Bill Text: TX SB1658 | 2017-2018 | 85th Legislature | Comm Sub


Bill Title: Relating to the ownership, sale, lease, and disposition of property and management of assets of an open-enrollment charter school.

Spectrum: Bipartisan Bill

Status: (Engrossed) 2017-05-20 - Committee report sent to Calendars [SB1658 Detail]

Download: Texas-2017-SB1658-Comm_Sub.html
 
 
  By: Taylor of Galveston, et al. S.B. No. 1658
 
  (Huberty)
 
   
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the ownership, sale, lease, and disposition of property
  and management of assets of an open-enrollment charter school.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 12.1012, Education Code, is amended by
  adding Subdivisions (7) and (8) to read as follows:
               (7)  "Payable obligation" means a contractually
  obligated expenditure that was reasonably incurred for the benefit
  of students enrolled at an open-enrollment charter school before
  the open-enrollment charter school ceased operations, including a
  debt described by Section 12.128(e).  The term does not include any
  amount owed to a former charter holder or officer or director of the
  school.
               (8)  "Remaining funds" means funds that are held by a
  former charter holder after satisfaction of all payable obligations
  and that were received:
                     (A)  under Section 12.106; or
                     (B)  from the disposition of property.
         SECTION 2.  Subchapter D, Chapter 12, Education Code, is
  amended by adding Section 12.10125 to read as follows:
         Sec. 12.10125.  OPEN-ENROLLMENT CHARTER SCHOOL NOT IN
  OPERATION.  An open-enrollment charter school ceases to operate if:
               (1)  the school's charter:
                     (A)  has been revoked;
                     (B)  has expired;
                     (C)  has been surrendered; or
                     (D)  has been abandoned; or
               (2)  the school has otherwise ceased operation as a
  public school.
         SECTION 3.  Section 12.106, Education Code, is amended by
  adding Subsections (d), (e), and (f) to read as follows:
         (d)  Except as provided by Subsection (e), all remaining
  funds of a charter holder for an open-enrollment charter school
  that ceases to operate must be returned to the agency and deposited
  in the charter school liquidation fund.
         (e)  The agency may approve a transfer of a charter holder's
  remaining funds to another charter holder if the charter holder
  receiving the funds has not received notice of the expiration or
  revocation of the charter holder's charter for an open-enrollment
  charter school or notice of a reconstitution of the governing body
  of the charter holder under Section 12.1141 or 12.115.
         (f)  The commissioner may adopt rules specifying:
               (1)  the time during which a former charter holder must
  return remaining funds under Subsection (d); and
               (2)  the qualifications required for a charter holder
  to receive a transfer of remaining funds under Subsection (e).
         SECTION 4.  Section 12.107(a), Education Code, is amended to
  read as follows:
         (a)  Funds received under Section 12.106 after September 1,
  2001, by a charter holder:
               (1)  are considered to be public funds for all purposes
  under state law;
               (2)  are held in trust by the charter holder for the
  benefit of the students of the open-enrollment charter school;
               (3)  may be used only for a purpose for which a school
  may use local funds under Section 45.105(c); [and]
               (4)  pending their use, must be deposited into a bank,
  as defined by Section 45.201, with which the charter holder has
  entered into a depository contract; and
               (5)  may not:
                     (A)  be pledged or used to secure loans or bonds
  for any other organization, including a non-charter operation or
  out-of-state operation conducted by the charter holder or a related
  party; or
                     (B)  be used to support an operation or activity
  not related to the educational activities of the charter holder.
         SECTION 5.  Section 12.1163, Education Code, is amended by
  adding Subsection (d) to read as follows:
         (d)  An audit under Subsection (a) may include the review of
  any real property transactions between the charter holder and a
  related party, as defined by commissioner rule adopted under
  Section 12.1166. If the commissioner determines that a transaction
  with a related party using funds received under Section 12.106 was
  structured in a manner that did not benefit the open-enrollment
  charter school or that the transaction was in excess of fair market
  value as determined under Section 12.1167, the commissioner may
  order that the transaction be reclassified or that other action be
  taken as necessary to protect the school's interests. Failure to
  comply with the commissioner's order is a material violation of the
  charter.
