HBA-JEK C.S.H.B. 6 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 6 By: Dunnam Public Education 3/26/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE On May 30, 1995, the Texas Legislature authorized an initial set of 20 open-enrollment charter schools to create competition and innovation in Texas public schools as a whole. The House Public Education Committee established an interim subcommittee on charter schools to evaluate the charter school program and report to the 77th Legislature. The subcommittee reports that there is little evidence to support that charter schools are using innovative teaching methods or that they are performing as well as traditional public schools. Financial troubles and statutory ambiguities have contributed to the abrupt failures of several charter schools. In some cases, the sudden closing of the schools resulted in displaced students having to repeat a grade. Yet the number of charter schools has grown to approximately 200, and the subcommittee reports that without restrictions, Texas could see over 1,000 charter campuses in the next few years. Unless the growth of charter schools is slowed and the accountability and oversight strengthened, the subcommittee concludes problems will continue to occur at a faster rate than the State Board of Education can discover and solve them. C.S.H.B. 6 establishes a two-year moratorium on new charters for open-enrollment charter schools and strengthens the accountability and oversight provisions regarding the operation of open-enrollment charter schools. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of education in SECTION 3 (Section 12.104, Education Code) and SECTION 19 (Sections 12.125 and 12.127, Education Code) and to the State Board of Education in SECTION1 (Section 12.1014, Education Code) and SECTION 19 (Section 12.123, Education Code) and SECTION 26 of this bill. ANALYSIS C.S.H.B. 6 amends the Education, Government, and Local Government codes to set forth provisions regarding open-enrollment charter schools (charter schools). Moratorium C.S.H.B. 6 prohibits the State Board of Education (board) from issuing a charter for a charter school after August 31, 2001. The bill also prohibits the board from approving an expansion of an existing charter school not rated as academically acceptable or higher for each of the three preceding school years to an additional campus or site beyond the campuses or sites stated in the charter. The moratoriums expire September 1, 2003 (SECTION 1, Sec. 12.1015 and SECTION 10, Sec. 12.114). Minimum Student Enrollment C.S.H.B. 6 prohibits the State Board of Education (board) from granting or renewing a charter unless the board determines that the school will have and maintain an enrollment of at least 50 students, except that a school may have at least 20 students if the board specifically finds that the nature of the school requires an enrollment of fewer than 50 students. The bill authorizes the board to revoke a school's charter if for a period prescribed by board rule the school's enrollment is lower than the authorized minimum (SECTION 1, Sec. 12.1014). Delegation The bill authorizes the board to delegate to the commissioner of education (commissioner) any power or duty regarding charter schools other than the power to grant, deny, modify, place on probation, deny renewal of, or revoke a charter for an open-enrollment charter school (SECTION 1, Sec. 12.1013). Applicability of Laws and Rules C.S.H.B. 6 specifies that a charter school is subject to the federal and state laws governing public school districts unless the commissioner determines it would be impractical or inefficient to apply a law or rule to charter schools (SECTION 2, Sec. 12.103). The bill provides that the Local Government Records Act, the Professional Services Procurement Act, and laws regarding open meetings, public information, preservation and management of local government records, real property held in trust, competitive bidding on public work contracts, authorized investments for local governments, and conflicts of interest apply to a charter school, the governing body of a charter holder, the governing body of a charter school, and charter school students to the same extent the laws apply to a public school district, the board of trustees of a school district, and public school students (SECTION 5, Secs. 12.1051-12.1053). The bill considers a member of the governing body of a charter school to be a local public official, and specifies that such a member or an officer of a charter school is considered to have a substantial interest in a business entity if a person related to the member or officer in the third degree has a substantial interest in that business entity (SECTION 5, Sec. 12.1053). The bill requires a charter school in existence on September 1, 2001 to designate a records management officer, establish a records management program, and prepare and file records control schedules by September 1, 2002 (SECTION 29). C.S.H.B. 6 provides that charter schools are subject to provisions governing purchasing and contracting by a public school. The bill also specifies that a charter school is subject to the requirement that a school day be at least seven hours each day unless the commissioner grants the open-enrollment charter school a waiver. The bill prohibits the commissioner from denying a school-day-length waiver to a charter school that has received an academically acceptable rating for each of the preceding three school years. The bill authorizes the commissioner to adopt rules to apply other provisions of the Education Code to charter schools to the extent the commissioner determines these rules are necessary or advisable to provide and account for state funding of charter schools (SECTION 3, Sec. 12.104 and SECTION 4, Sec. 