BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON EDUCATION
                              Senator Carol Liu, Chair
                                2015 - 2016  Regular 

          Bill No:             AB 1084             
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          |Author:    |Bonilla                                              |
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          |Version:   |June 6, 2016                              Hearing    |
          |           |Date:    June 29, 2016                               |
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          |Urgency:   |No                     |Fiscal:    |No               |
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          |Consultant:|Lenin Del Castillo                                   |
          |           |                                                     |
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          Subject:  Charter schools:  for-profit entities


          NOTE:  This bill has been amended to replace its contents and  
          this is the first time the bill is being heard in its current  
          form.

            SUMMARY
          
          This bill prohibits an online charter school from being owned or  
          operated by, or operated as, a for-profit entity, and also  
          prohibits a nonprofit charter virtual academy or a nonprofit  
          online charter school from contracting with a for-profit entity  
          for the provision of instructional services. 

            BACKGROUND
          
          Existing law:

             1)   Establishes the Charter Schools Act of 1992 which  
               provides for the establishment of charter schools in  
               California for the purpose, among other things, to improve  
               student learning and expand learning experiences for pupils  
               who are identified as academically low achieving.  A  
               charter school may be authorized by a school district, a  
               county board of education, or the State Board of Education,  
               as specified.  Except where specifically noted otherwise,  
               California law exempts charter schools from many of the  
               statutes and regulations that apply to schools and school  
               districts.  







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             2)   Authorizes a charter school to elect to operate as, or  
               be operated by, a nonprofit public benefit corporation,  
               formed and organized pursuant to the Nonprofit Public  
               Benefit Corporation Law.  

             3)   Specifies that the governing board of a school district  
               that grants a charter for the establishment of a charter  
               school shall be entitled to a single representative on the  
               board of directors of the nonprofit public benefit  
               corporation. 

             4)   Specifies that an authority that grants a charter to a  
               charter school to be operated by, or as, a nonprofit public  
               benefit corporation is not liable for the debts or  
               obligations of the charter school, or for claims arising  
               from the performance of acts, errors, or omissions by the  
               charter school, if the authority has complied with all  
               oversight responsibilities required by law, including, but  
               not limited to, those required by Education Code § 47604.32  
               and 47605(m).  
               (Education Code § 47604)

           ANALYSIS
          
          This bill:

          1)   Provides that a virtual or online charter school shall not  
               be owned or operated by, or operated as, a for-profit  
               entity.

          2)   Provides that a nonprofit online charter school, nonprofit  
               charter virtual academy, or a nonprofit entity that  
               operates an online or virtual charter school shall not  
               contract with a for-profit entity for the provision of  
               instructional services.

          3)   Defines virtual or online charter school as a charter  
               school in which at least 80 percent of teaching and pupil  
               interaction occurs via the Internet. 

          STAFF COMMENTS
          
          1)   Need for the bill.  According to the author's office,  








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               "there have been troubling examples of for profit online  
               charter schools in California that are not serving the  
               academic needs of their students.  Some are structured as  
               nonprofit entities, but contract with for-profit entities  
               to provide all services, including instructional services.   
               Charter schools receive funding from the State of  
               California to educate their students.  It is an inherent  
               conflict-of-interest for a charter school to be operated as  
               a for-profit entity or solely contract with for-profit  
               entities for instructional services.  Taxpayer dollars  
               should be spent on academic services and improving the  
               educational experience of California students, not on  
               paying shareholders or enriching a company."

          2)   Premature due to current efforts to address charter  
               oversight issues?  This Committee will have an  
               informational hearing on August 3, 2016 to investigate the  
               charter school petition process, the role of charter school  
               authorizers and their specific oversight responsibilities  
               in current law, and whether there are sufficient mechanisms  
               in place to ensure adequate oversight and accountability.   
               The objective of the hearing will be to identify  
               opportunities for improvement and reform with respect to  
               charter school oversight.  Additionally, the Superintendent  
               of Public Instruction recently announced that it has  
               contracted with the State Controller's Office to conduct an  
               audit of the California Virtual Academies and related  
               charter schools because of serious questions raised about a  
               number of their practices.  Specifically, "the goal of the  
               audit is to make sure these schools are spending public  
               education funds properly and serving their students well."   
               Further, the Joint Legislative Audit Committee recently  
               approved a request for an audit of the Alliance  
               College-Ready Public Schools charter management  
               organization and the charter schools under their  
               operational jurisdiction within the Los Angeles Unified  
               School District.  Similarly, the audit is intended to  
               address, in part, whether the resources provided to these  
               schools are being used appropriately.
          
               The Committee may wish to consider whether advancing this  
               bill is premature at this point since it could likely  
               benefit from information that will be provided by the  
               Committee's informational hearing in August as well the  








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               findings and recommendations resulting from the related  
               audits.
          
