SECRETARY OF EDUCATION ROD PAIGE has sent an important message to all schools in the nation asking us to join him in the Pledge Across America at 1:00 p.m. CDT TODAY. See attached.

CHARTER HOLDER RESPONSIBILITIES Charter holder board members will receive a letter in the mail today from Commissioner Jim Nelson detailing the new responsibilities and liabilities that became effective on September 1, 2001. For your convenience we have attached a copy of this letter that charter school directors will want to send to each of their board members who may have joined their boards after board member addresses were submitted to the Agency last fall.

CHARTER SCHOOL ORIENTATION The Division of Charter Schools at TEA is hosting a Charter School Orientation on Monday & Tuesday, October 22 & 23, 2001. Representatives from many divisions at the agency will make presentations that pertain to both new charter schools and also to established charters with new staff members, or with existing staff who want a refresher in some areas. You may bring as many staff members as you like. There is no charge for the orientation. A tentative agenda is attached. The sessions will run from 9:45 a.m. - 5:00 p.m. on October 22 and from 8:30 a.m. - 3:00 p.m. on October 23. To RSVP call 512-463-9575.

Key Policy Letters Signed by the Education Secretary or Deputy Secretary

October 5, 2001

TO THE CHARTER HOLDER BOARD MEMBER ADDRESSED:

During the 77^th Legislature, House Bill 6 (HB 6), relating to charter schools and their operations, was enacted. As a result of this new law, board members of open-enrollment charter holders have additional and increased responsibilities that became effective September 1, 2001. HB 6 defined a "charter holder" as the entity that applied for and received the open-enrollment charter. Most charter holders are non-profit corporations, but a few are government agencies or universities. As Commissioner of Education, it is my responsibility to inform you that if you sit on the board of a non-profit corporation (or other entity) that has been granted a charter, you are a member of the "charter holder governing body" and the following duties discussed in this letter pertain to you:

• You are responsible for the management, operation, and accountability of the open-enrollment charter school, even if the board on which you sit has delegated some powers and duties to another person. Any agreements to the contrary are void and unenforceable.

• You may be held personally liable for breach of a fiduciary duty owed to the charter holder, including misapplication of public funds. It is not a defense that you delegated your responsibilities to another person.

• Charter holders that have established "school boards" for the purpose of running the daily operations of the school must detail any delegation of powers or duties in the governance structure described in the original charter application, or in a charter amendment. The structure and role of the school board as described in the charter must be updated and accurate. The charter must state the decisions delegated to the school board, and those retained by the charter holder board. Further, certain core decisions about the operation of the charter cannot be delegated at all. The governing body of the charter holder must make those decisions itself. The Error! Reference source not found. is developing proposed rules that will identify the duties that a charter holder governing body cannot delegate.

• HB 6 defines a "management company." Some charter holders have contracted with management companies to carry out some or all of the functions defined in the bill as "management services." All decisions or functions delegated to a management company must be approved through the charter amendment process, just as for school board delegations. The fact that you may already have a contract with a management company does not excuse you from this requirement. Any decisions or functions that are delegated to the management company through the contract must be approved as amendments to the governance structure described in the charter.

• The funds sent by the agency to the charter holder are public funds. You are responsible for these funds. As a member of the governing body, you are held to the fiduciary duties and standards of a trustee holding funds in trust for a beneficiary. It is your obligation to ensure that public funds are used only for the purposes described in your charter.

• In the past, the agency has honored charter holder requests that funds due to the charter be sent to an account held by a third party, such as a management company. Under HB 6, the agency may send funds only to an account owned by the charter holder. You will be required to file a copy of your bank depository contract with the agency, and the agency will send funds only to the account identified in the depository contract.

• In addition to managing public funds, you also manage public property. All property acquired, improved or maintained by a charter holder with state funds received after September 1, 2001 is considered public property. You are responsible for the use of this property. This includes both real estate and personal property such as office equipment, classroom computers, and vehicles. Real estate acquired, improved or maintained with state funds received before September 1 is considered public property if you continue to accept state funds after September 1 and at least 50 percent of state funds are used to purchase the real estate. Proposed rules that explain in detail the requirements of HB 6 relating to public property have been published and are expected to be adopted in the near future.

