By: Taylor of Galveston, et al.	S.B. No. 1658
	(Huberty)

	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	(A)  has been revoked;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.