For the first time since 2019, when San Diego County prosecutors revealed one of California’s biggest charter school fraud scandals, California has enacted several state law changes to address some of the problems it exposed — albeit in an unconventional fashion.
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Under the state’s education trailer bill AB 126, which Gov. Gavin Newsom signed this month, California will require significantly more oversight work from auditors and from charter school authorizers, the educational agencies — usually school districts — that approve a charter’s application to open and are thus required to hold it accountable.
In the seven years since the businessmen behind A3 were charged with exploiting weaknesses in charter school oversight to bilk the state of $400 million in public school funds, legislators have tried and failed repeatedly to pass significant changes amid fervent opposition from charter school advocates. The latest attempt, SB 414, was a compromise bill Newsom vetoed when negotiations fell through at the last minute.
This year, Newsom took a different approach, borrowing a selection of policy changes from SB 414 and weaving them into this year’s massive education trailer bill, approved by legislators as part of the budget process.
Trailer bills are technical legislation detailing how budget appropriations should be spent. But in recent years the governor has also used them as vehicles to pass policy changes unrelated to appropriations spending, in a system separate from the legislative process whereby lawmakers sponsor, hold public hearings and vote on policy bills.
Newsom’s office declined to respond to questions from The San Diego Union-Tribune, saying his signature “speaks for itself.”
AB 126 requires more detailed oversight and disclosures by authorizers and auditors of schools’ finances and student attendance data — a requirement that aims to prevent fraud like that committed by A3 leaders. Much of the A3 scheme was based on manipulating student attendance, which is the basis of state funding for schools.
San Diego County prosecutors praised the reform.
“We are encouraged to see so many reforms being implemented as a result of the charter school fraud case our office investigated and prosecuted,” District Attorney Summer Stephan said in a statement. “These changes represent important progress in protecting taxpayer dollars and strengthening oversight of public education funds.”
“At the same time,” Stephan added, “additional work remains, particularly in areas such as student attendance verification and vendor accountability.”
The California Charter Schools Association, which supported many of the changes as it negotiated them with lawmakers under SB 414, has not publicly commented on them.
In addition, audits will have to show schools’ largest transfers of money and loans to outside entities, highest-paid employees, attendance and enrollment by calendar track, and auditors will have to investigate whether charter schools are controlled by or tied to outside entities.
The A3 case — along with reporting by the Union-Tribune — has detailed how some charter school leaders also create private corporations that collect much of the schools’ revenue and effectively run them. Such opaque arrangements leave little transparency about how the public funding is spent, and create potential conflicts of interest.
The California Society of CPAs, which has criticized legislative proposals that would create more work for school auditors, did not respond to a request for comment.
Charter authorizers also have some more to do. Among other things, they must attend a charter school’s board meeting at least once a year in person, review charter school board meeting agendas and minutes, periodically review credit and debit card transactions and scrutinize attendance data for charter schools that do not operate primarily in person. If the authorizer suspects the charter school may have committed fraud, it is required to notify both the state superintendent and their county superintendent of schools.
Experts expect these requirements to add a higher administrative burden particularly for small school districts that authorize many large non-classroom-based charter schools — schools that do not serve students in a traditional in-person classroom format the vast majority of the time.
Tom Hutton, the executive director of California Charter Authorizing Professionals, which supports charter authorizers, said the additional oversight duties are a good thing.
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Until AB 126, state law has required little of authorizers in terms of ongoing oversight; there are hundreds of authorizers in the state, and nobody is checking whether they’re all doing their jobs holding schools accountable.
“This definitely moves the ball forward in meaningful ways,” Hutton said of AB 126.
The law also creates some of the first-ever guardrails for charter school vendor contracting, a practice that has gone virtually unregulated for years.
Investigations by the Union-Tribune have detailed how charter schools serving homeschooling students allocate public money to those students’ families that they can spend on a generously wide variety of activities and materials offered by private vendors. Families have used these enrichment or educational funds on zoo memberships, private horseback riding or ice skating lessons, sports equipment and, in the past, Disneyland and Medieval Times tickets — whatever the family and the teacher deem part of the student’s education.
A3 prosecutors and the Union-Tribune also found that families have used the public funds to pay quasi-private schools, including religious programs, that provide in-person instruction multiple days a week in core subjects, or to tutors and other services providers with no teaching license or online business presence.
AB 126 bans schools from purchasing seasonal or annual passes for amusement or theme parks, zoos and family entertainment. Families can no longer be paid as vendors for serving their own child, all contractor employees who work with students must undergo background checks and contractors must have business licenses and insurance.
Longtime homeschool charter advocate Windi Eklund organized opposition to the school vendor regulations via her website Legislation Take Action. She said the new law would burden many small vendors that work with charter school students and preclude activities currently available to them.
“We remain concerned that these provisions will reduce educational opportunities, limit family flexibility, create barriers for community-based educational providers and disrupt programs that are currently serving students successfully,” Eklund said in a letter urging families to call legislators with concerns about AB 126.
Still, many of the policy recommendations that have been made over the years by experts and task forces in the aftermath of A3 still have not made it into law.
Past proposals would also have adjusted how much in oversight fees authorizers can collect from their charter schools, established an education inspector general, limited enrollment in non-classroom-based charter schools and changed the process for deciding how much funding a non-classroom-based charter school will receive, among other things.
None of those changes made it into law with AB 126.
Mike Fine — CEO of the Fiscal Crisis Management and Assistance Team, the state’s school auditing authority — said AB 126 included only the proposals Newsom was willing to bring forward this time
There is still the opportunity for legislators to bring the other proposals back to the table in future standalone bills, he said.
Here are changes made under AB 126, some of which won’t take effect until July 1, 2027.
New oversight duties for charter authorizers:
- Review the charter’s audit and ensure any audit findings are corrected or have a correction plan
- Visit every charter school’s resource center, satellite facility or meeting space at least once every two years
- Attend at least one charter school board meeting in person annually
- Review agendas and minutes of charter board meetings
- Make periodic checks of the charter’s credit/debit card transactions
- If the authorizer reasonably suspects that fraud or misappropriation may be happening, it must notify the state superintendent and county superintendent
- For non-classroom-based charters, annually review average daily attendance and samples of independent study agreements and student work
Changes for school vendor practices:
- Schools cannot buy seasonal or annual passes or memberships to amusement or theme parks, zoos or family entertainment activities
- Schools may only contract with private entities if they have a business license or certificate, where applicable, and appropriate insurance
- All contractor employees who work with students must have a criminal background check on file
- Contracts must reflect a “reasonable market value”
- Schools cannot contract with a student, or with a student’s family member, for services provided only to that student
- Schools cannot offer financial incentives to families for enrollment or retention in the school
- Schools cannot reimburse a parent for any activities or services (except for services required by a special education plan)
- Vendors must show evidence of qualifications and expertise for activities provided
School auditors are required to:
- Select their own audit samples
- Determine if a charter school has a charter management organization or is related to, or controlled by, any outside entities
- Verify student residency for independent study programs
- Verify student-teacher ratio calculation
- Verify and document whether the charter school’s authorizer completed required oversight duties
- Take 16 hours of continuing education about education topics every two years
New information required to be disclosed in school audits:
- Enrollment/attendance, including by calendar track if applicable
- List of school’s 25 largest payments or transfers to individuals and organizations
- List of transfers of assets to individuals or organizations exceeding $1 million or 10% of the school’s revenue, with a written explanation from the school
- Loans with related entities or employees
- Five highest-paid employees
All school districts, charter schools and county offices of education must post their annual audits on their websites.
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