1.1                          A bill for an act 
  1.2             relating to education; improving the financial 
  1.3             reporting systems and financial management practices 
  1.4             of charter schools; amending Minnesota Statutes 2000, 
  1.5             sections 124D.10, subdivisions 4, 17, 23, and by 
  1.6             adding a subdivision; and 124D.11, subdivision 9, and 
  1.7             by adding a subdivision. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 2000, section 124D.10, 
  1.10  subdivision 4, is amended to read: 
  1.11     Subd. 4.  [FORMATION OF SCHOOL.] (a) A sponsor may 
  1.12  authorize one or more licensed teachers under section 122A.18, 
  1.13  subdivision 1, to operate a charter school subject to approval 
  1.14  by the commissioner.  A board must vote on charter school 
  1.15  application for sponsorship no later than 90 days after 
  1.16  receiving the application.  After 90 days, the applicant may 
  1.17  apply to the commissioner.  If a board elects not to sponsor a 
  1.18  charter school, the applicant may appeal the board's decision to 
  1.19  the commissioner.  If the commissioner authorizes the school, 
  1.20  the commissioner must sponsor the school according to this 
  1.21  section.  The school must be organized and operated as a 
  1.22  cooperative under chapter 308A or nonprofit corporation under 
  1.23  chapter 317A.  
  1.24     (b) Before the operators may form and operate a school, the 
  1.25  sponsor must file an affidavit with the commissioner stating its 
  1.26  intent to authorize a charter school.  The affidavit must state 
  2.1   the terms and conditions under which the sponsor would authorize 
  2.2   a charter school.  The commissioner must approve or disapprove 
  2.3   the sponsor's proposed authorization within 60 days of receipt 
  2.4   of the affidavit.  Failure to obtain commissioner approval 
  2.5   precludes a sponsor from authorizing the charter school that was 
  2.6   the subject of the affidavit.  
  2.7      (c) The operators authorized to organize and operate a 
  2.8   school must hold an election for members of the school's board 
  2.9   of directors in a timely manner after the school is operating.  
  2.10  Any staff members who are employed at the school, including 
  2.11  teachers providing instruction under a contract with a 
  2.12  cooperative, and all parents of children enrolled in the school 
  2.13  may participate in the election.  Licensed teachers employed at 
  2.14  the school, including teachers providing instruction under a 
  2.15  contract with a cooperative, must be a majority of the members 
  2.16  of the board of directors, unless the commissioner waives the 
  2.17  requirement for the school.  Members of the board of directors 
  2.18  who are not licensed teachers may serve a maximum of two 
  2.19  consecutive three-year terms as a member of the board of 
  2.20  directors.  If a member of the board of directors previously 
  2.21  served as a member of a provisional board, the term of the 
  2.22  member's service on the provisional board must be included when 
  2.23  calculating two consecutive three-year terms.  A member of a 
  2.24  charter school board of directors or a member of a provisional 
  2.25  board, except a licensed teacher providing classroom 
  2.26  instruction, is prohibited from serving as a member of the board 
  2.27  of directors or as an employee or agent of or a contractor with 
  2.28  an entity with whom the charter school contracts, directly or 
  2.29  indirectly, for professional services, goods, or facilities.  A 
  2.30  violation of this prohibition renders a contract voidable at the 
  2.31  option of the commissioner.  A member of a charter school board 
  2.32  of directors or a member of a provisional board who violates 
  2.33  this prohibition shall be individually liable to the charter 
  2.34  school for any damage caused by the violation.  A provisional 
  2.35  board may operate before the election of the school's board of 
  2.36  directors but only if it first incorporates as a cooperative 
  3.1   under chapter 308A or as a nonprofit corporation under chapter 
  3.2   317A.  A provisional board is prohibited from forming, 
  3.3   organizing, or operating a charter school until it incorporates 
  3.4   according to the provisions of chapter 308A or 317A.  A 
  3.5   provisional board is held to all the duties and standards 
  3.6   established in the chapter under which it incorporates.  Board 
  3.7   of director meetings must comply with chapter 13D. 
