85R12752 MEW-F
By: Taylor of Galveston S.B. No. 1658
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 ceased operations. 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 held by a former
charter holder after satisfaction of all payable obligations
relating to the operation or closure of operations of an
open-enrollment charter school that were identified as state
property in the annual financial report filed under Section 44.008
and 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(A) has been revoked;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 been denied renewal;
(C) has expired;
(D) has been surrendered; or
(E) 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:
(1) 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; and
(2) has been approved for an expansion amendment or
been assigned the operation of the former charter school that
ceased to operate.
(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 affiliated with the charter holder; or
(B) be used to support a non-charter operation or
out-of-state operation affiliated with 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 an
affiliated company, as defined by commissioner rule adopted under
Section 12.1166. If the commissioner determines that a sale and
leaseback transaction or similar transaction 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 12.1166, 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 and 12.1167 to read as follows:
Sec. 12.1166. VALUATION OF CERTAIN REAL PROPERTY
TRANSACTIONS. (a) The commissioner shall adopt a rule defining an
affiliated company for purposes of this section.
(b) Before an open-enrollment charter school may enter into
a real property transaction with an affiliated company, the
open-enrollment charter school must provide an appraisal of the
property to the agency. The school is required to pay for the
appraisal required under this section.
(c) The commissioner may adopt rules to implement this
section. Rules adopted under this section may require:
(1) an open-enrollment charter school to obtain
commissioner approval of the appraiser;
(2) the commissioner to publish a list of acceptable
appraisers;
(3) the appraiser to use specific methods for the
appraisal; or
(4) the appraisal to be filed with the agency.
Sec. 12.1167. FINANCIAL REPORT OF CERTAIN SCHOOLS. (a) In
this section, "affiliated company" has the meaning assigned by
commissioner rule adopted under Section 12.1166.
(b) An open-enrollment charter school that enters into a
financial transaction with an affiliated company for the sale or
lease of real property must include the business operations of the
affiliated company in the school's annual financial report.
(c) A financial report subject to Subsection (b) must
separately disclose:
(1) all financial transactions between the
open-enrollment charter school and the affiliated company,
separately stating the principal, interest, and lease payments; and
(2) the total compensation and benefits for:
(A) each member of the governing body and each
officer and administrator of the school and the affiliated company;
and
(B) each person related to a member, officer, or
administrator under Paragraph (A) in the third degree by
consanguinity or affinity, as determined under Chapter 573,
Government Code.
(d) 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 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) liquidate the property under Section
12.1283;
(D) close the operations of the open-enrollment
charter school under Section 12.1284; or
(E) take any combination of the actions described
by Subdivisions (A), (B), (C), and (D); 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 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 for the amount of state funds used to purchase
the property 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 remaining principal
on any debt subject to a security interest or lien described by
Section 12.128(e); 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) if:
(A) retaining the property, file an affidavit in
the real property records of the county in which the property is
located disclosing the state interest in the property; or
(B) selling the property, provide written
assurance that the requirements of Section 12.1283 have been met;
(2) place in escrow with the state comptroller an
amount of non-state funds equal to 110 percent of the estimated
state reimbursement amount; 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 issue
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) 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) 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 that ceases to operate 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 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) Proceeds from the sale of property under this section
shall be deposited in the charter school liquidation fund.
(d) 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
maintenance of the school's student and other records; and
(2) dispose of property described by Section 12.128.
(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 Section 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, Education Code, is amended by
amending Subsection (c) 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, been denied renewal, 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 January 1, 2016, 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 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.