Lindsey Jones, Director of Legal and Policy Services
Attorney at Law
Texas Charter Schools Association
First authorized in 1995 by the Texas Legislature, charter schools have grown tremendously since their inception. Today, charter schools occupy a firm corner of the public school landscape, with 581 charter schools1 educating three percent of the Texas student population.2 In addition, there is an ever-increasing demand for more charter options, with at least 101,000 students on an admissions waiting list to get into a charter school this past year.3 On a national level, there are more than 5,500 charter schools educating more than two million students.4
Yet, as charter schools mature and grow in scale, perceptions about the basic nature of a charter school often remain a source of misunderstanding and confusion. With this in mind, the purpose of this article is to provide a basic understanding about how a public charter school is formed and operates under Texas law. In doing so, we hope to not only disperse any lagging misperceptions about what a public charter school is, but to also spark your curiosity and interest in joining the ongoing and critical conversation about the future of charter schools in Texas.
1. FOUR TYPES OF CHARTERS IN TEXAS
Chapter 12 of the Texas Education Code (TEC) is the state statutory authority that creates and governs the Texas charter school movement.5 Chapter 12 explicitly recognizes all charter schools as “part of the public school system of this state.”6 The purposes of forming this type of public school are to improve student learning and learning choice within the public school system, to create professional opportunities that will attract new teachers to the public school system, to establish a new form of accountability for public schools, and to encourage different and innovative learning methods.7
As part of the public school system, charter schools are publically funded.8 They are also monitored and accredited under the statewide testing and academic and financial accountability systems governing traditional public schools.9 In Texas, there are actually four different types or “classes” of charters.10 Each type is very different, in particular with respect to how the charter is formed and regulated.
Home-Rule School District Charter
A home-rule school district charter is formed by a traditional local school district electing to adopt a charter under which the entire district will operate.11 The formation of a home-rule school district charter requires a number of procedural hurdles. The district must first form a commission of the proposed charter12 and submit the proposed charter to the Commissioner of Education (the “Commissioner”) to ensure the proposed charter complies with applicable laws.13 Under the proposed charter, the home-rule school district charter may adopt and operate under any governing structure, but the proposed charter must be submitted to the Secretary of State for pre-clearance by the United States Department of Justice under the Voting Rights Act (42 U.S.C. Section 1973, et seq).14 The district must then hold an election on the proposed charter, with a minimum voter turnout of at least twenty-five percent (25%) of the registered voters and approval of the proposed charter by a majority of the voters in the election.15 A home-rule school district charter may be revoked or placed on probation by the State Board of Education. In addition, the charter may be amended or rescinded in the same manner in which it was formed, that is, by an election with a voter turnout of at least twenty-five percent (25%) of the registered voters of the district.16 Given these high procedural thresholds, and the fact that this type of charter converts the entire school district, a home-rule school district charter has yet to be formed.
School District Campus or Campus Program Charter
A campus charter is formed by a local school district granting a charter to operate a new district campus or to operate a charter program within an existing campus.17 The decision to grant such a charter is entirely within the discretion of the local school board of trustees. However, if the board of trustees of a school district is presented with a petition signed by the majority of the parents of students at a school campus and a majority of the classroom teachers at that school campus, the board of trustees cannot arbitrarily deny the charter.18 The board of trustees may also, in its discretion, grant a cooperative campus charter to parents and teachers at two or more campuses, if presented with a petition of a majority of the parents and classroom teachers at each school campus seeking to form the cooperative charter program.19 Each school district must adopt a campus charter and charter program policy that specifies not only the process for approval of a charter, but also the statutory requirements with which the charter campus or program must comply.20 Campus charters may be exempt from the instructional and academic rules and policies of the local school district, but the charter contract must specifically state to what extent the campus charter is exempt from these rules and policies.21
The most unique characteristic about campus charters is that the local school board of trustees has complete authority regarding the charter, as it is the local board of trustees that may grant, amend, revise, revoke or place the charter on probation, not the State Board of Education or Commissioner.22 A campus charter is “granted” in the form of a written contract negotiated between the local school board and the chief operating officer of the campus or charter operator.23 This charter contract can vary greatly depending on the terms agreed upon by the district board and the charter. This leaves great flexibility in how a particular campus charter operates, and in particular, the level of independence from the local district the charter has regarding its academic program and operations, and the amount of oversight and authority the board requires. Regardless of the terms agreed upon by the district and the charter, the board of trustees of the school district is held accountable for the academic and financial performance of the campus charter or charter program.
