TEA seeks guidance on property of closed charter schools

In the wake of recent charter school closings, questions have been raised about the legal status and disposition of property purchased by a charter school that is no longer in operation. The Senate Education Committee in December heard testimony on these issues, and the Texas Education Agency (TEA) has requested an opinion from the Texas attorney general, expected in June. The status of charter school property also was the subject of legislation considered by the 84th Legislature in 2015.

Charter schools are not subject to all of the laws that govern traditional public schools, and they do not receive state funding for facilities or have access to tax-revenue bonds. Some charter schools fund facilities through bank loans and bond financing. When a charter school ceases operations, outstanding debt can complicate the disposition of property, according to TEA officials and charter school advocates.

TEA has been handling more charter school revocations since the enactment of SB 2 by Patrick in 2013, which requires revocation of a charter when a school has three consecutive years of unsatisfactory academic or financial ratings. Since 2014, there have been 17 charter revocations, compared to 16 in the previous 15 years, and three charters expired in 2015.

Education Code, sec. 12.128(a) states that property purchased or leased with state funds received by a charter holder after September 1, 2001, is considered state property held in trust by the charter holder for the benefit of the school’s students. Sec. 12.128(c) requires the education commissioner to take possession and assume control of such property of a charter school that ceases to operate and supervise the disposition of the property in accordance with law. Under the law, these provisions do not affect a security interest in or lien on property established by a creditor in connection with the sale or lease of the property to the charter holder.

TEA’s opinion request notes that the Education Code does not provide a specific process for the commissioner to take possession and dispose of the property. The request says it is “unclear whether the mandate that the commissioner supervise the disposition of the real property that is returned to the state under that section grants the Commissioner authority to sell that property independent of the legislature’s general right to control state real property.” The request poses six questions related to provisions in the Education Code, the Natural Resources Code, the Texas Constitution, and the fiscal 2016-17 general appropriations act that could relate to the legal status and disposition of affected properties.

The 84th Legislature last year considered legislation to establish a process for disposing of assets of a former charter. One of those bills, HB 3347 by Aycock, was reported favorably by the House Public Education Committee but not scheduled for consideration by the full House. It would have created a 90-day period from the effective date of the revocation or surrender of a charter for a former charter holder to dispose of property and other assets in various ways. Options would have included remitting property and title to the state, re-titling the property to another charter holder or a school district, or returning the property to a valid lien holder or security interest with a written agreement by the creditor to remit to the state all excess proceeds after satisfaction of the secured debt.

Supporters of the bill said it would provide a clear mechanism for dealing with charter school assets, including those purchased through bank or bond financing, and in some cases could help ensure that public money followed students to a new school from a closed charter school.

Critics said the bill needed stronger protections for creditors who helped finance charter school facilities, such as allowing secured lenders to be reimbursed before any decisions were made about transferring property. Otherwise, it could become difficult for charters to obtain financing for new facilities needed to meet growing demand by families for charter school slots, critics said.

The Senate Education Committee in December heard testimony on issues surrounding the disposition of state property when charters cease to operate. TEA’s general counsel said at the hearing that both the agency and the charter school community could benefit from legislative direction on issues related to leased or purchased property, unexpended funds, and costs for storing student records from former charters.

by Janet Elliott

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