By: Taylor of Galveston S.B. No. 1658       Lucio, West     A BILL TO BE ENTITLED   AN ACT   relating to the ownership, sale, lease, and disposition of property   and management of assets of an open-enrollment charter school.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 12.1012, Education Code, is amended by   adding Subdivisions (7) and (8) to read as follows:                (7)  "Payable obligation" means a contractually   obligated expenditure that was reasonably incurred for the benefit   of students enrolled at an open-enrollment charter school before   the open-enrollment charter school ceased operations, including a   debt described by Section 12.128(e).  The term does not include any   amount owed to a former charter holder or officer or director of the   school.                (8)  "Remaining funds" means funds that are held by a   former charter holder after satisfaction of all payable obligations   and that were received:                      (A)  under Section 12.106; or                      (B)  from the disposition of property.          SECTION 2.  Subchapter D, Chapter 12, Education Code, is   amended by adding Section 12.10125 to read as follows:          Sec. 12.10125.  OPEN-ENROLLMENT CHARTER SCHOOL NOT IN   OPERATION.  An open-enrollment charter school ceases to operate if:                (1)  the school's charter:                      (A)  has been revoked;                      (B)  has expired;                      (C)  has been surrendered; or                      (D)  has been abandoned; or                (2)  the school has otherwise ceased operation as a   public school.          SECTION 3.  Section 12.106, Education Code, is amended by   adding Subsections (d), (e), and (f) to read as follows:          (d)  Except as provided by Subsection (e), all remaining   funds of a charter holder for an open-enrollment charter school   that ceases to operate must be returned to the agency and deposited   in the charter school liquidation fund.          (e)  The agency may approve a transfer of a charter holder's   remaining funds to another charter holder if the charter holder   receiving the funds has not received notice of the expiration or   revocation of the charter holder's charter for an open-enrollment   charter school or notice of a reconstitution of the governing body   of the charter holder under Section 12.1141 or 12.115.          (f)  The commissioner may adopt rules specifying:                (1)  the time during which a former charter holder must   return remaining funds under Subsection (d); and                (2)  the qualifications required for a charter holder   to receive a transfer of remaining funds under Subsection (e).          SECTION 4.  Section 12.107(a), Education Code, is amended to   read as follows:          (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); [and]                (4)  pending their use, must be deposited into 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; or                      (B)  be used to support an operation or activity   not related to the educational activities of the charter holder.          SECTION 5.  Section 12.1163, Education Code, is amended by   adding Subsection (d) to read as follows:          (d)  An audit under Subsection (a) may include the review of   any real property transactions between the charter holder and a   related party, as defined by commissioner rule adopted under   Section 12.1166. If the commissioner determines that a transaction   with a related party using funds received under Section 12.106 was   structured in a manner that did not benefit the open-enrollment   charter school or that the transaction was in excess of fair market   value as determined under Section 12.1167, the commissioner may   order that the transaction be reclassified or that other action be   taken as necessary to protect the school's interests. Failure to   comply with the commissioner's order is a material violation of the   charter.          SECTION 6.  Subchapter D, Chapter 12, Education Code, is   amended by adding Sections 12.1166, 12.1167, and 12.1168 to read as   follows:          Sec. 12.1166.  RELATED PARTY TRANSACTIONS. (a)  The   commissioner shall adopt a rule defining "related party" for   purposes of this subchapter. The definition of "related party"   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   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 an   open-enrollment charter school;                (2)  a charter holder's related organizations, joint   ventures, and jointly governed organizations;                (3)  an open-enrollment charter school's board members,   administrators, or officers or a person related to a board member,   administrator, or officer 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 the charter holder and a related party   occurred.          (c)  In a charter holder's annual audit filed under Section   44.008, the charter holder must include a list of all transactions   with a related party.          Sec. 12.1167.  APPRAISAL OF CERTAIN PROPERTY. The   commissioner may adopt rules to require an open-enrollment charter   school to:                (1)  notify the commissioner that the school intends to   enter into a transaction with a related party; and                (2)  provide an appraisal from a certified appraiser to   the agency.          Sec. 12.1168.  FINANCIAL REPORT OF CERTAIN SCHOOLS. (a)  In   this section, "related party" has the meaning adopted by   commissioner rule under Section 12.1166.          (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, separately   stating the principal, interest, and lease payments; and                (2)  the total compensation and benefits provided by   the school and any related party for each member of the governing   body and each officer and administrator of the school and the   related party.          (c)  The commissioner may adopt rules to implement this   section.          SECTION 7.  