institutions are eligible to participate in
federal and state financial aid programs. While for-profit
institutions play an important role in providing access and
education to underserved students, and educate many
nontraditional students who would otherwise not have access to
postsecondary education, data shows that students from
for-profit colleges (a) are twice as likely to default on
student loans as students from public or private non-profit
schools, (b) tend to borrow more for their education, and (c)
often have a tougher time finding employment following
graduation compared to students from other sectors of higher
education.
Concerns over the significant growth and questionable student
outcomes at many for-profit and career colleges have led many
policymakers to seek stronger oversight of these colleges and
universities. Federal rules that took effect on July 1, 2014
require all institutions receiving public student aid funds to
be "authorized" by the state in which they operate and have a
state-level student complaint process.
Public institutions in California are authorized, and
complaints are investigated, by their system offices;
independent institutions are authorized by the California
Student Aid Commission and complaints handled by the Office of
the Attorney General. For-profit institutions can meet the
authorization rules through regulation and oversight by the
BPPE.
Following the troubled history of state regulation of private
postsecondary education, AB 48 of 2009 provided BPPE the
authority to regulate and enforce the provisions of the new
Act. The Act requires all unaccredited colleges in California
to be approved by BPPE and all nationally accredited colleges
to comply with numerous student protections. It also
establishes prohibitions on false advertising and
inappropriate recruiting. The Act required disclosure of
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critical information to students, such as program outlines,
graduation and job placement rates, and license examination
information, and required colleges to justify those figures.
The Act also required BPPE to actively investigate and combat
unlicensed activity, administer the Student Tuition Recovery
Fund (STRF), and conduct outreach and education activities for
private postsecondary educational institutions and students
within the state.
3) Auditor's Report and Sunset Review . In March 2014, the
Bureau of State Audits released an audit report reviewing
the effectiveness and efficiency of BPPE's operations. The
report found that BPPE has consistently failed to meet its
responsibilities to protect the public's interest, and had
deficiencies in nearly all of its operations, specifically
large backlogs for approval, failed to conduct compliance
inspections, failed to identify and sanction unlicensed
institutions, failed to appropriately respond to complaints
against institutions, and failed to ensure students were
provided with accurate disclosures prior to enrollment.
The BPPE, in part, had a slow start. Although the Act became
effective January 1, 2010, BPPE did not receive any staffing
authorizations until the Budget Act was signed in October
2010. Of the 71 staff positions requested, BPPE was allocated
63 positions, which were reduced to 57 as a result of
statewide personnel reductions. When BPPE first hired
licensing staff in November 2010, it already had a backlog of
1,200 applications accumulated over two years. By summer of
2011, BPPE had filled roughly half of its positions, and by
December 2011, it reached 49 staff.
While the BSA audit identified many problems with BPPE that do
not depend on the number of available staff, such as
inadequate processes and failure to track appropriate
information, the lack of staff, both in number and expertise,
plays a large role in each of the Bureau's deficiencies, with
regards to licensing, enforcement, and STRF implementation.
The audit also revealed that some of BPPE's issues can, in
part, be attributed to a lack of appropriate leadership,
stating, "We believe that the State's ongoing struggle to
regulate these institutions effectively may be due, in part,
to [DCA's] failure to take a more proactive role in helping
the bureau meet its responsibilities." The audit points out
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that DCA was aware of the longstanding difficulty in
regulating private postsecondary schools and yet it did not
use this knowledge to ensure that BPPE succeeded.
This bill makes comprehensive changes to the Act, which were
discussed in April at a Joint Oversight hearing of the Senate
Business, Professions and Economic Development Committee, the
Senate Education Committee, the Assembly Business, Professions
and Consumer Protection Committee, and the Assembly Committee
on Higher Education (Sunset Hearing), based on issues raised
in BPPE's Sunset Background Paper. For a thorough discussion
of these issues, see the Assembly Business, Professions and
Consumer Protection Committee's analysis of this bill.
4) Establishing a Board . As discussed at the Sunset
Hearing, after numerous audits and analyses by internal and
outside agencies, multiple legislative investigations and
significant public comment, the author argues "it has
become abundantly clear that the bureau structure at DCA
for oversight of private postsecondary institutions does
not work." The author believes that an independent board
structure would allow for increased public accountability
and could provide clear direction to a regulatory entity
about its functions, operations, priorities and
organization, providing inherent leadership and a clear
path to fulfill its mission through the transparent
decision making process undertaken by board members, in
compliance with public meeting requirements.
SB 1247 establishes 11 board members, of which eight of the
nine appointed by the Governor are subject to confirmation by
the Senate Rules Committee.
5) Support . The Center for Public Interest Law (CPIL)
argues that a Board will ensure meaningful and sensible
sunset review through the ability to hold board members
responsible for Board actions, and transparency and
accountability through Bagley-Keene Open Meeting
requirements. CPIL notes that "the seemingly intractable
administrative and operational problems that have afflicted
this government agency warrant trying a different
accountability structure. A Board may not be better but we
know that the BPPE has recently been insufficient, as
repeatedly documented by outside monitors, most recently
the Bureau of State Audits. It is time to try something
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new."
6) Veteran-Serving Institutions . This bill requires
for-profit institutions and non-degree granting non-profit
institutions receiving veteran benefits to be approved by
the Board and subject to the Act. According to information
provided by the author, for-profit schools have come under
particular scrutiny for practices used to recruit military
veterans. Recently, Attorney General Kamala Harris filed
suit against Corinthian Colleges, Inc. (CCI) for false and
predatory advertising, intentional misrepresentations to
students, securities fraud and unlawful use of military
seals in advertisements.
7) Opposition . The University of Phoenix, Bridgepoint
Education, California Coalition of Accredited Career
Schools (CCACS), American Career College/West Coast
University and the California Association of Private
Postsecondary Schools (CAPPS) all oppose transitioning the
Bureau to a board, believing that a transition would be
disruptive and impact ongoing Bureau responsibilities.
These entities argue there has not been proper analysis as
to why a Board would function better to protect the
interests of students and the public. In addition, these
institutions believe the proposed membership should more
accurately reflect the diversity of postsecondary
institutions, and require more institutional
representatives that have expertise in private
postsecondary education.
Fashion Institute of Design & Merchandising (FIDM), MTI
College, and CAPPS oppose the change regarding veterans
education. FIDM contends this requirement would "require any
for-profit institution, regardless of its educational quality
or outcomes, to be regulated by the [Bureau] if it wishes to
participate in programs serving veterans?If the bill is
enacted in its current form, FIDM would be in the untenable
position of either being unnecessarily regulated by the Bureau
or maintaining its commitment to its veterans' educational
programs." FIDM and MTI College contend that schools meeting
higher educational standards should not be required to come
under the Board under this amendment. CAPPS argues there is
no policy justification for this change.
Opponents also question the requirement that unaccredited
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institutions become accredited in order to continue awarding
degrees, the expanded allowable uses of the STRF, and
perceived inequities in STFR assessments.
8) Related Legislation . AB 2099 (Frazier), pending in
Senate Appropriations, establishes minimum student outcome
requirements for postsecondary institutions approved by the
California State Approving Agency for Veterans Education
(CSAAVE) to participate in federal veteran's education
benefits.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081