  3.8      (d) The granting or renewal of a charter by a sponsoring 
  3.9   entity must not be conditioned upon the bargaining unit status 
  3.10  of the employees of the school.  
  3.11     (e) The commissioner annually must provide timely financial 
  3.12  management training to newly elected members of a charter school 
  3.13  board of directors and ongoing training to other members of a 
  3.14  charter school board of directors.  Training must address ways 
  3.15  to: 
  3.16     (1) proactively assess opportunities for a charter school 
  3.17  to maximize all available revenue sources; 
  3.18     (2) establish and maintain complete, auditable records for 
  3.19  the charter school; 
  3.20     (3) establish proper filing techniques; 
  3.21     (4) document formal actions of the charter school, 
  3.22  including meetings of the charter school board of directors; 
  3.23     (5) properly manage and retain charter school and student 
  3.24  records; 
  3.25     (6) comply with state and federal payroll recordkeeping 
  3.26  requirements; and 
  3.27     (7) address other similar factors that facilitate 
  3.28  establishing and maintaining complete records on the charter 
  3.29  school's operations. 
  3.30     <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  3.31  2001-2002 school year and following. 
  3.32     Sec. 2.  Minnesota Statutes 2000, section 124D.10, is 
  3.33  amended by adding a subdivision to read: 
  3.34     Subd. 6a.  [AUDITS AND REPORTS.] (a) A charter school 
  3.35  annually must contract with a qualified independent auditor from 
  3.36  a list maintained by the commissioner for this purpose to 
  4.1   examine the accounts of and audit all money paid to or by the 
  4.2   charter school.  The audit must: 
  4.3      (1) be conducted according to generally accepted accounting 
  4.4   principles; 
  4.5      (2) include a review of financial reporting systems and 
  4.6   compliance with applicable laws and regulations; 
  4.7      (3) include the aggregate totals for all revenues and 
  4.8   expenditures for the current school year and, where applicable, 
  4.9   the two immediately preceding school years; 
  4.10     (4) examine the salaries and other payments made to all 
  4.11  charter school employees and independent contractors; 
  4.12     (5) examine all agreements, including all subcontracts, for 
  4.13  instruction and other professional services, including 
  4.14  administrative services; and 
  4.15     (6) indicate all potential and actual conflicts of interest 
  4.16  arising from transactions between the charter school or any 
  4.17  employee, agent, or contractor and an interested individual or 
  4.18  entity. 
  4.19     (b) The charter school must submit the audit report to the 
  4.20  commissioner of children, families, and learning by December 31 
  4.21  each year.  The charter school, with the assistance of the 
  4.22  auditor conducting the audit, must include with the report a 
  4.23  copy of all charter school agreements for instruction and other 
  4.24  professional services, including administrative services, and, 
  4.25  if the entity that provides the professional services to the 
  4.26  charter school is exempt from taxation under section 501 of the 
  4.27  Internal Revenue Code of 1986, a copy of the annual return the 
  4.28  entity must file under section 6033 of the Internal Revenue Code 
  4.29  of 1986.  If the commissioner receives as part of the audit 
  4.30  report a management letter indicating that a material weakness 
  4.31  exists in the financial reporting systems of a charter school, 
  4.32  the commissioner must specifically authorize all subsequent 
  4.33  state aid payments to or withhold subsequent state aid payments 
  4.34  from the charter school until the commissioner receives a 
  4.35  written report from the auditor that the material weakness is 
  4.36  cured. 
  5.1      (c) The commissioner shall withhold state aid payments from 
  5.2   any charter school that fails to submit a timely report under 
  5.3   this section, consistent with section 124D.11, subdivision 9, 
  5.4   paragraph (c). 
  5.5      (d) The commissioner shall determine the scope of the 
  5.6   audit, consistent with the requirements of this section. 
  5.7      <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  5.8   2001-2002 school year and following. 