Section 12.128, Education Code, is amended by   amending Subsections (a) and (c) and adding Subsections (a-1),   (b-1), (b-2), (c-1), (c-2), and (f) to read as follows:          (a)  Property purchased [or leased] with funds received by a   charter holder under Section 12.106 after September 1, 2001:                (1)  is considered to be public property for all   purposes under state law;                (2)  is property of this state held in trust by the   charter holder for the benefit of the students of the   open-enrollment charter school; and                (3)  may be used only for a purpose for which a school   district may use school district property.          (a-1)  Property leased with funds received by a charter   holder under Section 12.106 after September 1, 2001:                (1)  is considered to be public property for all   purposes under state law;                (2)  is property of this state held in trust by the   charter holder for the benefit of the students of the   open-enrollment charter school; and                (3)  may be used only for a purpose for which a school   district may use school district property.          (b-1)  Subject to Subsection (b-2), while an open-enrollment   charter school is in operation, the charter holder holds title to   any property described by Subsection (a) or (b) and may exercise   complete control over the property as permitted under the law.          (b-2)  A charter holder may not transfer, sell, or otherwise   dispose of any property described by this section without the prior   written consent of the agency if:                (1)  the charter holder has received notice of:                      (A)  the expiration of the charter holder's   charter under Section 12.1141 and the charter has not been renewed;   or                      (B)  the charter's revocation under Section   12.115(c);                (2)  the charter holder has received notice that the   open-enrollment charter school is under discretionary review by the   commissioner, which may result in the revocation of the charter or a   reconstitution of the governing body of the charter holder under   Section 12.115; or                (3)  the open-enrollment charter school for which the   charter is held has otherwise ceased to operate.          (c)  The commissioner shall:                (1)  take possession and assume control of the property   described by Subsection (a) of an open-enrollment charter school   that ceases to operate; and                (2)  supervise the disposition of the property in   accordance with this subchapter [law].          (c-1)  Notwithstanding Subsection (c), if an open-enrollment   charter school ceases to operate, the agency:                (1)  for property purchased with state funds, shall   direct the charter holder to dispose of the property through one of   the following methods:                      (A)  retain or liquidate the property and provide   reimbursement to the state as provided by Section 12.1281;                      (B)  transfer the property to:                            (i)  the agency under Section 12.1281(h); or                            (ii)  a school district or open-enrollment   charter school under Section 12.1282;                      (C)  close the operations of the open-enrollment   charter school under Section 12.1284; or                      (D)  take any combination of the actions described   by Paragraphs (A), (B), and (C); and                (2)  for property leased with state funds, may direct   the charter holder to assign the charter holder's interest in the   lease to the agency.          (c-2)  The agency may approve an expenditure of remaining   funds by a former charter holder for insurance or utilities for or   maintenance, repairs, or improvements to property described by this   section if the agency determines that the expenditure is reasonably   necessary to dispose of the property or preserve the property's   value.          (f)  A decision by the agency under this section is final and   may not be appealed.          SECTION 8.  Subchapter D, Chapter 12, Education Code, is   amended by adding Sections 12.1281, 12.1282, 12.1283, and 12.1284   to read as follows:          Sec. 12.1281.  DISPOSITION OF PROPERTY PURCHASED WITH STATE   FUNDS. (a)  A former charter holder of an open-enrollment charter   school that has ceased to operate may retain property described by   Section 12.128 if the former charter holder reimburses the state   with non-state funds and the former charter holder:                (1)  provides written assurance that the requirements   of Section 12.1284 will be met; and                (2)  receives approval from the agency.          (b)  On receiving consent from the agency under Section   12.128(b-2) and a written agreement from any creditor with a   security interest described by Section 12.128(e), the former   charter holder may:                (1)  sell property for fair market value; or                (2)  transfer property to an open-enrollment charter   school or a school district as provided under Section 12.1282.          (c)  The amount of funds the state is entitled to as   reimbursement for property of a former charter holder is:                (1)  for property retained by the former charter   holder, the current fair market value less the amount of any debt   subject to a security interest or lien described by Section   12.128(e), multiplied by the percentage of state funds used to   purchase the property; or                (2)  for property sold by the former charter holder,   the net sales proceeds of the property multiplied by the percentage   of state funds used to purchase the property.          (d)  To determine the amount of state funds a former charter   holder used to purchase property, the agency shall calculate:                (1)  an estimated state reimbursement amount based on   the last annual financial report filed under Section 44.008   available at the time the former charter holder retains or sells the   property; and                (2)  a final state reimbursement amount using the   former charter holder's final financial audit filed under Section   44.008.          (e)  A former charter holder retaining property under   Subsection (a) or selling the property under Subsection (b)(1)   shall:                (1)  file an affidavit in the real property records of   the county in which the property is located disclosing the state   interest in the property;                (2)  place in escrow with the state comptroller an   amount of non-state funds equal to 110 percent of the estimated   state reimbursement amount not later than:                      (A)  the closing date of the sale of the property   if the charter holder is selling the property; or                      (B)  the 90th day after the charter school's last   day of instruction if the charter holder is retaining the property;   and                (3)  not later than two weeks after the date the charter   holder's final financial audit is filed under Section 44.008,   submit to the state the final state reimbursement amount using the   funds in escrow in addition to any other funds necessary to pay the   full amount of state reimbursement.          (f)  A former charter holder may retain any funds remaining   after complying with this section.          (g)  As soon as the agency is satisfied that the former   charter holder complied with Subsection (e), the agency shall file   written notice of the release of the state interest in property the   former charter holder retains under this section and authorize the   return of any funds not used for state reimbursement to the former   charter holder.          (h)  Subject to the satisfaction of any security interest or   lien described by Section 12.128(e), if a former charter holder   does not dispose of property under Subsection (a) or (b), the former   charter holder shall transfer the property, including a conveyance   of title, to the agency in accordance with the procedures and time   requirements established by the agency.          (i)  Subject to the satisfaction of any security interest or   lien described by Section 12.128(e), if the agency determines a   former charter holder failed to comply with this section or Section   12.1282, on request of the agency, the attorney general shall take   any appropriate legal action to compel the former charter holder to   convey title to the agency or other governmental entity authorized   by the agency to maintain or dispose of property.          (j)  A decision by the agency under this section is final and   may not be appealed.          (k)  The commissioner may adopt rules necessary to   administer this section.          Sec. 12.1282.  TRANSFER OF PROPERTY PURCHASED WITH STATE   FUNDS. (a)  The agency may approve the transfer of property   described by Section 12.128 from an open-enrollment charter school   that has ceased to operate, or may transfer property conveyed to the   agency by the former charter holder under Section 12.1281, to a   school district or an open-enrollment charter school if:                (1)  the open-enrollment charter school or school   district receiving the property:                      (A)  agrees to the transfer; and                      (B)  agrees to identify the property as purchased   wholly or partly using state funds on the school's annual financial   report filed under Section 44.008;                (2)  any creditor with a security interest in or lien on   the property described by Section 12.128(e) agrees to the transfer;   and                (3)  the transfer of the property does not make the   open-enrollment charter school or school district receiving the   property insolvent.          (b)  Property received by an open-enrollment charter school   or school district under this section is considered to be state   property under Section 12.128(a).          (c)  The commissioner may adopt rules necessary to   administer this section, including rules establishing   qualifications and priority for a school district or   open-enrollment charter school to receive a transfer of property   under this section.          (d)  If the agency determines that the cost of disposing of   personal property described by Section 12.128 transferred to the   agency by an open-enrollment charter school that ceases to operate   exceeds the return of value from the sale of the property, the   agency may distribute the personal property to open-enrollment   charter schools and school districts in a manner determined by the   commissioner.          (e)  A determination by the agency under this section is   final and may not be appealed.          Sec. 12.1283.  SALE OF PROPERTY PURCHASED WITH STATE FUNDS.   (a)  After the agency receives title to property described by   Section 12.128, the agency may sell the property at any price   acceptable to the agency.          (b)  On request of the agency, the following state agencies   shall enter into a memorandum of understanding to sell property for   the agency:                (1)  for real property, the General Land Office; and                (2)  for personal property, the Texas Facilities   Commission.          (c)  A memorandum of understanding entered into as provided   by Subsection (b) may allow the General Land Office or Texas   Facilities Commission to recover from the sale proceeds any cost   incurred by the agency in the sale of the property.          (d)  Subject to the satisfaction of any security interest or   lien described by Section 12.128(e), proceeds from the sale of   property under this section shall be deposited in the charter   school liquidation fund.          (e)  The commissioner may adopt rules as necessary to   administer this section.          Sec. 12.1284.  CLOSURE OF CHARTER SCHOOL OPERATIONS.   (a)  After extinguishing all payable obligations owed by an   open-enrollment charter school that ceases to operate, including a   debt described by Section 12.128(e), a former charter holder shall:                (1)  remit to the agency:                      (A)  any remaining funds described by Section   12.106(d); and                      (B)  any state reimbursement amounts from the sale   of property described by Section 12.128; or                (2)  transfer the remaining funds to another charter   holder under Section 12.106(e).          (b)  The agency shall deposit any funds received under   Subsection (a)(1) in the charter school liquidation fund.          (c)  The commissioner may adopt rules necessary to   administer this section.          SECTION 9.  Subchapter D, Chapter 12, Education Code, is   amended by adding Section 12.141 to read as follows:          Sec. 12.141.  RECLAIMED FUNDS. (a)  The agency shall   deposit funds received under Sections 12.106, 12.128, 12.1281,   12.1283, and 12.1284 into the charter school liquidation fund and   may use the funds to:                (1)  pay expenses relating to managing and closing an   open-enrollment charter school that ceases to operate, including:                      (A)  maintenance of the school's student and other   records; and                      (B)  the agency's personnel costs associated with   managing and closing the school;                (2)  dispose of property described by Section 12.128;   and                (3)  maintain property described by Section 12.128,   including expenses for insurance, utilities, maintenance, and   repairs.          (b)  The agency may not use funds under this section until   the commissioner determines if the open-enrollment charter school   that ceases to operate received an overallocation of funds under   Section 12.106 that must be recovered for the foundation school   program.          (c)  The agency shall annually review the amount of funds in   the charter school liquidation fund and transfer any funds   exceeding $2 million:                (1)  for use in funding a high-quality educational   grant program established by the commissioner; or                (2)  to the comptroller to deposit in the charter   district bond guarantee reserve fund under Section 45.0571.          (d)  The agency may delay a transfer of funds under   Subsection (c) if the excess is less than $100,000.  Funds set aside   for an overallocation of funds from the foundation school program   are not included in determining whether the amount of funds exceeds   $2 million.          (e)  The commissioner may adopt rules necessary to implement   this section.          SECTION 10.  Section 39.1121, Education Code, is amended by   adding Subsection (c-1) to read as follows:          (c-1)  A board of managers appointed for the final closure of   a former open-enrollment charter school under Subsection (c) has   the authority to:                (1)  access and manage any former charter holder's bank   account that contains funds received under Section 12.106; and                (2)  subject to approval by a creditor with a security   interest in or lien on property described by Section 12.128 and in   accordance with Sections 12.1281 and 12.1282, sell or transfer to   another charter holder or school district any property titled to   the former charter holder that is identified in the former   open-enrollment charter school's annual financial report filed   under Section 44.008 as being acquired, wholly or partly, with   funds received under Section 12.106.          SECTION 11.  Section 39.1122(c), Education Code, is amended   to read as follows:          (c)  The agency [commissioner] shall use funds received by or   due to the former charter holder under Section 12.106 or funds   returned to the state from liquidation of [state] property   described by Section 12.128 and held by a former charter holder for   compensation of a member of a board of managers for an   open-enrollment charter school or a campus of an open-enrollment   charter school or a superintendent.          SECTION 12.  Section 43.001(a), Education Code, is amended   to read as follows:          (a)  Except as provided by Subsection (b), the permanent   school fund, which is a perpetual endowment for the public schools   of this state, consists of:                (1)  all land appropriated for the public schools by   the constitution and laws of this state;                (2)  all of the unappropriated public domain remaining   in this state, including all land recovered by the state by suit or   otherwise except pine forest land as defined by Section 88.111 and   property described by Section 12.128;                (3)  all proceeds from the authorized sale of permanent   school fund land;                (4)  all proceeds from the lawful sale of any other   properties belonging to the permanent school fund;                (5)  all investments authorized by Section 43.003 of   properties belonging to the permanent school fund; and                (6)  all income from the mineral development of   permanent school fund land, including income from mineral   development of riverbeds and other submerged land.          SECTION 13.  Section 44.008, Education Code, is amended by   adding Subsections (f), (g), and (h) to read as follows:          (f)  An open-enrollment charter school shall provide an   accounting of each parcel of the school's real property, including   identifying the amount of local, state, and federal funds used to   purchase or improve each parcel of property.          (g)  An open-enrollment charter school for which the charter   has expired, been revoked, or been surrendered or an   open-enrollment charter school that otherwise ceases to operate   shall submit a final annual financial report to the agency.  The   report must verify that all state property held by the charter   holder has been returned or disposed of in accordance with Section   12.128.          (h)  The commissioner may adopt rules necessary to implement   this section, including rules defining local funds.          SECTION 14.  A transfer of property from an open-enrollment   charter school that ceases to operate to another open-enrollment   charter school that occurred before the effective date of this Act   is ratified if both open-enrollment charter schools classified the   property as purchased with state funds on each school's annual   financial report under Section 44.008, Education Code.          SECTION 15.  This Act takes effect only if a specific   appropriation for the implementation of the Act is provided in a   general appropriations act of the 85th Legislature.          SECTION 16.  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, 2017.