In establishing any admissions criteria, priority must be given on the basis of geographic and residency restrictions.24 Only after priority is given on those bases, the campus or campus program charter may then give secondary priority based on academic credentials in general or as necessary for the type of program offered by the charter.25 Campus charters are quite prevalent in Texas, with 74 in-district charter campuses serving 33,822 students.26
The most prolific type of charter is an open-enrollment charter. An open-enrollment charter is formed by the Texas State Board of Education awarding a charter, upon application, to an “eligible entity” meeting certain eligibility, financial and operational criteria.27 Most often, the applicant is a 501(c)(3) tax-exempt nonprofit organization. As the chart below indicates, student enrollment in open-enrollment charter schools has been rapidly increasing since their original formation.
The application process for an open-enrollment charter is highly competitive. This is mainly because, unlike any other type of charter, the Texas Legislature has established a cap of 215 on the number of open-enrollment charters the State Board of Education may award.28 On November 16, 2012, the State Board of Education awarded eight (8) new charters, bringing the total number of active charter holders to 209.29 Thus, unless the Legislature raises the statutory cap before the 2013 session ends this June, there are only six (6) open-enrollment charters remaining to be awarded by the State Board of Education this fall.
Perhaps the most distinctive characteristic of an open-enrollment charter school is that it is operated by an independent governing body. The board of directors of the 501(c)(3) tax-exempt organization is responsible for the governance, finances and accountability of the school.30 As such, the members of the board of directors of the charter holder are held to high fiduciary standards and are considered trustees under Texas law.31 These fiduciary duties are in addition to their fiduciary duties as directors of a nonprofit corporation under Texas law.32 Thus, board members and the officers of the charter school must, in fulfilling these trust obligations, use public funds only for the benefit of the students of the open-enrollment charter school and only for a purpose for which a traditional school district may use local funds.33 This trust obligation extends to property purchased or leased with state funds, as any purchased or leased property is considered public property for all purposes under state law.34 In fact, the Attorney General may bring suit against a director for breach of any of these fiduciary duties, including misapplication of public funds.35
An open-enrollment charter school may not charge tuition, but may require a student to pay a fee that a traditional school district may charge.36 An open-enrollment charter school may not discriminate in its admissions policy on the basis of sex, national origin, ethnicity, religion, disability, academic, artistic, or athletic ability, or the district the applicant child would otherwise attend.37 Similarly, charter schools are not permitted to make an admission decision based on the child’s prior academic performance or performance in an admissions interview. An open-enrollment charter school may, if set forth in their charter, exclude a student from admission who has a documented history of a criminal offense, a juvenile court adjudication, or discipline problems under Subchapter A of Chapter 37 of the Texas Education Code.38 If a charter school is approved to specialize in the performing arts, then the school may require an audition or similar demonstration of a student’s artistic ability.39 These two instances – certain documented misconduct and tryouts based on artistic ability – are the only bases for which a charter may deny admission to a student. In all other instances that a charter receives an application for a vacant seat at the school, the charter school must admit that student.
