SB 1 Passes Senate; Potential Impact on Trustees and Administrators

CHARTER SCHOOL ALERT

  PASSAGE OF SENATE BILL 1

Members of the Pennsylvania Senate passed Senate Bill 1 (SB 1) on October 26, 2011.  If adopted by the House of Representatives and signed into law by Governor Corbett, this legislation will create a program for taxpayer-funded tuition vouchers, expand the Education Improvement Tax Credit Program, and amend the Commonwealth’s Charter School Law of 1997.  The vote, 27-22, was largely on party lines, with 24 republicans and 3 democrats supporting SB 1. 

Many of the provisions found in SB 904, the Charter School Reform bill introduced earlier this year by Senator Piccola, Chair of the Education Committee (R-15^th District), were subsumed within SB 1.  Unfortunately, Senate debate of the bill and press coverage of SB 1 following its passage focused largely on the topic of school vouchers, with little attention placed on the possibility of significant changes to the Charter School Law. 

This Charter School Alert summarizes what we believe are the key provisions of SB 1 that will, if SB 1 becomes law, fundamentally impact charter boards of trustees and administrators: 

• Ethics Act applies to charter school board trustees and administrators; requires annual ethics filings; prohibits conflicts of interest; allows parents to petition for trustee removal.

SB 1 mandates that all members of a charter school’s board of trustees and school administrators will be subject to the requirements of the State Ethics Act (65 Pa.C.S. Ch. 11).  Specifically, trustees must file a statement of financial interest annually with the State Ethics Commission and administrators must annually file a statement of financial interest for the preceding calendar year with the charter’s board of trustees no later than May 1^st. 

SB 1 prohibits trustees and administrators from engaging in conflicts of interest and at all times act in the best interests of the school.  For example, an administrator may not receive compensation from another charter school or from an education management service provider unless the administrator submits a sworn statement to the trustees detailing the work for the other entity and the anticipated hours and pay, and the board of trustees adopts a resolution granting permission to the administrator.  Further, a trustee must abstain from voting on a contractual matter if such vote would result in a conflict of interest in the administration of the contract.  Any such contract may be voided by a court if it’s later determined that the trustee voted on a matter that, in light of a conflict of interest, the trustee should have recused himself. 

Consistent with the Charter School Law’s focus on increasing community involvement in education, SB 1 allows for a minimum of 25 parents or guardians of students enrolled in the charter to petition the Court of Common Pleas to remove a trustee that neglects the performance of his or her duties.  If removed by the Court, the trustee may not serve on another charter board for at least five years.

Recommendation:  Whether or not SB 1 becomes law, we recommend that charter boards and administrators review the Ethics Act and become familiar with the form of disclosure of financial interests.  Boards may want to require trustees and administrators to prepare financial interest statements at the beginning of each fiscal year for distribution to trustees. Also, trustees and administrators should become familiar with their schools’ conflict of interest policy or, if the charter does not have a policy in place, adopt a conflict of interest policy as soon as possible.

• Potential Modifications to Compositon of Board of Trustees.

SB 1 requires a board of trustees to have at least five non-related voting members and requires each board to have as a member at least one parent or guardian of a student enrolled in the school. 

Recommendation:  Reach into the local community for Board members.  Adding a parent or guardian of a student enrolled at a charter seems prudent practice.  

• Annual independent audits of charter schools and cyber charter schools and public disclosure of financial records.

SB 1 requires that an audit of the school’s operations is to be conducted annually and the audit findings are to be reviewed by an independent audit committee of the board of trustees.  In addition to looking into the charter’s financial records (e.g., tax filings and financial statements), the audit, conducted by a qualified certified public accountant, will examine Board policies and procedures regarding internal controls, code of ethics, conflicts of interest, whistle-blower protections, complaints from parents or the community, open meetings and public bidding.  

In addition, charter schools must provide copies of their annual budgets to the School District and the Department of Education.  The budget information must identify the source of funding for expenditures and the salary of all administrators.  Copies of all federal and state tax filings, including Form 990, are to be made available on request or be posted on each charter school’s or charter school foundation’s website.

Recommendation:  Maintain a manual of your school’s policies and procedures.  Consider adopting policies relating to the tracking of receipts and expenses, code of ethics, conflicts of interest, whistle-blower protections, handling complaints from parents or the community and public bidding.  Confirm board compliance with the State’s Open Meeting and Right to Know Laws.  Be transparent with financial information by making financial statements and tax filings available on the charter’s website.    

Aside from fostering greater transparency of management and greater disclosure of charter schools’ financial information, SB 1, if enacted into law, will offer charters significant benefits:  

• Direct Pay. The bill requires payments from the Department of Education to flow directly to the charter school. The school district will no longer serve as a pass-through for funding to charters.

• Increases Length of Charter Renewal.  Charter renewals may be granted for ten year periods (now five).  The increase in renewal term may yield significant funding advantages to charters as lenders are likely to be more comfortable lending knowing that, so long as the school operates successfully, the school’s charter will remain in effect for 10 years. 

• Standardizes the charter school application.  Charter school applicants and school board trustees will no longer need to “reinvent the wheel” during the charter application and review process.

• Allows for charter schools to file for amendments to their charters. Current charter law does not specify a process for amendments to charters. SB 1provides charter schools to apply for amendments to their charters during the course of their charter. The bill outlines the procedures charters and school board directors are to follow during the amendment process.

We will continue to issue Charter School Alerts as SB 1 is considered by the House of Representatives. 

This Charter School Alert was authored by Eric L. Silberstein, an attorney with Salvo Rogers & Elinski in Blue Bell, PA.  Mr. Silberstein, a member of Salvo Rogers & Elinski’s Corporate and Real Estate Groups, has practiced law for 20 years and works closely with charter boards and administrators on governance, financing, special education, real estate, charter renewals and other matters.  Mr. Silberstein is admitted to practice law in Pennsylvania, New York and Connecticut.  He can be reached at (215) 653-0110 or esilberstein@salvorogers.com.  Salvo Rogers & Elinski is a boutique law firm started in 1988 that is committed to providing high quality, personal service and cost effectiveness to clients pursuing business transactions, commercial real estate matters, and trusts and estates planning.

Please follow charter school news of interest on my blog, “PA Charter School Law Forum” at pacharterlawforum.blogspot.com.  Your comments and suggestions are welcome.