         SECTION 6.  Subchapter D, Chapter 12, Education Code, is
  amended by adding Sections 12.1166, 12.1167, and 12.1168 to read as
  follows:
         Sec. 12.1166.  RELATED PARTY TRANSACTIONS. (a)  The
  commissioner shall adopt a rule defining "related party" for
  purposes of this subchapter. The definition of "related party"
  must include:
               (1)  a party with a current or former board member,
  administrator, or officer who is:
                     (A)  a board member, administrator, or officer of
  an open-enrollment charter school; or
                     (B)  related within the third degree of
  consanguinity or affinity, as determined under Chapter 573,
  Government Code, to a board member, administrator, or officer of an
  open-enrollment charter school;
               (2)  a charter holder's related organizations, joint
  ventures, and jointly governed organizations;
               (3)  an open-enrollment charter school's board members,
  administrators, or officers or a person related to a board member,
  administrator, or officer within the third degree of consanguinity
  or affinity, as determined under Chapter 573, Government Code; and
               (4)  any other disqualified person, as that term is
  defined by 26 U.S.C. Section 4958(f).
         (b)  For purposes of Subsection (a)(1), a person is a former
  board member, administrator, or officer if the person served in
  that capacity within one year of the date on which a financial
  transaction between the charter holder and a related party
  occurred.
         (c)  In a charter holder's annual audit filed under Section
  44.008, the charter holder must include a list of all transactions
  with a related party.
         Sec. 12.1167.  APPRAISAL OF CERTAIN PROPERTY. The
  commissioner may adopt rules to require an open-enrollment charter
  school to:
               (1)  notify the commissioner that the school intends to
  enter into a transaction with a related party; and
               (2)  provide an appraisal from a certified appraiser to
  the agency.
         Sec. 12.1168.  FINANCIAL REPORT OF CERTAIN SCHOOLS. (a)  In
  this section, "related party" has the meaning adopted by
  commissioner rule under Section 12.1166.
         (b)  A financial report filed under Section 44.008 by an
  open-enrollment charter school must separately disclose:
               (1)  all financial transactions between the
  open-enrollment charter school and any related party, separately
  stating the principal, interest, and lease payments; and
               (2)  the total compensation and benefits provided by
  the school and any related party for each member of the governing
  body and each officer and administrator of the school and the
  related party.
         (c)  The commissioner may adopt rules to implement this
  section.
         SECTION 7.  Section 12.128, Education Code, is amended by
  amending Subsections (a) and (c) and adding Subsections (a-1),
  (b-1), (b-2), (c-1), (c-2), and (f) to read as follows:
         (a)  Property purchased [or leased] with funds received by a
  charter holder under Section 12.106 after September 1, 2001:
               (1)  is considered to be public property for all
  purposes under state law;
               (2)  is property of this state held in trust by the
  charter holder for the benefit of the students of the
  open-enrollment charter school; and
               (3)  may be used only for a purpose for which a school
  district may use school district property.
         (a-1)  Property leased with funds received by a charter
  holder under Section 12.106 after September 1, 2001:
               (1)  is considered to be public property for all
  purposes under state law;
               (2)  is property of this state held in trust by the
  charter holder for the benefit of the students of the
  open-enrollment charter school; and
               (3)  may be used only for a purpose for which a school
  district may use school district property.
         (b-1)  Subject to Subsection (b-2), while an open-enrollment
  charter school is in operation, the charter holder holds title to
  any property described by Subsection (a) or (b) and may exercise
  complete control over the property as permitted under the law.
         (b-2)  A charter holder may not transfer, sell, or otherwise
  dispose of any property described by this section without the prior
  written consent of the agency if:
               (1)  the charter holder has received notice of:
                     (A)  the expiration of the charter holder's
  charter under Section 12.1141 and the charter has not been renewed;
  or
                     (B)  the charter's revocation under Section
  12.115(c);
               (2)  the charter holder has received notice that the
  open-enrollment charter school is under discretionary review by the
  commissioner, which may result in the revocation of the charter or a
  reconstitution of the governing body of the charter holder under
  Section 12.115; or
               (3)  the open-enrollment charter school for which the
  charter is held has otherwise ceased to operate.
         (c)  The commissioner shall:
               (1)  take possession and assume control of the property
  described by Subsection (a) of an open-enrollment charter school
  that ceases to operate; and
               (2)  supervise the disposition of the property in
  accordance with this subchapter [law].