If an open-enrollment charter school receives more applications than spaces available, state law requires the charter to either admit students in the order applications were received or conduct a random lottery.40 However, if an open-enrollment charter school receives federal funding through the Charter Schools Program of the U.S. Department of Education, then a random lottery is absolutely required.41 After a student is enrolled, the student’s enrollment ceases only when the student withdraws, completes the school’s required curriculum, or is expelled pursuant to the school’s student code of conduct. Unlike traditional school districts, open-enrollment charter schools are not subject to all of the student discipline provisions under Chapter 37 of the Texas Education Code. However, an open-enrollment charter school must adopt a student code of conduct and adhere to the student code of conduct in taking any disciplinary action against a student.42
Public University, College or Junior College Charters
The fourth type of charter is a charter formed by an eligible college, junior college, or university submitting an application to the State Board of Education that meets not only the financial, operational and governing standards required of an open-enrollment charter school, but also certain specific threshold academic and operational criteria. Namely, the educational program of the proposed charter school must include innovative teaching methods and must be designed to meet specific goals.43 The educational program must be implemented under the direct supervision of a member of the teaching or research faculty and the financial operations of the charter school must be supervised by the business office of the public college or university.44 Other than these unique requirements, a public college, university or junior college charter school is subject to the same provisions of the Texas Education Code as an open-enrollment charter school.45 A charter granted, however, to a public university, college or junior college does not count toward the limit on the number of open-enrollment charter schools.46
2. OPEN-ENROLLMENT CHARTER SCHOOLS ARE SUBJECT TO MANY OF THE SAME RULES AS TRADITIONAL PUBLIC SCHOOLS.
Contrary to the notion that charter schools are free from many of the requirements that a traditional school district must meet, a charter school is actually subject to many of the same requirements. Like traditional public schools, open-enrollment charter schools must meet state curriculum requirements and must meet all of the requirements (federal and state) for special education, bilingual education, and prekindergarten programs (if prekindergarten is offered under the terms of the charter).47 Open-enrollment charter school students must also meet the same high school graduation requirements as their traditional school district counterparts.48 And, while charter schools are not subject to the Chapter 21 educator certification and employment requirements, open-enrollment charter schools are subject to the No Child Left Behind (NCLB) requirements for highly qualified teachers, and are required to conduct criminal background checks.49 Employees of open-enrollment charter schools qualify for membership in the Teacher Retirement System and are covered under the system to the same extent as traditional school district employees.50 Open-enrollment charter schools are subject to similar nepotism and conflict of interest laws applicable to a traditional school district, with certain limited exceptions for charter schools meeting acceptable or higher ratings under Chapter 39 of the Texas Education Code. 51
Unlike traditional public schools, Texas charter schools must meet the specific terms set forth in their charter, and must comply with Chapter 12 of the Texas Education Code and Chapter 100 of Title 19 of the Texas Administrative Code. Open-enrollment charters that are 501(c)(3) nonprofit organizations have the additional requirements of Chapter 22 of the Texas Business Organizations Code and the regulations of the Internal Revenue Service required to maintain federal tax exemption.52 These obligations are unique to open-enrollment charter schools, and create an added layer of compliance in addition to the state and federal educational requirements with which a public charter school must comply.
3. OPEN-ENROLLMENT CHARTER SCHOOLS ARE REGULATED AS GOVERNMENTAL ENTITIES, EXCEPT WHEN THEY ARE NOT.
One persistent question regarding charter schools is when an open-enrollment charter school operated by a non-profit corporation is considered a “governmental entity” as a “political subdivision” of the state. Texas Education Code, Chapter 12 explicitly recognizes that the governing body of an open-enrollment charter school is considered a “governmental body” for purposes of Chapters 551 (Open Meetings Act) and 552 (the Public Information Act) of the Texas Government Code. Thus, charter schools must comply with these laws in the same manner as traditional public schools.53 Chapter 12 also specifically recognizes that charter schools are a “local government” for purposes of certain record retention statutes. The records of an open enrollment charter school are government records for all purposes under state law.54
However, for other purposes and laws, schools must rely on Texas Attorney General opinions, a court decision, or, in the absence thereof, the advice of competent legal counsel to determine whether an open-enrollment charter school acts as a governmental entity under a particular state or federal law. The Attorney General has determined that the governing board of an open-enrollment charter school is not a “governmental entity” authorized to establish a commissioned police force.55 Further, a Texas appellate court has ruled that open-enrollment charter schools are not “governmental entities” under the Texas Whistleblower Act.56 For many purposes, including federal statutory or constitutional liability under 42 U.S.C. § 1983 and the Texas Pay Day Act, for example, it remains an open question.