12.1041). Funding C.S.H.B. 6 restructures how charter schools receive funding under the foundation school program. The bill no longer entitles a charter school to the distribution from the available school fund and local taxes that the district in which the student resides would be entitled to, but instead provides that a charter holder is entitled to receive funds as if it were a school district without a tier one local share and without any local revenue. A charter school's allotment is to be calculated based on the average small and mid-sized district adjustment, the average sparsity adjustment, the average district enrichment for the state, and the average adjustment for geographic variation in known resource costs and costs of education due to factors beyond the school district's control (SECTION 6, Sec. 12.106). C.S.H.B. 6 provides that funds received by a charter holder after September 1, 2001 and land bought or leased by a charter holder the cost of which is funded at least 50 percent by state funds after September 1, 2001 are considered to be public funds or public property to the extent the land was purchased with state funds. These funds or lands are to be held in trust for the benefit of the students of the charter school, and may be used only for a purpose for which a school district is authorized to use local school funds or property. The bill provides that these funds must be deposited into a Federal Deposit Insurance Corporation insured bank with which the charter holder has a depository contract, and requires a charter holder to deliver to the Texas Education Agency (TEA) a copy of the depository contract (SECTION 6, Sec. 12.106 and SECTION 19, Sec. 12.127). C.S.H.B. 6 requires the commissioner to take possession and assume control of the property of a charter school that ceases to operate and to supervise the disposition of the property in accordance with law. The security interests in a lien on charter school property of secured property are not affected by such an occurrence. The bill authorizes the commissioner to adopt rules regarding the administration of an openenrollment charter school's property that has been bought or leased with state funds (SECTION 19, Sec. 12.127). The bill authorizes the governing body of a charter school to require a student to pay only those fees that the board of trustees of a school district may charge (SECTION 6, Sec. 12.108). The bill amends the Local Government Code to require the governing body of an open-enrollment charter school to prepare and publish an annual financial statement for each fund subject to its authority (SECTION 23, Sec. 140.005 and SECTION 24, Sec. 140.006). Teachers and Employees C.S.H.B. 6 amends the Education Code to provide that a person employed as a teacher by a charter school must hold a high school diploma or high school equivalency certificate. The bill provides that a teacher assigned to teach a subject in the foundation curriculum must have a bachelor's degree or teaching certification from an institution equivalent to a higher education institution unless the commissioner waives the requirement (SECTION 19, Sec. 12.128). The bill provides an exception for a current teacher who does not have a bachelor's degree and is under contract as a teacher for the 2001-2002 school year if the person enrolls in an institution of higher education no later than January 1, 2002 and obtains a bachelor's degree no later than July 1, 2007 (SECTION 19, Sec. 12.1281). The bill requires each charter to specify the manner in which the school will distribute to parents information related to the qualifications of each professional employee of the program, including any professional or education degree, certification, or relevant experience of each employee (SECTION 8, Sec. 12.111). C.S.H.B. 6 provides that an employee of a charter school's management company who qualifies for membership under the Teacher Retirement System of Texas (TRS) shall be covered under TRS to the same extent a qualified employee of a school district is covered (SECTION 5, Sec. 12.1055). Charter Applications and Revisions C.S.H.B. 6 requires the board to adopt an application form and procedure that must be used to apply for the renewal of a charter. The bill provides that an application for a charter or renewal of a charter must include a description of the types of instructional approaches used, the program to be provided during each typical school day, and the number of hours each day the program will operate (SECTION 7, Sec. 12.110). The bill provides that the charter must specify the powers or duties of the school's governing body that may be delegated and prohibit discrimination in the school's admission policy on the basis of artistic ability (SECTION 8, Sec. 12.111). The bill requires TEA to investigate existing charter schools to determine if any of them are operating in a manner that effectively requires students to possess special artistic, athletic, or other abilities to be considered for admission and to report any violations to the board by January 1, 2002 (SECTION 25). The bill requires a charter school that receives more acceptable applications for admission than available positions to fill the available positions by lottery (SECTION 14, Sec. 12.117). C.S.H.B. 6 establishes that the grant of a charter does not create an entitlement to a renewal of a charter on the same terms as it was originally issued (SECTION 9, Sec. 12.113). The bill provides that a charter holder that seeks to increase grade levels or enrollment or expand to an additional campus or site beyond what is stated in the charter must submit an application for approval in a form approved by the board. The bill provides that the board must interview appropriate school representatives and carefully review an application