88R681 MLH-F
By: Bailes H.B. No. 531
A BILL TO BE ENTITLED
AN ACT
relating to the management and operation of open-enrollment charter
schools, including certain contracts involving management and
operation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 12.1012, Education Code, is amended by
adding Subdivision (5-a) to read as follows:
(5-a) "Nonresident management company" means a
management company whose:
(A) principal place of business is in another
state; or
(B) parent company, governing entity, or
majority owner has its principal place of business in another
state.
SECTION 2. Section 12.1053(b), Education Code, is amended
to read as follows:
(b) An open-enrollment charter school is considered to be:
(1) a governmental entity for purposes of:
(A) Subchapters A and [Subchapter] D, Chapter
2252, Government Code; and
(B) Subchapter B, Chapter 271, Local Government
Code;
(2) a political subdivision for purposes of Subchapter
A, Chapter 2254, Government Code; and
(3) a local government for purposes of Sections
2256.009-2256.016, Government Code.
SECTION 3. Section 12.107, Education Code, is amended to
read as follows:
Sec. 12.107. STATUS AND USE OF FUNDS; DEPOSITORY. (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);
(4) pending their use, must be deposited into the
charter holder's depository, selected under Subsection (a-1) [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, as defined by commissioner rule adopted under Section
12.1166; or
(B) be used to support an operation or activity
not related to the educational activities of the charter holder.
(a-1) A charter holder may select as the charter holder's
depository for the deposit of state funds received under Section
12.106 only a bank, as defined by Section 45.201, that is located in
this state.
(b) A charter holder shall deliver to the agency a copy of
the depository contract between the charter holder and the
depository selected under Subsection (a-1) [any bank] into which
state funds are to be deposited.
SECTION 4. Section 12.1168(b), Education Code, is amended
to read as follows:
(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, as defined by
commissioner rule adopted under Section 12.1166, separately
stating the principal, interest, and lease payments; [and]
(2) the total compensation and benefits provided by
the school and any related party, as defined by commissioner rule
adopted under Section 12.1166, for each member of the governing
body and each officer and administrator of the school and the
related party;
(3) the total amount of financial transactions:
(A) between the school and a management company;
and
(B) between the school and any related party of a
management company, as defined by commissioner rule adopted under
Section 12.1169; and
(4) the total compensation and benefits provided by
the school or a related party of a management company described by
Subdivision (3)(B) for each nonresident person who provides
management services through a management company under a contract
with the school.
SECTION 5. Subchapter D, Chapter 12, Education Code, is
amended by adding Section 12.1169 to read as follows:
Sec. 12.1169. TRANSACTIONS INVOLVING RELATED PARTY OF A
MANAGEMENT COMPANY. (a) The commissioner shall adopt a rule
defining "related party of a management company" for purposes of
this subchapter. The definition of "related party of a management
company" 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
a management company that provides management services for 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 a
management company that provides management services for an
open-enrollment charter school;
(2) any organizations, joint ventures, and jointly
governed organizations related to a management company that
provides management services for an open-enrollment charter
school;
(3) any board members, administrators, or officers of
a management company that provides services for an open-enrollment
charter school, including a person related to a board member,
administrator, or officer of the management company 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 a management company and a related party of a
management company occurred.
SECTION 6. Sections 12.120(a) and (b), Education Code, are
amended to read as follows:
(a) A person may not serve as a member of the governing body
of a charter holder, as a member of the governing body of an
open-enrollment charter school, or as an officer or employee of an
open-enrollment charter school if the person:
(1) has been convicted of:
(A) a felony; or
(B) a misdemeanor involving moral turpitude;
(2) has been convicted of:
(A) an offense listed in Section 37.007(a) or[;
[(3) has been convicted of an offense listed] in
Article 62.001(5), Code of Criminal Procedure; or
(B) an offense under the laws of another state or
federal law that contains elements that are substantially similar
to the elements of an offense listed in Section 37.007(a) or in
Article 62.001(5), Code of Criminal Procedure; or
(3) [(4)] has a substantial interest in a management
company.
(b) For purposes of Subsection (a)(3) [(a)(4)], a person has
a substantial interest in a management company if the person:
(1) has a controlling interest in the management
company;
(2) owns more than 10 percent of the voting interest in
the management company;
(3) owns more than $25,000 of the fair market value of
the management company;
(4) has a direct or indirect participating interest by
shares, stock, or otherwise, regardless of whether voting rights
are included, in more than 10 percent of the profits, proceeds, or
capital gains of the management company;
(5) is a member of the board of directors or other
governing body of the management company;
(6) serves as an [elected] officer of the management
company; [or]
(7) is an employee of the management company;
(8) is an officer or employee of a contractor of the
management company; or
(9) is an officer or employee of a related party of a
management company, as defined by commissioner rule adopted under
Section 12.1169.
SECTION 7. Section 12.1202, Education Code, is amended to
read as follows:
Sec. 12.1202. REQUIREMENT FOR [MAJORITY OF] MEMBERS OF
GOVERNING BODY. (a) In this section, "qualified voter" has the
meaning assigned by Section 11.002, Election Code.
(b) A person must be a qualified voter to serve as a member
[majority of the members] of the governing body of an
open-enrollment charter school or the governing body of a charter
holder [must be qualified voters].
SECTION 8. Section 12.125, Education Code, is amended to
read as follows:
Sec. 12.125. CONTRACT FOR MANAGEMENT SERVICES; PUBLIC
INFORMATION. (a) Any contract, including a contract renewal,
between an open-enrollment charter school and a management company
proposing to provide management services to the school must require
the management company to maintain all records related to the
management services separately from any other records of the
management company.
(b) A contract for management services is public
information under Chapter 552, Government Code, and may not be
excepted from required disclosure under Subchapter C of that
chapter.
SECTION 9. Subchapter D, Chapter 12, Education Code, is
amended by adding Section 12.1251 to read as follows:
Sec. 12.1251. REQUIRED REPORTING ON CONTRACTS FOR
MANAGEMENT SERVICES WITH NONRESIDENT MANAGEMENT COMPANIES. (a) An
open-enrollment charter school that contracts with a nonresident
management company for management services in an amount that
exceeds the lesser of $1 million per year or five percent of the
school's entitlement under Section 12.106 shall, not later than
October 1 of each year, post on the school's Internet website and
submit to the agency and the Legislative Budget Board:
(1) the total amount the school spent during the
preceding year for management services provided by a nonresident
management company;
(2) a copy of each contract for management services
provided by a nonresident management company and information
regarding any amendment, modification, renewal, or extension of
that contract; and
(3) any contract between the school and a nonresident
related party of a management company, as defined by commissioner
rule adopted under Section 12.1169, that provides management
services to the school.
(b) Not later than December 1 of each year, the agency shall
submit to the legislature a report on the total amount of state
money spent by an open-enrollment charter school on:
(1) management services provided by a nonresident
management company; and
(2) any services provided by a nonresident related
party of a management company, as defined by commissioner rule
adopted under Section 12.1169, that provides management services to
the school.
SECTION 10. Section 12.1168(a), Education Code, is
repealed.
SECTION 11. (a) Except as provided by Subsection (b) of
this section, this Act applies beginning with the 2023-2024 school
year.
(b) Sections 12.1053 and 12.107, Education Code, as amended
by this Act, apply only to a contract entered into or renewed on or
after September 1, 2023.
SECTION 12. 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, 2023.