         (c-1)  Notwithstanding Subsection (c), if an open-enrollment
  charter school ceases to operate, the agency:
               (1)  for property purchased with state funds, shall
  direct the charter holder to dispose of the property through one of
  the following methods:
                     (A)  retain or liquidate the property and provide
  reimbursement to the state as provided by Section 12.1281;
                     (B)  transfer the property to:
                           (i)  the agency under Section 12.1281(h); or
                           (ii)  a school district or open-enrollment
  charter school under Section 12.1282;
                     (C)  close the operations of the open-enrollment
  charter school under Section 12.1284; or
                     (D)  take any combination of the actions described
  by Paragraphs (A), (B), and (C); and
               (2)  for property leased with state funds, may direct
  the charter holder to assign the charter holder's interest in the
  lease to the agency.
         (c-2)  The agency may approve an expenditure of remaining
  funds by a former charter holder for insurance or utilities for or
  maintenance, repairs, or improvements to property described by this
  section if the agency determines that the expenditure is reasonably
  necessary to dispose of the property or preserve the property's
  value.
         (f)  A decision by the agency under this section is final and
  may not be appealed.
         SECTION 8.  Subchapter D, Chapter 12, Education Code, is
  amended by adding Sections 12.1281, 12.1282, 12.1283, and 12.1284
  to read as follows:
         Sec. 12.1281.  DISPOSITION OF PROPERTY PURCHASED WITH STATE
  FUNDS. (a)  A former charter holder of an open-enrollment charter
  school that has ceased to operate may retain property described by
  Section 12.128 if the former charter holder reimburses the state
  with non-state funds and the former charter holder:
               (1)  provides written assurance that the requirements
  of Section 12.1284 will be met; and
               (2)  receives approval from the agency.
         (b)  On receiving consent from the agency under Section
  12.128(b-2) and a written agreement from any creditor with a
  security interest described by Section 12.128(e), the former
  charter holder may:
               (1)  sell property for fair market value; or
               (2)  transfer property to an open-enrollment charter
  school or a school district as provided under Section 12.1282.
         (c)  The amount of funds the state is entitled to as
  reimbursement for property of a former charter holder is:
               (1)  for property retained by the former charter
  holder, the current fair market value less the amount of any debt
  subject to a security interest or lien described by Section
  12.128(e), multiplied by the percentage of state funds used to
  purchase the property; or
               (2)  for property sold by the former charter holder,
  the net sales proceeds of the property multiplied by the percentage
  of state funds used to purchase the property.
         (d)  To determine the amount of state funds a former charter
  holder used to purchase property, the agency shall calculate:
               (1)  an estimated state reimbursement amount based on
  the last annual financial report filed under Section 44.008
  available at the time the former charter holder retains or sells the
  property; and
               (2)  a final state reimbursement amount using the
  former charter holder's final financial audit filed under Section
  44.008.
         (e)  A former charter holder retaining property under
  Subsection (a) or selling the property under Subsection (b)(1)
  shall:
               (1)  file an affidavit in the real property records of
  the county in which the property is located disclosing the state
  interest in the property;
               (2)  place in escrow with the state comptroller an
  amount of non-state funds equal to 110 percent of the estimated
  state reimbursement amount not later than:
                     (A)  the closing date of the sale of the property
  if the charter holder is selling the property; or
                     (B)  the 90th day after the charter school's last
  day of instruction if the charter holder is retaining the property;
  and
               (3)  not later than two weeks after the date the charter
  holder's final financial audit is filed under Section 44.008,
  submit to the state the final state reimbursement amount using the
  funds in escrow in addition to any other funds necessary to pay the
  full amount of state reimbursement.
         (f)  A former charter holder may retain any funds remaining
  after complying with this section.
         (g)  As soon as the agency is satisfied that the former
  charter holder complied with Subsection (e), the agency shall file
  written notice of the release of the state interest in property the
  former charter holder retains under this section and authorize the
  return of any funds not used for state reimbursement to the former
  charter holder.
         (h)  Subject to the satisfaction of any security interest or
  lien described by Section 12.128(e), if a former charter holder
  does not dispose of property under Subsection (a) or (b), the former
  charter holder shall transfer the property, including a conveyance
  of title, to the agency in accordance with the procedures and time
  requirements established by the agency.