  5.9      Sec. 3.  Minnesota Statutes 2000, section 124D.10, 
  5.10  subdivision 17, is amended to read: 
  5.11     Subd. 17.  [LEASED SPACE.] (a) A charter school may lease 
  5.12  space from a board eligible to be a sponsor or other public or 
  5.13  private nonprofit nonsectarian organization.  If a charter 
  5.14  school is unable to lease appropriate space from an eligible 
  5.15  board or other public or private nonprofit nonsectarian 
  5.16  organization, the school may lease space from another 
  5.17  nonsectarian organization if the department of children, 
  5.18  families, and learning, in consultation with the department of 
  5.19  administration, approves the lease.  If the school is unable to 
  5.20  lease appropriate space from public or private nonsectarian 
  5.21  organizations, the school may lease space from a sectarian 
  5.22  organization if the leased space is constructed as a school 
  5.23  facility and the department of children, families, and learning, 
  5.24  in consultation with the department of administration, approves 
  5.25  the lease. 
  5.26     (b) If the commissioner finds that lease charges incurred 
  5.27  by a charter school exceed an appraiser's market value estimate 
  5.28  for such charges by more than .. percent, the commissioner may 
  5.29  withhold subsequent lease payment amounts pending an 
  5.30  investigation and determination by the commissioner regarding 
  5.31  the reasonableness of such payments.  After conducting the 
  5.32  investigation, if the commissioner determines the payments are 
  5.33  equitable, the commissioner shall pay to the charter school all 
  5.34  amounts withheld.  Notwithstanding other law to the contrary, if 
  5.35  the commissioner determines the payments are inequitable, the 
  5.36  commissioner may find, as a matter of law, that the charter 
  6.1   school board of directors has a history of financial 
  6.2   mismanagement under subdivision 23, paragraph (b), and terminate 
  6.3   the contract. 
  6.4      <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  6.5   2001-2002 school year and following. 
  6.6      Sec. 4.  Minnesota Statutes 2000, section 124D.10, 
  6.7   subdivision 23, is amended to read: 
  6.8      Subd. 23.  [CAUSES FOR NONRENEWAL OR TERMINATION OF CHARTER 
  6.9   SCHOOL CONTRACT.] (a) The duration of the contract with a 
  6.10  sponsor must be for the term contained in the contract according 
  6.11  to subdivision 6.  The sponsor may or may not renew a contract 
  6.12  at the end of the term for any ground listed in paragraph (b).  
  6.13  A sponsor may unilaterally terminate a contract during the term 
  6.14  of the contract for any ground listed in paragraph (b).  At 
  6.15  least 60 days before not renewing or terminating a contract, the 
  6.16  sponsor shall notify the board of directors of the charter 
  6.17  school of the proposed action in writing.  The notice shall 
  6.18  state the grounds for the proposed action in reasonable detail 
  6.19  and that the charter school's board of directors may request in 
  6.20  writing an informal hearing before the sponsor within 14 days of 
  6.21  receiving notice of nonrenewal or termination of the contract.  
  6.22  Failure by the board of directors to make a written request for 
  6.23  a hearing within the 14-day period shall be treated as 
  6.24  acquiescence to the proposed action.  Upon receiving a timely 
  6.25  written request for a hearing, the sponsor shall give reasonable 
  6.26  notice to the charter school's board of directors of the hearing 
  6.27  date.  The sponsor shall conduct an informal hearing before 
  6.28  taking final action.  The sponsor shall take final action to 
  6.29  renew or not renew a contract by the last day of classes in the 
  6.30  school year.  If the sponsor is a local board, the school's 
  6.31  board of directors may appeal the sponsor's decision to the 
  6.32  commissioner. 
  6.33     (b) A contract may be terminated or not renewed upon any of 
  6.34  the following grounds: 
  6.35     (1) failure to meet the requirements for pupil performance 
  6.36  contained in the contract; 
  7.1      (2) failure to meet generally accepted standards of fiscal 
  7.2   management; 
  7.3      (3) violations of law; or 
  7.4      (4) other good cause shown. 
  7.5      If a contract is terminated or not renewed, the school must 
  7.6   be dissolved according to the applicable provisions of chapter 
  7.7   308A or 317A, except when the commissioner approves the decision 
  7.8   of a different eligible sponsor to authorize the charter school. 
