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.