for revision (SECTION 10, Sec. 12.114). The bill requires a charter holder to file a copy of its articles of incorporation with the board if applicable (SECTION 17, Sec. 12.119). Evaluation of Open-Enrollment Charter Schools The bill authorizes the board to modify, place on probation, revoke, or deny the renewal of a charter school's charter if the board determines that the charter holder failed to protect the health, safety, or welfare of the students enrolled at the school (SECTION 11, Sec. 12.115). The bill authorizes the commissioner to temporarily withhold funding, suspend the authority of a charter school to operate, or take any other reasonable action to protect the health, safety, or welfare of the school's students based on evidence until further determination is made by the commissioner or the board that conditions did not or no longer present a danger (SECTION 13, Sec. 12.1162). The Administrative Procedure Act does not apply to a hearing that is related to a modification, placement on probation, revocation, denial of renewal, or suspension of a charter under these provisions (SECTION 12, Sec. 12.116 and SECTION 13, Sec. 12.1162). C.S.H.B. 6 prohibits a charter school whose charter has been revoked or surrendered from continuing to operate or receive state funds, and authorizes a charter school whose renewal is denied by the board to continue to operate and receive state funds only for the remainder of the school year (SECTION 13, Sec. 12.1161). C.S.H.B. 6 provides that the evaluation of charter schools must include an evaluation of whether a school district or its employees are informing students at risk of dropping out of school of the opportunity to attend an open-enrollment charter school for the purpose of enabling the district or campus to avoid responsibility for those students (SECTION 15, Sec. 12.118). The bill requires the commissioner to authorize a special accreditation investigation of the school district in response to such an allegation (SECTION 21, Sec. 39.075). The bill establishes criteria for the evaluation of a charter school that assists students in earning a high school diploma or high school equivalency certificate (SECTION 15, Sec. 12.118). C.S.H.B. 6 requires TEA to study the use of and effectiveness of innovative instructional methods by charter schools and the procedures TEA uses to obtain information regarding the performance of charter schools. The bill requires TEA to report its assessment and recommendations in the comprehensive biennial report by December 1, 2002. These provisions expire January 1, 2003 (SECTION 16, Secs. 12.1181 and 12.1182). Governing Body of a Charter School C.S.H.B. 6 prohibits a person or a person whose spouse has a substantial interest in a management company from serving as a member of the governing body of a charter holder or as an officer or employee of an open-enrollment charter school (SECTION 18, Sec. 12.120). The bill requires the governing body of a charter school to govern and oversee the management of the school, including the use of state funds. The bill prohibits the governing body of a charter school from delegating the governing body's powers and duties unless the charter provides for such a delegation. The bill requires the governing body of a charter school to provide for appeals to the governing body or its designee concerning student disciplinary matters (SECTION 19, Sec. 12.121). C.S.H.B. 6 provides that a member of the governing body of a charter holder or a member of the governing body of a charter school is personally liable for a misapplication of state funds or property purchased or leased with state funds, including any use of funds that results in an improper personal benefit for the member, unless the misapplication was made in good faith on the advice of legal counsel. A person held liable under this provision is entitled to contribution from any other person who knowingly accepted funds that violated these provisions (SECTION 19, Sec. 12.122). The bill authorizes the board to adopt rules prescribing training for officers and members of governing bodies of open-enrollment charter schools by January 1, 2002. The bill describes what the rules must include and establishes penalties for a person who does not complete the minimum training (SECTION 19, Sec. 12.123 and SECTION 26). C.S.H.B. 6 authorizes only a member of the governing body or officer of a charter school that has been rated as academically acceptable or higher for each of the preceding three school years to be compensated (SECTION 5, Sec. 12.1053). Management Contracts C.S.H.B. 6 requires the governing body of a charter school to enter into a contract for management services if the governing body determines that contracting is necessary and desirable (SECTION 19, Sec. 12.121). The bill prohibits the charter holder or the governing body of a charter school from accepting a loan and entering into a contract to provide management services with the same management company (SECTION 19, Sec. 12.124). C.S.H.B. 6 requires a charter school to submit to the commissioner any proposed contract between the school and a management company and provides that such a contract may not take effect until approved by the commissioner. The bill requires the commissioner to adopt specific criteria to use in determining whether to approve a management contract by November 1, 2001. The bill prescribes what the criteria must include and sets forth the conditions under which the commissioner is authorized to suspend, revoke, or deny the renewal or approval of the contract of a management company. The bill requires the commissioner to adopt rules to administer provisions relating to the approval of management contracts. The bill provides that an approved contract is not assignable (SECTION 19, Sec. 