CASI April 2023 Charter Chat Resource PageInformation and resources from the April 2023 Charter Chat, presented by the Charter Authorizer Support Initiative (CASI).
Charter Chat Topics
- Legislative Updates
- Program Hot Topics
- Fiscal Hot Topics
- Annual Survey
- State Board of Education Updates
- Upcoming Events
- Q&A from Previous Charter Chats and CASI Email
- Assembly Bill (AB) 533 (Fong) This bill proposes to change California Education Code (EC) Section 47605 to allow charters to appeal directly to county offices within 30 days if the district fails to take action within statutory timelines
- AB 984 (McCarty) This bill recommends adding the completion of a semester course in personal finance to the graduation requirements for 2028–29 for all schools.
- AB 1299 (Jackson) This bill requires all schools to have police officers which report to the principal, and makes it a reason for denial of a charter school if police officers are not included in the charter safety plan.
- AB 1555 (Quirk-Silva) This bill extends the credential requirements for transitional kindergarten from August 1, 2023, to August 1, 2028.
- Senate Bill (SB) 10 (Umberg/Cortese) This bill requires that opioid overdose training and prevention be included in the safety plans for all schools.
- SB 426 (Niello) This bill recommends changing the name of nonclassroom-based (NCB) charters to flex-based instruction and defines a flex-based charter school as a charter school that receives a determination for funding from the State Board. The bill would expand the description of flex-based instruction to include, but not be limited to, part-time classroom instruction, personalized learning, hybrid, career-focused, college-ready, adult reengagement, constructivist, content-focused, and synchronous or asynchronous distance and computer-based education, or any combination of these types of instruction.
- SB 739 (Alvarado-Gil) This bill amends EC Section 47607.2, clarifying that a chartering authority is only required to consider “verified data” if it is provided by the charter school. The bill also amends EC Section 47607.4, requiring all charter schools whose term expires on or between January 1, 2024, and June 30, 2027, inclusive, to have their term extended by an additional 2 years.
- SB 810 (Alvarado-Gil) This bill creates attendance and credential exceptions for “at-promise” charter schools.
- To follow current legislation at the California Legislative Information
- Under "Quick Bill Search," select either "Bill Number" or "Keyword(s)"
- Enter the bill number or keyword, respectively
- Once the desired bill is located, click "Add to My Favorites." This will prompt the user to create a profile and receive email updates on the status of the desired bill.
- Charter School Annual Information Update The Charter School Annual Information Update (Information Update) for the 2023–24 school year closed on May 8. The Information Update provides charter schools with the opportunity to verify and update their information, including their fund type, for the upcoming school year. Additional information can be found at Charter School Annual Information Update.
- Material Revisions
- EC Section 47607 states that material revisions to the charter are governed by EC Section 47605, may only occur upon approval of the chartering authority, and can include expanding operations to one or more additional sites or grade levels. Additional examples that may be considered a material revision include, but are not limited to, changing the governance structure of the school, significantly increasing or decreasing the enrollment, changing the education program (for example moving from classroom-based to hybrid or nonclassroom based), or changing the retirement systems for school employees.
- The material revision process may also be addressed through the authorizer’s board policy. Most charters only seek material revisions during the renewal process because charter schools requesting renewal are required to update the charter to comply with any new laws since the charter was last reviewed and to follow the same procedures as a new petition.
- If an existing charter school gets their material revision denied by their district authorizer, does the charter school have the right to appeal their material revision to the county office? California statute provides mechanisms for the appeal of the denial of a petition for the establishment of a charter school under EC Section 47605(k) and appeal of a nonrenewal of a charter school under EC Section 47607.5
- School Closures and Student Records Pursuant to EC Section 47604.32 , a charter school authorizer must provide timely notification to the California Department of Education (CDE) of a school that ceases operations. Please see Charter School Closures for additional information regarding documentation and notifications of closure action, retention and transfer of records, financial close-out, disposition of liabilities and assets, and the responsibilities of a charter authorizer. CASI participants have asked previously about transfer of student records during a closure. Per the CDE Student Records and Transcripts web page, the CDE does not have access to student records. For public schools, if a school is closed, they should contact the local district or the county office of education. As charter schools are public schools, the question as to how to access student files for closed charter schools is based in the school’s charter petition. Most charters upon closure will send their files to either: (1) the charter management organization (CMO) or sister school in their organization, if applicable; or (2) the school’s authorizer. When files are missing, it becomes necessary to use the California Longitudinal Pupil Achievement Data System (CALPADS).