          3)   Appropriate use of taxpayer dollars?  While current law  
               explicitly authorizes a charter school to operate as a  
               nonprofit corporation, statute is silent on whether a  
               charter school is permitted to operate as a for-profit  
               corporation.  Because of the permissive nature of the  
               Education Code and absent a clear prohibition, several  
               charter schools are currently operating as for-profit  
               corporations.  The California Charter School Association  
               indicates there are six for-profit charter schools in the  
               state.  California Virtual Academies (CAVA) is California's  
               largest provider of online public K-12 education and a  
               public charter school network that may exist entirely  
               online, serving approximately 15,000 students.  Students  
               take classes from home, primarily communicating with  
               teachers via computer.  CAVA's primary vendor and manager  
               is K-12, Inc., a for-profit corporation that operates  
               virtual schools nationwide.  

               Is it an appropriate use of state taxpayer dollars  
               for-profit corporations to operate public schools?   
               Specifically, does this model provide a perverse incentive  
               for these charter schools to limit services for students in  
               order to increase profits? 
                
          4)   Similar bill vetoed.  This bill is similar to AB 787  
               (Hernandez, 2015) from last year which would have  
               prohibited a charter school from operating as, or being  
               operated by, a for-profit corporation.  AB 787 passed this  
               Committee but was eventually vetoed by the Governor with  
               the following message:

                    Under this bill, beginning January 1, 2017, a  
                    charter school could not "operate as" or be  
                    "operated by" a for-profit corporation. 

                    I don't believe the case has been made to  
                    eliminate for-profit charter schools in  
                    California. Moreover, the somewhat ambiguous  
                    terms used in this bill could be interpreted to  
                    restrict the ability of non-profit charter  
                    schools to continue using for-profit vendors.








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          It does not appear that the bill addresses the concerns raised  
          in the Governor's veto message.  However, the author's office  
          indicates that "AB 1084 is different in that its language is  
          much more specific about what an online charter school cannot  
          contract with a for-profit to provide-instructional services.   
          Online schools should not be having a for-profit employ its  
          teachers."  

          5)   Clarification is necessary.  Similar to the concern raised  
               in the Governor's veto message, can the terms regarding the  
               bill's prohibition on online charters being owned or  
               operated by, or operated as, a for-profit entity be  
               interpreted to limit their ability to contract with a  
               for-profit entity, even for day-to-day operations such as  
               payroll, human resources or janitorial services?  Further,  
               the bill prohibits nonprofit online charter schools from  
               contracting with a for-profit entity for the provision of  
               instructional services.  It is unclear if this prohibition  
               would extend to contracts in place for other instructional  
               related operations such as the provision of assessments,  
               instructional materials, classroom learning tools,  
               professional development, or more importantly, services  
               required as part of a special education student's  
               individualized education plan?  Or is the bill limited only  
               to the actual instructors employed by for-profit entities?   
               To prevent differing practical interpretations, the author  
               may wish to consider clarifying amendments if the bill  
               moves forward.   
          
          6)   Impact on students.  Notwithstanding the issues regarding  
               the appropriateness of using taxpayer dollars for charter  
               schools operating as for-profit corporations, the Committee  
               may wish to consider whether the bill contemplates what  
               would happen to students attending these schools if the  
               bill were to become law.  Presumably, the operating  
               entities could restructure or reorganize themselves as  
               nonprofit corporations to comply.  If not, would a charter  
               school need to shut down its operations?  The bill also  
               extends to nonprofit online charter schools that contract  
               with for-profit entities for the provision of instructional  
               services.  To the extent that these entities are unable to  
               enter into new contracts exclusively with nonprofit  
               entities, similarly, would these charter schools be  








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               required to close?  Additionally, as the bill would become  
               operative commencing with the 2017-18 school year, it is  
               not clear if this allows for a sufficient transition period  
               for students that are displaced to find placement in a new  
               school, particularly students that are disabled or have  
               unique learning needs. 

               Currently, there are virtual schools which identify special  
               education or at-risk children and youth as their target  
               student populations.  These include students in the  
               juvenile justice system and students who are at risk of  
               dropping out.   Virtual charter schools may also be a more  
               viable option among non-traditional students, including  
               exceptional athletes, actors, and high-mobility students,  
               such as children from military families.  On the other  
               hand, there are charter schools and school districts that  
               currently contract with for-profit entities to offer online  
               curriculum for advanced courses that they are unable to  
               provide.  Could the bill potentially lead to a disruption  
               in the educational services provided to these students?    
               Could it also limit local discretion and prohibit  
               arrangements with online programs that have provided  
               students with successful options?

          7)   Local control and accountability plan (LCAP) process.   
               Implementing Local Control Funding Formula (LCFF) statutes  
               include the requirement that all school districts and  
               county offices of education complete LCAPs and an annual  
               update to an local control and accountability plan (LCAP).  
               While the various statutes governing charter school  
               authorizations only reference the annual update section of  
               the LCAP, the regulations adopted by the State Board of  
               Education in 2015 regarding the LCAP template reflect the  
               requirement that all local educational agencies, including  
               charter schools, complete an LCAP each year.  Further, the  
               current education trailer bill for the 2016-17 budget  
               includes a provision specifying that charter schools must  
               complete an LCAP.  
          