12.125 and SECTION 27). The bill establishes that a management company is liable for damages incurred by the state or an affected school district as a result of the company's failure to comply with its legal obligations to the charter school. The bill authorizes the attorney general on request of the board to bring suit on behalf of the state or any affected school district against a management company liable under these provisions. The bill does not entitle an affected school district to bring suit on its own behalf against a management company, but does authorize such a district to participate in a suit brought by the attorney general (SECTION 19, Sec. 12.126). Access to Criminal History Records C.S.H.B. 6 requires a charter school to obtain criminal history record information that relates to a person who serves as or agrees to serve as a member of the school's governing body or a person whom the school intends to employ as an educator who is not certified by the State Board for Educator Certification. The bill authorizes a charter school to obtain from any law enforcement or criminal justice agency all criminal history information regarding a person the school intends to employ in the above or other capacities, or a person who has indicated in writing an intention to serve as a volunteer with the school (SECTION 20, Sec. 22.083). The bill amends the Government Code to entitle a charter school to obtain from the Department of Public Safety criminal history information for members of the governing body of the school (SECTION 22, Sec. 411.097). EFFECTIVE DATE The Act takes effect September 1, 2001. The provisions regarding state funding apply beginning with the 2003-2004 school year. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 6 differs from the original by exempting charter schools from state laws or rules that the commissioner of education (commissioner) determines are impracticable or inefficient for charter schools (SECTION 2, Sec. 12.103). The substitute removes the requirement that schools notify parents of undercertified teachers, but provides that each charter must specify the manner in which the school will distribute to parents information related to the qualifications, including any professional or education degree held, of each professional employee of the program (SECTION 3, Sec. 12.104 and SECTION 8, Sec. 12.111). The substitute prohibits the State Board of Education from approving the revision unless the school has received a rating of academically acceptable or higher for each of the preceding three school years (SECTION 10, Sec. 12.114). The substitute requires state funds for charter schools to be deposited in a Federal Deposit Insurance Corporation insured bank with which the school has a depository contract rather than a school direct depository, and requires a charter holder to deliver to the Texas Education Agency (TEA) a copy of the depository contract (SECTION 3, Sec. 12.104 and SECTION 6, Sec. 12.106). The substitute provides that a charter school's allotment is to be calculated based on the average adjustment for geographic variation in known resource costs and costs of education due to factors beyond the school district's control in addition to the average small and mid-sized district adjustment, the average sparsity adjustment, and the average district enrichment for the state (SECTION 6, Sec. 12.106). C.S.H.B. 6 prohibits the commissioner from denying an application for a school day length waiver if the school has been rated academically acceptable or higher for the preceding three school years (SECTION 4, Section 12.1041). C.S.H.B. 6 also removes the provision in the original that applied nepotism laws to charter schools, and instead sets forth provisions regarding nepotistic relationships and substantial interest of members of charter governing bodies or charter school officers in business entities (SECTION 5, Secs. 12.1051 and 12.1053). The substitute provides that a governing board member or officer of a charter school that has been rated as academically acceptable or higher for each of the preceding three school years may be compensated (SECTION 5, Sec. 12.1053). C.S.H.B. 6 provides that a person is not liable for a misapplication of state funds or property purchased or leased with state funds if the misapplication was made in good faith and with the advice of legal counsel. The substitute entitles a person held liable for a misapplication to contribution from any other person who knowingly accepted or received funds in proportion to the amount of funds accepted or received by that person (SECTION 19, Sec. 12.122). While the original provided that real property purchased prior to September 1, 2001 was state property if it was purchased with state funds, C.S.H.B. 6 specifies that the charter holder owns the property if less than 50 percent of the funds were state funds (SECTION 19, Sec. 12.127). The substitute removes the provisions prohibiting a person from providing management services without being registered with the commissioner. The substitute removes the criteria for issuance, renewal, suspension, and revocation of registration for providers of management services from the original and applies the criteria to management contract approval, renewal, suspension and revocation (SECTION 19, Sec. 12.125). C.S.H.B. 6 requires all charter school teachers to have the equivalent of a high school diploma rather than a bachelor's degree or teaching certificate. The substitute requires only those teachers of foundation curriculum subjects to have a bachelor's degree or teaching certificate (SECTION 19, Sec. 12.128). The substitute provides that the changes in funding for charter schools apply beginning with the 2003-2004 school year rather than with the effective date of this bill (SECTION 30).