87R6279 MLH-F
 
  By: Bailes H.B. No. 1746
 
 
 
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 2021-2022 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, 2021.
         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, 2021.