- School Opening Checklists CASI participants have requested resources on charter school opening requirements. Santa Clara County Office of Education (SCCOE) went back in its archives and found the following charter school opening checklists:
- Williams Review Effective January 1, 2022, all schools eligible for the Williams list includes:
- All schools which have been designated Comprehensive Support and Improvement (CSI)
- All schools which have been designated Additional Targeted Support and Improvement (ATSI)
- All schools with 15 percent or more of the school’s teachers that do not possess a valid and clear or preliminary teaching credential
- Governmental Accounting Standards Board (GASB) financial reporting standards vs. Financial Accounting Standards Board (FASB) financial reporting standards for Charter Schools from the Fiscal Crisis and Management Assistance Team (FCMAT)
FASB is not only for public companies, but applies to all types of organizations, including not-for-profit corporations, which are more commonly called charitable organizations. Charitable organizations include nonprofits that house charter schools. Charter schools mostly operate under two models: they either have the same name as the nonprofit (i.e., XYZ Charter and XYZ Nonprofit), or they have a name that differs (i.e. XYZ Charter and Education for Excellence Nonprofit). In any case, most charters are housed or under the umbrella of a nonprofit because this arrangement may shield the authorizer from the charter’s debts if it goes out of business or closes. The authorizer is shielded mostly by ensuring it performs its oversight. Charter school nonprofits are predominantly recognized under Internal Revenue Code (IRC) 509(a)(1) as publicly supported nonprofit organizations that are exempt from income taxes under IRC 501(a) and 501(c)(3), unless it earns some form of unrelated business income. IRC 509(a)(1) is a subclassification of IRC 501(c)(3) specific to schools. If the charter nonprofit applied for exemption from the Franchise Tax Board, it is also exempt from California franchise or income tax under California Revenue and Taxation Code Section 23701.
The concept of charters being housed under a nonprofit corporation described above forms the basis of why most auditors prefer auditing charter schools under FASB standards. These standards are preferred because charters are essentially a component of a nonprofit organization operating a school that is a publicly supported nonprofit organization.
Typically, the nonprofit is the charter petitioner and not the charter school. While the school is a governmental entity, the nonprofit is not, and the charter petition is typically submitted by the nonprofit. Most, if not all, audit reports identify the nonprofit as the auditee, and the audit engagement letter and other audit communications are also addressed to the nonprofit.
Charter schools are allowed pursuant to California Education Code (EC) 47600. Confusion may arise when a charter school name is the same as the nonprofit, and not all auditors provide a clear and detailed description of these relationships in the audit report. However, a general description of the organization is usually included in the notes accompanying the financial statement in each audit report, especially note one, summary of significant accounting policies. Audit report note number one is typically several pages long and describes many policies, including, but not limited to, the organization, basis of accounting (i.e., accrual basis), and income taxes.
The income tax description typically identifies the school as a 509(a)(1) and exempt from income taxes under IRC 501(a) and 501(c)(3), and California franchise or income tax under California Revenue and Taxation Code Section 23701. Governmental audit reports under GASB typically do not disclose income tax, but if a charter’s audited financial statements are presented using GASB, it should describe the income tax basis.
How the charter school is audited is also important. Charter schools are audited under Governmental Auditing Standards (GAS) regardless of whether a GASB or FASB reporting model is used. Generally Accepted Auditing Standards (GAAS) and GAS are the audit standards for local educational agency (LEA) audits, but more standards may apply if the LEA has other complicated activities. This means that even though the nonprofit is not a governmental entity, the charter school is a governmental entity as a school; therefore, it is audited according to GAS. Even though GAS is the charter audit standard, charters, nonprofits, and even school districts adhere to generally accepted accounting principles (GAAP), GASB opinions, FASB, and Generally Accepted Governmental Accounting Standards (GAGAS). Audit Standards and Accounting Standards can be conflated. The typical charter audit report opinion letter identifies the method of audit and states the following:
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.Both GASB and FASB reports for charters and K–12 school districts are audited pursuant to the Guide for Annual Audits of K–12 LEAs and State Compliance Reports. This is typically known as the State Controller Audit Guide and contains a section for charters audited under GASB or FASB, and the state controller issues audit checklists for audits under both GASB and FASB.
The two reporting methods differ significantly. GASB reports on the financial statement side are more complicated because the audit report shows both government-wide reporting and governmental funds financial statements, which essentially compare and present two types of financial reports with two separate pages that reconcile the two documents. GASB reports are more complicated to understand for the average reader and present financial statements using both accrual and modified accrual-based reports and include a Management Discussion and Analysis section. GASB and FASB charter audits have a few other differences, but these are relatively insignificant.
FASB reports are accrual-based, and the audit report expresses an opinion on the statements of activities (income statement), functional expenses (specific to nonprofits that is not shown in a GASB report), and cash flows (not shown in a GASB report for governmental funds). Specific to a charter schools’ overall operations, cash flow is one of the top concerns. FASB reports disclose capital assets similarly to GASB. However, an added benefit is that most charter audits under FASB can reconcile to the charter nonprofit entities IRS reporting in Form 990. GASB reporting for charters may also be reconciled to the 990; however, sometimes it is less clear. The GASB reports are reported under both accrual (districtwide statements) and modified accrual (governmental fund statements) methods of accounting.