• State laws concerning conflicts of interest now apply to you as a member of the governing body of a charter holder. You must execute an affidavit swearing to the facts surrounding any conflict of interest you have in any vote or decision made by the charter holder board, and recuse yourself from the vote. You are deemed to have a conflict if your relative, within the third degree of consanguinity or affinity, has a conflict.

• You may not serve on the board of a non-profit corporation while receiving compensation from that corporation. This means that employees of either a charter holder or charter school generally cannot sit on the board of the charter holder. However, there is an exception if each campus operated by the charter holder is rated "acceptable" or higher for two of the preceding three school years. If all your campuses qualify, employees of the charter school (but not other corporate employees) may serve on the board so long as school employees do not constitute a quorum of the governing body or any committee of the governing body.

• Prohibitions against nepotism apply to you as a member of the governing body of a charter holder. An exception applies if the school is rated "acceptable" or higher for two of the preceding three school years. Even if the exception applies, related persons may not constitute a quorum of the governing body or any committee of the governing body.

• You must obtain criminal history record information from the Texas Department of Public Safety relating to each prospective employee and volunteer of the charter school. You must obtain the same criminal histories for all members of the governing body of the charter holder and the charter school. HB 6 prohibits anyone from serving on the governing body of the charter holder or charter school, and from serving as an officer or employee of the charter school, who has been convicted of certain criminal offenses.

• HB 6 prohibits anyone from serving on the governing body of the charter holder or charter school, and from serving as an officer or employee of the charter school, who has a substantial interest in a management company. A person has a "substantial interest" in the company if the person has a controlling interest, owns more than 10 percent of the voting interest or more than $25,000 of the fair market value, has a direct or indirect participating interest in more than 10 percent of the profits, is on the board of directors, or is an elected officer or employee of the management company.

• All management contracts must be approved by the agency. The commissioner may prohibit, deny renewal of, suspend, or revoke any contract for management services if the management company you select has failed to comply with a contractual or other legal obligation to a charter school in Texas or another state, or failed to protect the health, safety, or welfare of the students enrolled at any charter school.

• HB 6 also prohibits a charter holder or charter school from accepting a loan from its management company. If a loan already exists between the parties, the charter holder or charter school may not use that management company for management services. If your charter holder or charter school has an outstanding loan from a management company, please contact the agency.

• The attorney general may sue a management company for damages incurred by the state as a result of the failure of the company to comply with a contractual or other legal obligation to provide management services to a charter school.

• The commissioner may audit the financial and administrative records of a charter school, charter holder, or management company, as long as the audit directly relates to matters involving the management or operation of the charter school. It is your obligation to ensure that your management company cooperates with any such audit of its records.

• If a charter holder does not satisfy applicable accreditation criteria, the commissioner is authorized to sanction the charter as if it were a school district. Sanctions may include appointing an agency monitor, master, management team, or a board of managers. If a charter has been rated as academically unacceptable for a period of two years or more, the commissioner is authorized to order closure of all programs operated under the charter. The commissioner is authorized to withhold funding or suspend the authority of a charter school to operate on a temporary basis to protect the health, safety, or welfare of students, or in response to serious charter violations. These sanctions can limit your discretionary authority as a member of the governing body of the charter holder.

• The Local Government Records Act now applies to charter schools. Charter schools must establish a formal records management program with the Texas State Library and Archives Commission. The Local Government Records Act provides strict guidelines, including possible criminal penalties, for the destruction or alteration of government records.

• All management company contracts must contain language requiring the management company to maintain all records related to the management services separately from any other records of the management company. The Local Government Records Act and the Public Information Act apply with equal force to charter school records in the possession of a management company. It is your obligation to ensure that your management company complies with these requirements.

• The commissioner will adopt rules by January 1, 2002 prescribing training for members of governing bodies and officers of charter schools. By statute, the training must include school finance, health and safety, accountability, open meetings and public information requirements. In addition, the training for the coming year may focus on the new requirements imposed by House Bill 6, discussed above.

I think it is important for you to be aware of these significant changes in law so that you will be prepared to comply accordingly. If you have any questions, or need additional information, please contact the Charter School Division at (512) 463-9575. I appreciate the important work you do on behalf of charter schools and look forward to working together to improve public education in Texas.

Sincerely,

Jim Nelson
Commissioner of Education