4. A CHARTER MAY BE DENIED RENEWAL, MODIFIED, REVOKED OR PLACED ON PROBATION.
Like traditional school districts, an open-enrollment charter school is subject to the accountability provisions of Texas Education Code, Chapter 39 and the Commissioner’s rules thereunder.57 Thus, the Commissioner may, as with a traditional school district, lower or revoke a charter school’s accreditation status or accountability ratings. The Commissioner is also authorized to intervene and sanction an open-enrollment charter school, including conducting an onsite investigation or audit, or appointing a monitor, conservator, management team or board of managers, as a result of the investigation or audit.58
The Commissioner may also take additional adverse action against an open-enrollment charter school by modifying, placing on probation, revoking, or denying renewal of the open-enrollment charter.59 The grounds for taking adverse action against a charter school are quite broad and include the failure to satisfy accountability and financial accounting requirements, failure to protect the health, safety or welfare of the students, and committing a material violation of the open-enrollment charter.60 The Commissioner can also temporarily withhold funding, suspend the authority of the charter to operate, or take any other reasonable action the Commissioner deems necessary upon a finding of one of the grounds set forth above.61 Prior to taking any adverse action against an open-enrollment charter, including denying renewal of the school’s charter, the Commissioner must provide notice and an opportunity for a hearing before the State Office of Administrative Hearings.62
5. CHARTER SCHOOLS DO NOT RECEIVE SCHOOL FACILITIES OR DIRECT STATE FUNDING FOR FACILITIES.
One of the most significant challenges for charter schools in Texas is access to, and funding for, adequate school facilities. Unlike traditional public schools, Texas law does not provide open-enrollment charter schools with access to public school facilities nor do charter schools receive any direct state aid for instructional facilities. 63 As a result, charter schools, despite being clearly recognized by the Legislature as part of the public school system, are at a disadvantage to their traditional school counterparts, and are forced to spend a significant part of their general operating funds for facilities.64
Charter schools do have the authority to issue bonds, and in 2011, the Texas Legislature adopted legislation allowing charter schools to access the Permanent School Fund Guarantee in Texas65 which will improve charter bond ratings and thereby reduce the cost of bond financing for eligible charter schools to construct instructional facilities. However, before the Permanent School Fund Guarantee Program becomes available for charters, the Internal Revenue Service (IRS) must issue a ruling that allows for the issuance of tax-exempt bonds for public charter schools.66 No such ruling has been issued yet. Moreover, while access to the Permanent School Fund provides much needed assistance to a charter school seeking to construct a public school facility, charter schools must meet certain criteria to be eligible for the program and thus, not all charter schools will be eligible. Nor is participation in the program a substitute for direct facilities funding because charter schools must still service the bonds with general operating funds.
In light of this unchanged reality, the Texas Charter Schools Association, along with a group of parents of students attending charter schools throughout Texas, filed suit on June 26, 2012, against the State of Texas challenging the constitutionality of the State’s decision to deny charter schools direct funding for facilities and for setting a cap of 215 open-enrollment charters. 67 Although school finance litigation is certainly not new in Texas, this lawsuit marks the first appearance by charter schools in the courtroom. The crux of the argument is two-fold: first, that the Legislature’s funding scheme for charter schools is unconstitutional because it arbitrarily denies direct facilities funding, forcing charter schools to use valuable instructional funding for necessary facilities; and second, that the cap of 215 open-enrollment charters is unconstitutional as it is an arbitrary and unjustified barrier to the very efficiency that charter schools are charged by law to deliver and the Texas public school system is required to reach by the Texas Constitution.
The lawsuit also asserts that charter schools suffer other unique funding inequities, namely that the charter school formulas for the foundation school program funding (“FSP”) are based on a state-wide average and do not adjust for individual school’s geographic location, purpose, or populations. 68 This one-size fits all averaged adjustment is in stark contrast to the current public school funding formula for traditional school districts which incorporates weighted criteria relevant to the uniqueness of each school district. If these formulas are arbitrary and do not meet the standards required by the Texas Constitution for traditional school districts, then charter schools, with no facilities funding, a cap on growth, and a one-size fits all averaged adjustment to FSP funding, suffer even greater harm, only amplifying the case that the public school finance system is constitutionally inadequate and unfair.