         (i)  Subject to the satisfaction of any security interest or
  lien described by Section 12.128(e), if the agency determines a
  former charter holder failed to comply with this section or Section
  12.1282, on request of the agency, the attorney general shall take
  any appropriate legal action to compel the former charter holder to
  convey title to the agency or other governmental entity authorized
  by the agency to maintain or dispose of property.
         (j)  A decision by the agency under this section is final and
  may not be appealed.
         (k)  The commissioner may adopt rules necessary to
  administer this section.
         Sec. 12.1282.  TRANSFER OF PROPERTY PURCHASED WITH STATE
  FUNDS. (a)  The agency may approve the transfer of property
  described by Section 12.128 from an open-enrollment charter school
  that has ceased to operate, or may transfer property conveyed to the
  agency by the former charter holder under Section 12.1281, to a
  school district or an open-enrollment charter school if:
               (1)  the open-enrollment charter school or school
  district receiving the property:
                     (A)  agrees to the transfer; and
                     (B)  agrees to identify the property as purchased
  wholly or partly using state funds on the school's annual financial
  report filed under Section 44.008;
               (2)  any creditor with a security interest in or lien on
  the property described by Section 12.128(e) agrees to the transfer;
  and
               (3)  the transfer of the property does not make the
  open-enrollment charter school or school district receiving the
  property insolvent.
         (b)  Property received by an open-enrollment charter school
  or school district under this section is considered to be state
  property under Section 12.128(a).
         (c)  The commissioner may adopt rules necessary to
  administer this section, including rules establishing
  qualifications and priority for a school district or
  open-enrollment charter school to receive a transfer of property
  under this section.
         (d)  If the agency determines that the cost of disposing of
  personal property described by Section 12.128 transferred to the
  agency by an open-enrollment charter school that ceases to operate
  exceeds the return of value from the sale of the property, the
  agency may distribute the personal property to open-enrollment
  charter schools and school districts in a manner determined by the
  commissioner.
         (e)  A determination by the agency under this section is
  final and may not be appealed.
         Sec. 12.1283.  SALE OF PROPERTY PURCHASED WITH STATE FUNDS.
  (a)  After the agency receives title to property described by
  Section 12.128, the agency may sell the property at any price
  acceptable to the agency.
         (b)  On request of the agency, the following state agencies
  shall enter into a memorandum of understanding to sell property for
  the agency:
               (1)  for real property, the General Land Office; and
               (2)  for personal property, the Texas Facilities
  Commission.
         (c)  A memorandum of understanding entered into as provided
  by Subsection (b) may allow the General Land Office or Texas
  Facilities Commission to recover from the sale proceeds any cost
  incurred by the agency in the sale of the property.
         (d)  Subject to the satisfaction of any security interest or
  lien described by Section 12.128(e), proceeds from the sale of
  property under this section shall be deposited in the charter
  school liquidation fund.
         (e)  The commissioner may adopt rules as necessary to
  administer this section.
         Sec. 12.1284.  CLOSURE OF CHARTER SCHOOL OPERATIONS.
  (a)  After extinguishing all payable obligations owed by an
  open-enrollment charter school that ceases to operate, including a
  debt described by Section 12.128(e), a former charter holder shall:
               (1)  remit to the agency:
                     (A)  any remaining funds described by Section
  12.106(d); and
                     (B)  any state reimbursement amounts from the sale
  of property described by Section 12.128; or
               (2)  transfer the remaining funds to another charter
  holder under Section 12.106(e).
         (b)  The agency shall deposit any funds received under
  Subsection (a)(1) in the charter school liquidation fund.
         (c)  The commissioner may adopt rules necessary to
  administer this section.
         SECTION 9.  Subchapter D, Chapter 12, Education Code, is
  amended by adding Section 12.141 to read as follows:
         Sec. 12.141.  RECLAIMED FUNDS. (a)  The agency shall
  deposit funds received under Sections 12.106, 12.128, 12.1281,
  12.1283, and 12.1284 into the charter school liquidation fund and
  may use the funds to:
               (1)  pay expenses relating to managing and closing an
  open-enrollment charter school that ceases to operate, including:
                     (A)  maintenance of the school's student and other
  records; and
                     (B)  the agency's personnel costs associated with
  managing and closing the school;
               (2)  dispose of property described by Section 12.128;
  and
               (3)  maintain property described by Section 12.128,
  including expenses for insurance, utilities, maintenance, and
  repairs.