  7.9      (c) The commissioner, after providing reasonable notice to 
  7.10  the board of directors of a charter school and the existing 
  7.11  sponsor, and after providing an opportunity for a public 
  7.12  hearing, may terminate the existing sponsorial relationship if 
  7.13  the charter school has a history of: 
  7.14     (1) financial mismanagement; or 
  7.15     (2) repeated violations of the law. 
  7.16     (d) The state shall have a purchase money security interest 
  7.17  in all goods a charter school purchases with state aid in the 
  7.18  event a charter school contract is terminated or not renewed and 
  7.19  the charter school's assets are liquidated.  This security 
  7.20  interest cannot be subordinated without the consent of the 
  7.21  commissioner.  The commissioner shall take possession of all 
  7.22  school records in the event a charter school contract is 
  7.23  terminated or not renewed.  
  7.24     <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  7.25  2001-2002 school year and following.  
  7.26     Sec. 5.  Minnesota Statutes 2000, section 124D.11, 
  7.27  subdivision 9, is amended to read: 
  7.28     Subd. 9.  [PAYMENT OF AIDS TO CHARTER SCHOOLS.] (a) 
  7.29  Notwithstanding section 127A.45, subdivision 3, aid payments for 
  7.30  the current fiscal year to a charter school not in its first 
  7.31  year of operation shall be of an equal amount on each of the 23 
  7.32  payment dates.  A charter school in its first year of operation 
  7.33  shall receive, on its first payment date, ten percent of its 
  7.34  cumulative amount guaranteed for the year and 22 payments of an 
  7.35  equal amount thereafter the sum of which shall be 90 percent of 
  7.36  the cumulative amount guaranteed. 
  8.1      (b) Notwithstanding section 127A.45, subdivision 3, and 
  8.2   paragraph (a), 90 percent of the start-up cost aid under 
  8.3   subdivision 8 shall be paid within 45 days after the first day 
  8.4   of student attendance for that school year. 
  8.5      (c) In order to receive state aid payments under this 
  8.6   section, a charter school must submit an annual audit report, 
  8.7   consistent with section 124D.10, subdivision 6a.  If the charter 
  8.8   school fails to submit the report by December 31 in any year, 
  8.9   the commissioner shall notify the charter school of the 
  8.10  commissioner's intent to withhold state aid.  Beginning 14 days 
  8.11  after the commissioner notifies the charter school of the 
  8.12  commissioner's intent to withhold state aid, the commissioner 
  8.13  shall reduce the cumulative aid percentage by ten percentage 
  8.14  points for the first aid payment and by an additional ten 
  8.15  percentage points for each subsequent aid payment under 
  8.16  subdivision 1 until the charter school submits the required 
  8.17  audit report to the commissioner. 
  8.18     <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  8.19  2001-2002 school year and following. 
  8.20     Sec. 6.  Minnesota Statutes 2000, section 124D.11, is 
  8.21  amended by adding a subdivision to read: 
  8.22     Subd. 10.  [CHARTER SCHOOL RISK MANAGEMENT ACCOUNT; 
  8.23  APPROPRIATION.] (a) A charter school risk management account is 
  8.24  created in the special revenue fund in the state treasury for 
  8.25  the purpose of making payments to charter school employees who 
  8.26  are owed compensation when a charter school contract is 
  8.27  terminated or not renewed.  Notwithstanding other law to the 
  8.28  contrary, the commissioner must deduct an amount equal to ... 
  8.29  percent of the general education payments made to charter 
  8.30  schools and deposit that amount in the charter school risk 
  8.31  management account.  The amounts in the account are appropriated 
  8.32  to the commissioner to make payments according to paragraph 
  8.33  (b).  The commissioner shall make payments only to the extent 
  8.34  funds are available in the account. 
  8.35     (b) When a charter school contract is terminated or not 
  8.36  renewed under section 124D.10, subdivision 23, the commissioner, 
  9.1   in consultation with the commissioner of finance, shall make 
  9.2   payments from the account to charter school employees who the 
  9.3   commissioner determines are owed compensation, including 
  9.4   employer and employee contributions for benefits available to 
  9.5   the employee under an employment agreement related to the 
  9.6   employee's work at the charter school. 
  9.7      <b>[EFFECTIVE DATE.]</b> This section is effective for the 
  9.8   2001-2002 school year and following.