Recognizing parallels in the various claims made by the six different groups of plaintiffs suing the state over the constitutionality of the public school finance system, the 200th District Court ordered all of the claims consolidated, including the charter school claim, and thus, the massive school finance trial began this past October 22, 2012. The charter school claim is the last plaintiff to present evidence before the court, which is expected to be around the end of January. Hopefully, this historic move by the charter sector to join the voice of schools seeking adequate public school funding will result in a victory for all public schools, and will compel the Texas Legislature to act to correct all state funding inequities.
We hope that this primer has provided a helpful introduction to the basics of charter schools in Texas. Now more than ever, with the school finance litigation underway and the convening of the 83rd Texas Legislature, the public school sector – charts and traditional districts alike – should understand each other and use this understanding to move the state of public education in Texas forward together. As representatives of the Texas Charter Schools Association, we would be happy to answer any questions you may have about Texas charter schools and the role they play within the Texas public school system. Also, the best way to get to know a charter school is to see it in action, and we encourage you to visit a charter school soon. You can find an interactive map of open-enrollment charter schools on our website at www.txcharterschoos.org.
1. Data on the number of charter schools in Texas compiled from the 2012 ASK TED Report of the Texas Education Agency, available here: http://mansfield.tea.state.tx.us/TEA.AskTED.Web/Forms/SearchScreen.aspx?orgType=State.
2. Percentage calculated from 2012 AEIS Report of the Texas Education Agency, available here: http://ritter.tea.state.tx.us/perfreport/aeis/2012/index.html.
3. Data compiled from 2012 survey by the Texas Charter Schools Association.
4. Data compiled from the Public Charter Schools Dashboard, a data resource from the National Alliance of Public Charter Schools, available here: http://dashboard.publiccharters.org/dashboard/schools/year/2012.
5. A charter is subject to the Texas Education Code and the administrative rules adopted under the Education Code only to the extent the Education Code or the rules promulgated thereunder state that it applies to a charter. Tex. Educ. Code § 12.103. All statutory citations in this article are to the Education Code unless otherwise noted.
6. Tex. Educ. Code § 12.105.
7. Tex. Educ. Code § 12.001.
8. Tex. Educ. Code § 12.106.
9. Tex. Educ. Code § 12.104.
10. Tex. Educ. Code § 12.002.
11. Tex. Educ. Code § 12.011.
12. Tex. Educ. Code § 12.015.
13. Tex. Educ. Code § 12.018.
14. Tex. Educ. Code § 12.017; Tex. Educ. Code § 12.025.
15. Tex. Educ. Code § 12.019; Tex. Educ. Code § 12.024.
16. Tex. Educ. Code § 12.020; Tex. Educ. Code § 12.030.
17. Tex. Educ. Code § 12.052; Tex. Educ. Code § 12.0521.
18. Tex. Educ. Code § 12.052(c).
19. Tex. Educ. Code § 12.053.
20. Tex. Educ. Code § 12.058.
21. Tex. Educ. Code § 12.054.
22. Tex. Educ. Code §12.052; Tex. Educ. Code §§ 12.062 – 12.063.
23. Tex. Educ. Code §12.060.
24. Tex. Educ. Code §12.065.
25. Tex. Educ. Code §12.065.
26. Data compiled from the 2012 AskTED Report of the Texas Education Agency, available here: http://mansfield.tea.state.tx.us/tea.askted.web/Forms/Home.aspx.
27. Tex. Educ. Code § 12.101(a). 19 Tex. Admin. Code § 100.1015 sets forth the financial, governing and operational standards required of an applicant for an open-enrollment charter.
28. Tex. Educ. Code § 12.101(b).
29. Each year that the State Board of Education seeks applications and awards an open-enrollment charter is known as a “generation” and the application is referenced by the particular generation. The Generation 18 application was recently released by the Texas Education Agency, available here: http://www.tea.state.tx.us/charterapp.aspx. The Generation 18 application is due February 28, 2013 and the Generation 18 open-enrollment charters will be awarded in the fall of 2013.