         (b)  The agency may not use funds under this section until
  the commissioner determines if the open-enrollment charter school
  that ceases to operate received an overallocation of funds under
  Section 12.106 that must be recovered for the foundation school
  program.
         (c)  The agency shall annually review the amount of funds in
  the charter school liquidation fund and transfer any funds
  exceeding $2 million:
               (1)  for use in funding a high-quality educational
  grant program established by the commissioner; or
               (2)  to the comptroller to deposit in the charter
  district bond guarantee reserve fund under Section 45.0571.
         (d)  The agency may delay a transfer of funds under
  Subsection (c) if the excess is less than $100,000.  Funds set aside
  for an overallocation of funds from the foundation school program
  are not included in determining whether the amount of funds exceeds
  $2 million.
         (e)  The commissioner may adopt rules necessary to implement
  this section.
         SECTION 10.  Section 39.1121, Education Code, is amended by
  adding Subsection (c-1) to read as follows:
         (c-1)  A board of managers appointed for the final closure of
  a former open-enrollment charter school under Subsection (c) has
  the authority to:
               (1)  access and manage any former charter holder's bank
  account that contains funds received under Section 12.106; and
               (2)  subject to approval by a creditor with a security
  interest in or lien on property described by Section 12.128 and in
  accordance with Sections 12.1281 and 12.1282, sell or transfer to
  another charter holder or school district any property titled to
  the former charter holder that is identified in the former
  open-enrollment charter school's annual financial report filed
  under Section 44.008 as being acquired, wholly or partly, with
  funds received under Section 12.106.
         SECTION 11.  Section 39.1122(c), Education Code, is amended
  to read as follows:
         (c)  The agency [commissioner] shall use funds received by or
  due to the former charter holder under Section 12.106 or funds
  returned to the state from liquidation of [state] property
  described by Section 12.128 and held by a former charter holder for
  compensation of a member of a board of managers for an
  open-enrollment charter school or a campus of an open-enrollment
  charter school or a superintendent.
         SECTION 12.  Section 43.001(a), Education Code, is amended
  to read as follows:
         (a)  Except as provided by Subsection (b), the permanent
  school fund, which is a perpetual endowment for the public schools
  of this state, consists of:
               (1)  all land appropriated for the public schools by
  the constitution and laws of this state;
               (2)  all of the unappropriated public domain remaining
  in this state, including all land recovered by the state by suit or
  otherwise except pine forest land as defined by Section 88.111 and
  property described by Section 12.128;
               (3)  all proceeds from the authorized sale of permanent
  school fund land;
               (4)  all proceeds from the lawful sale of any other
  properties belonging to the permanent school fund;
               (5)  all investments authorized by Section 43.003 of
  properties belonging to the permanent school fund; and
               (6)  all income from the mineral development of
  permanent school fund land, including income from mineral
  development of riverbeds and other submerged land.
         SECTION 13.  Section 44.008, Education Code, is amended by
  adding Subsections (f), (g), and (h) to read as follows:
         (f)  An open-enrollment charter school shall provide an
  accounting of each parcel of the school's real property, including
  identifying the amount of local, state, and federal funds used to
  purchase or improve each parcel of property.
         (g)  An open-enrollment charter school for which the charter
  has expired, been revoked, or been surrendered or an
  open-enrollment charter school that otherwise ceases to operate
  shall submit a final annual financial report to the agency.  The
  report must verify that all state property held by the charter
  holder has been returned or disposed of in accordance with Section
  12.128.
         (h)  The commissioner may adopt rules necessary to implement
  this section, including rules defining local funds.
         SECTION 14.  A transfer of property from an open-enrollment
  charter school that ceases to operate to another open-enrollment
  charter school that occurred before the effective date of this Act
  is ratified if both open-enrollment charter schools classified the
  property as purchased with state funds on each school's annual
  financial report under Section 44.008, Education Code.
         SECTION 15.  This Act takes effect only if a specific
  appropriation for the implementation of the Act is provided in a
  general appropriations act of the 85th Legislature.
         SECTION 16.  This Act takes effect immediately if it
  receives a vote of two-thirds of all the members elected to each
  house, as provided by Section 39, Article III, Texas Constitution.  
  If this Act does not receive the vote necessary for immediate
  effect, this Act takes effect September 1, 2017.
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