Both GASB and FASB reports include many notes along with the financial statements and similar supplemental required information. Even for the nonprofit-type report, the charter can choose to add a management discussion and analysis (MD and A) section at the beginning similarly to GASB reporting. The MD and A is not audited. It is an opportunity for the auditee to narrate and highlight and explain key issues and information that might be helpful to the report and the reader. Most charters do not include an MD and A simply because it requires more work, or they do not understand the advantage or opportunity. An authorizer could add an MD and A requirement to its Memorandum of Understanding (MOU) with the charter.
Charters that are so-called dependent or conversions in a school district are part of the school district finances and included in the district audit report; therefore, they are audited under GASB. Regarding leases, both GASB and FASB reporting models fall under the new lease reporting standards (Accounting Standards Update 842) .
There are disadvantages for charters to report under GASB. It will be more costly to implement the accounting and produce the audit report using charter GASB reporting. Additional errors may also result because it is a more complicated format, but most importantly, the general public that is part of the charter community may find it more difficult to understand a GASB-format report. The advantages of FASB are the opposite of the GASB disadvantages. In FCMATs opinion, a charter is more appropriately audited under FASB based on its nonprofit roots and structure.
- If you haven't already, please complete the 2023 Annual CASI Authorizer Survey .
- The April Advisory Commission on Charter Schools (ACCS) meeting was held on April 18, 2023. The agenda included consideration of requests for nonclassroom-based funding determinations and the possible issuance of a Notice of Intent to Revoke a State Board of Education (SBE)-authorized charter school. The next ACCS meeting will be held on June 13, 2023.
- The May SBE meeting will be held on May 18–19.
- The SBE has posted several Information Memoranda in April 2023, including the Mid-Project Report on Charter Verified Data Support: Timeline, Actions, and Planning.
|Event Date||Event and Registration Information|
May 31, 2023
10 to 11 a.m.
June 13–16, 2023
July 14, 2023
9 to 11 a.m.
Charter Chat Q&A
A charter school up for renewal in 2023–24 is seeking a seven-year renewal term. Does the authorizer have the ability to give a 5–7-year renewal term?
No. Under current statutory requirements, renewals for 2023–24 are for a five-year term. Per the October 13, 2022, California Department of Education letter on Updates on Data for Charter School Appeals and Renewals, for renewals during the 2023–24 school year, “In the absence of statewide data, charter authorizers must consider clear and convincing evidence of measurable increases in academic achievement and/or strong post-secondary outcomes, demonstrated through verified data, when evaluating a petition for renewal. For all renewals under these criteria:
- Greater weight is on academic performance.
- Renewal shall be for a five-year term, if renewed.
- Use of verified data and postsecondary outcomes, which sunset on January 1, 2026."
Can a new charter school get into an obligation, such as a lease, that is past the charter term? Is there California Education Code (EC) that prohibits a charter school from getting into debt past their charter term?
The California Department of Education is not aware of statutory requirements that would require debt terms to be within the school’s charter term.
Do changes in federal requirements for Dashboard Alternative School Status (DASS) schools impact DASS charter school oversight and renewal requirements?
Although the federal requirements for the California Department of Education (CDE) have changed regarding DASS, the California state statutory renewal requirements for DASS charter schools have not changed. Education Code Section 47607(c)(7) requires a chartering authority to consider a DASS school's performance on the Dashboard (all performance indicators and local indicators) as well as on “alternative metrics.” These alternative metrics are to be mutually determined by a charter school and its chartering authorities during the first year of the charter school's charter term. A chartering authority is to notify a DASS school of the alternative metrics to be used within 30 days of the meeting where metrics were discussed and agreed to. Denial of the renewal of a DASS school must include written findings of fact supporting the supposition that the closure of the charter school is in the best interest of the pupils. Additional information is available on the CDE web pages on Renewal of DASS Charter Schools and the 2022 Dashboard Technical Guide for DASS (DOCX).
What is the process for renewals which have been authorized by the State Board of Education (SBE)?
Education Code (EC) Section 47605.9(b) allows a current SBE-authorized charter school to continue operating under the SBE's oversight until the charter is up for renewal, at which point the charter school shall submit the renewal petition to the governing board of the school district within the boundaries of which the charter school is located. If the governing board of the school district denies the renewal petition, the charter school may submit the petition for renewal directly to the SBE, which shall review the petition in accordance with EC Section 47605. If the SBE grants renewal pursuant to EC Section 47607, the SBE shall designate, in consultation with the petitioner, either the governing board of the school district or the county board of education in which the charter school is located as the chartering authority (EC Section 47605.9[b]).
After the chartering authority has been delegated by the SBE, the charter school will need to update its chartering authority under the California School Directory by completing the Change in Authorizing District for a Charter School application, which is available at Application for a County-District-School (CDS) Code. These EC sections cannot be waived by the SBE.