               Current statute requires an LCAP to include both of the  
               following, a description of the annual goals (for all  
               students and each subgroup of students) to be achieved for  
               each of the state priorities and for any additional local  
               priorities identified by the governing board, and a  








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               description of the specific actions the school district  
               will take during each year of the LCAP to achieve these  
               goals, including the enumeration of any specific actions  
               necessary for that year to correct any deficiencies in  
               regard to the state priorities.  To the extent there are  
               concerns from parents, students, or the local community  
               regarding the delivery of instruction or the outcomes of  
               students attending a particular online charter school, does  
               the local control and accountability plan process provide  
               an effective means to promote change?   

          8)   Responsibility for charter authorizers.  As part of the  
               process for considering petitions for the establishment or  
               renewal of a charter school, a description of the  
               educational program of the school is required.  This should  
               include the mode of instruction and whether it is online,  
               blended, or classroom-based.  Statute provides that a  
               school district shall grant a charter if it is satisfied  
               that granting the charter is consistent with sound  
               educational practice, and specifies that the districts  
               shall not deny the petition unless it makes specific  
               findings, including a finding that the charter school  
               present as unsound educational program or that the  
               petitioners are demonstrably unlikely to successfully  
               implement the program.  

          As part of the charter petition renewal process, the authorizer  
          is required to consider increases in pupil academic achievement  
          for all groups of pupils served by the charter school as the  
          most important factor in determining whether to grant a charter  
          renewal.  To the extent there are concerns regarding the use of  
          online instruction provided by a for-profit entity, does the  
          existing petition process allow the opportunity for charter  
          authorizers to sufficiently address these concerns?      

          9)   Nonclassroom-based instruction.  Online or virtual charter  
               schools operate within the context of nonclassroom-based  
               instruction.  A charter school that does not meet the  
               requirements to be a classroom-based instruction school is  
               considered to be nonclassroom-based and must have a funding  
               determination approved by the State Board of Education.   
               Classroom-based instruction occurs only when pupils are  
               under the immediate supervision and control of a  
               certificated teacher.  Further, the charter school must  








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               offer at least 80 percent of its instructional time at the  
               school site (for classroom instruction) and attendance must  
               be required at the school site for at least 80 percent of  
               the minimum instructional time required to be offered.   
               Charter schools can only claim average daily attendance for  
               pupils who are residents of the county in which the charter  
               school is authorized, or who are residents of a county  
               immediately adjacent to that county.  
          
               Existing law defines a virtual or online charter school as  
               one in which at least 80 percent of teaching and student  
               interaction occurs via the Internet.  In order for a  
               virtual or online charter school to be funded, it must  
               demonstrate specified conditions.  For example, the online  
               charter school would need to demonstrate that instructional  
               expenditures are at least 85 percent of the overall school  
               budget and at least 25 percent is spent on technology that  
               directly benefits students and teachers and results in  
               improved student achievement.

          10)  Independent study.  Independent study programs provide  
               school districts with the ability to offer alternative  
               education settings for students.  These programs utilize  
               alternative instructional strategies that respond to  
               individual student needs and learning styles.  The  
               flexibility afforded by these programs makes it possible to  
               serve a wide variety of students, including those who  
               otherwise may not be able to graduate from school.   
               Students who enroll in independent study include students  
               who have health problems, are parents, need to work, or are  
               child actors.  Independent study may also serve students  
               who desire to accelerate more quickly or more slowly  
               through a course.  Students may also utilize independent  
               study to make up a course that they may have missed or  
               failed in a traditional classroom.  School districts may  
               offer independent study through a variety of formats,  
               including online courses, home-based formats, through  
               alternative schools, and as special or advanced courses.  

               According to information provided by the California  
               Department of Education, there were 1,418 schools that  
               reported students engaged in independent study with an  
               enrollment of more than 128,000 students in grades K-12 in  
               October 2008.  For the 2007-08 school year, more than  








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               19,000 independent study students graduated from high  
               school or passed a high school equivalency exam.  

               It is unclear to what extent the existing independent study  
               programs utilize online instruction offered by for-profit  
               entities.  K-12, Inc. indicates that it works with  
               approximately 60 traditional school districts in the state  
               serving just under 20,000 students.  If part of the  
               rationale for introducing this measure is the concern over  
               the use of online instruction, why does it apply only to  
               charter schools and not traditional school districts or  
               county offices of education?

          11)  Related legislation.  

               AB 787 (Hernandez, 2015) would have prohibited a charter  
               school from operating as, or being operated by, a  
               for-profit corporation.  This bill passed this Committee  
               but was vetoed by the Governor.  

               AB 2007 (Grove, Chapter 807, Statutes of 2014), until  
               January 1, 2018, authorizes a virtual or online charter  
               school to claim independent study average daily attendance  
               for a pupil who is enrolled in a virtual or online charter  
               school and moves to a residence outside of the geographic  
               boundaries in which the virtual or online charter school is  
               authorized to operate for the duration of the pupil's  
               courses or until the end of the school year, whichever  
               occurs first.  

            SUPPORT
          
          California State PTA
          California Teachers Association
          Letters from individuals

            OPPOSITION
           
           California Connections Academy
          California Parents for Public Virtual Education 
          Charter School Capital
          Charter Schools Development Center
          K-12, Inc.
          Learn4Life








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