30. Tex. Educ. Code § 12.121.
31. Tex. Educ. Code § 12.107; 19 Tex. Admin. Code §100.1043.
32. Tex. Bus. Orgs Code. Ann. § 22.221. A director of a nonprofit corporation owes a fiduciary duty of care, loyalty and obedience to the corporation.
33. Tex. Educ. Code § 12.107(c).
34. Tex. Educ. Code § 12.128.
35. Tex. Educ. Code § 12.122(b).
36. Tex. Educ. Code § 12.108.
37. Tex. Educ. Code § 12.111(6).
38. Tex. Educ. Code § 12.111(6)(A).
39. Tex. Educ. Code § 12.111(6)(B).
40. Tex. Educ. Code § 12.117. A school may fill the vacancies in the order in which applications were received only if the school published timely notice of the application deadline in a newspaper of general circulation in the community in which the school is located. Tex. Educ. Code § 12.117(b)
41. 20 U.S.C. 7221i(1)(H).
42. Tex. Educ. Code § 12.104(J); Tex. Educ. Code § 12.131.
43. Tex. Educ. Code § 12.154(a).
44. Tex. Educ. Code § 12. 154(b).
45. Tex. Educ. Code § 12.156.
46. Tex. Educ. Code § 12.156(b).
47. Tex. Educ. Code § 12.104.
48. Tex. Educ. Code § 12.104(E).
49. Tex. Educ. Code § 12.103; § 12.104(B).
50. Tex. Educ. Code § 12.1057.
51. Tex. Educ. Code § 12.1054; Tex. Educ. Code § 12.1055.
52. 26 U.S. C. §501(c)(3) and 26 C.F.R. 1.501(c)(3)-1, which include, inter alia, regulations regarding political activity, prohibition on lobbying, unrelated business activity and income, excess benefit transactions and annual informational and financial reporting requirements.
53. Tex. Educ. Code § 12.1051.
54. Tex. Educ. Code § 12.1052.
55. Tex. Att’y Gen. Op. No. GA-0532 (2007).
56. Ohnesorge v. Winfree Academy, 328 S.W. 3rd 654 (Tex. App-Dallas 2010).
57. Tex. Educ. Code § 12.104(b)(2)(L); 19 Tex. Admin. Code § 100.1027; 19 Tex. Admin. Code § 97.1073
58. Tex. Educ. Code § 39.102. The Commissioner may also audit the records of the charter holder, if distinct from the open-enrollment charter school and the records of the management company of an open-enrollment charter school. Tex. Educ. Code § 12.1163.
59. 19 Tex. Admin. Code § 100.1021-1029.
60. Tex. Educ. Code § 12.115; 19 Tex. Admin. Code § 100.1021.
61. Tex. Educ. Code § 12.1162; 19 Tex. Admin. Code §§ 100.1023-1024.
62. 19 Tex. Admin. Code § 100.1021(b), (d),and (e).
63. Tex. Educ. Code § 12.106. Pursuant to § 42.158, open-enrollment charter schools are eligible for the New Instructional Facility Allotment (NIFA) to the same extent as traditional public school districts. However, NIFA is provided for operational expenses associated with the opening of only a new instructional facility, subject to certain rules and requirements, and in 2011, the Texas Legislature did not provide funding for NIFA assistance for the 2012-2013 biennium.
64. See, e.g., Shortchanged Charters: How Funding Disparities Hurt Texas’ Charter Schools, the Texas Charter School Association’s report on the state of charter school facilities, available here: http://www.txcharterschools.org/sites/default/files/resources/Shortchanged-Texas_050611.pdf.
65. Tex. Educ. Code § 12.135.
66. See State Auditor’s Office Audit Report, Certification of the Permanent School Fund’s Bond Guarantee Program for Fiscal Year 2011, dated April 24, 2012, available here: http://www.sao.state.tx.us/reports/main/12-029.pdf.
67. Flores, et al., v. Williams et al., Cause No. D-1-GN-11-003130, 200th State District Court, Travis County, Texas .
68. Tex. Educ. Code §12.106(a-1).