Editor’s note: This is the last of a four-part series, which ran in 2004 in the Charter School Monthly. During this time of charter school renewal, operators and others interested in charter schools might find it worth revisiting the elements of this most important charter school function.

With this final part in the series, I can only continue to wonder whether Senate Bill (SB) 1302 has yet accomplished the intent of Arizona’s 44th Legislature. Simply put, the legislation attempted to more clearly separate private decision making from public decision making. A clear separation is necessary because Arizona charter schools are hybrid organizations unlike any other entities created in the era of privatization.

A charter operator is a private entity (but see ARS § 15-183(B) (sponsor may contract with a public body, private person or private organization to establish a charter school)), while a charter school is a public entity (see Az. Atty. Gen. Op. No. I95-10). For other governmental functions that have been privatized, contractors are completely private entities. Although these contractors may be subject to periodic audits (see, e.g., Office of Management and Budget Circular Number A-133 and ARS § 35-181.03), internal decision making is private. In other words, charter schools are the only private contractors required to comply with open meetings laws and to make decisions in a public forum.

SB 1302 recognized the realities of operating charter schools. Even though the original version of ARS § 15-183(E)(8) required governing bodies to be responsible for operational decisions, these public bodies frequently delegated such decisions to the private charter operator. Delegation of operational decisions was reasonable because charter operators, as signatories on charter contracts, are the parties ultimately responsible to sponsors and to the State.

Therefore, charter operators should be entrusted with some decision-making authority in order to fulfill the contractual obligations. It is unreasonable to vest all decision-making authority in governing bodies, and yet hold charter operators contractually responsible for the outcomes of decisions made by governing bodies. Moreover, requiring governing bodies to be responsible for all decisions undermines the purpose of privatization.

Obviously, the State has not completely ceded responsibility for public education in charter schools. The industry remains heavily regulated. But some sharing of responsibility is necessary to further the goals of privatization. If a governing body is responsible for every decision necessary for operating a charter school, charter school legislation has merely transferred responsibilities from one public entity (i.e., traditional school districts) to another public entity (i.e., the charter school governing body).

SB 1302 was a move in the right direction, but it did not complete the task. By no longer requiring governing bodies to be responsible for operational decisions, Arizona’s 44th Legislature gave charter operators the choice of making these decisions privately. Amended ARS § 15-183(E)(8) only requires policy decisions to be made publicly.
The amendment was a reasonable and logical balance between the goals of privatization and public participation in public education. Because charter operators are held accountable for operational outcomes, they should be permitted to make operational decisions. In contrast, because charter schools are public schools, policy decisions should be made in open meetings. However, several requirements in statute and regulation make it difficult to properly separate private decision making from public decision making.

Charter Amendments
ARS § 15-183(G) requires amendments to charter contracts to be requested by governing bodies and to be approved by sponsors. For charter schools sponsored by the State Board for Charter Schools (the Board), Arizona Administrative Rule (AAR) R7-5-401(A) requires:
(1) A completed charter amendment form approved by the Board,
(2) The support documentation indicated on the charter amendment form,
(3) Evidence that the proposed charter amendment has been approved by the charter school’s governing body.

The Board’s sample contract also provides:
Any change in ownership of the Charter Operator, or change in the name of the Charter Operator, change in the Charter Representative, or change in membership of the board of directors of a corporate entity or the member(s) or manager(s) of a limited liability company or manager of the Charter Operator, require an amendment to the Charter Contract be approved following the process outlined in Paragraph 9.

See link, Paragraph 3(B) (December 26, 2004). Paragraph 9 of the sample contract requires amendments listed in Paragraph 3(B) and other amendments listed in Paragraph 9 to be approved by the Board. Paragraph 9 references ARS § 15-183(G) and states, “any amendment to the Charter Contract will be effective only if approved in writing by the Charter Operator and the governing body at a public meeting.” If the operator is a corporation, the written approval must be in the form of a resolution.

Paragraph 9 also creates exceptions to the above approval process for amendments listed in Paragraph 10. These amendments only require notification of the changes to the Board. Even though Paragraph 10 does not reference ARS § 15-183(G), the listed amendments also require approval by the charter operator and the governing body in a public meeting. Amendments listed in both paragraphs could follow operational decisions or policy decisions.

For example, changes in the legal status of the operator, the corporate name of the operator, and ownership are obviously operational decisions (see Paragraph 9). It would be illogical to assert that a change regarding the private operator is school policy. Likewise, “changes in members of the governing body [sic] of the corporate entity, members or managers of a Limited Liability Company or manager of the Charter Operator [and] changes in School location” are operational decisions (see Paragraph 10).

The only amendments listed in Paragraphs 9 and 10 that appear to be related to policy are: “[1] changes in school description/mission, [2] changes in grade level served, [3] changes in curriculum and instruction, and [4] changes in the method(s) used to measure pupil progress or changes in [percent] of mastery.” “Changes in the School calendar involving the number of instructional days” could be the result of either an operational or a policy decision.

ARS § 15-183(G), AAR R7-5-401(A), and the Board’s sample contract all undermine the intent of SB 1302. If governing bodies must approve all charter amendments, then these public bodies have complete veto power over significant operational decisions made by private charter operators. As a result, the amendment to ARS § 15-183(E)(8) has not fully implemented the intent of Arizona’s 44th Legislature. To fully implement SB 1302, amendments based on operational decisions should only require approval by charter operators.

Statutory Requirement for Charter Operators to Hold Open Meetings
ARS § 15-183(C)(5) provides that “if a charter operator is not already subject to a public meeting or hearing by the municipality in which the charter school is located, the operator of a charter school shall conduct a public meeting at least thirty days before the charter school operator opens a site or sites for the charter school.” ARS § 15-183(C)(5) appears to conflict with ARS § 38-431.01(A), and to undermine SB 1302.

ARS § 38-431.01(A) only requires meetings of public bodies to be public. ARS § 38-431(6) defines “public body” to include multimember governing bodies of instrumentalities of the State or political subdivisions. In Opinion I95-10, the Arizona Attorney General issued an opinion that charter school governing bodies meet the definition in ARS § 38-431(6).

On the other hand, the Title 38 definition only includes corporations if their boards of directors are appointed or elected by the State or a political subdivision. In Opinion I00-009, the Arizona Attorney General issued an opinion that certain factual circumstances require corporate boards to comply with Open Meetings Law. As explained in part two of this series, two circumstances must be present: (1) a quorum of the charter school’s governing body is present at the board of directors’ meeting; and (2) discussions occur regarding matters “that foreseeably could come to a vote” by the governing body. (Ariz. Op. Atty. Gen. No. I00-009 at p. 2, citing Valencia v. Cota, 126 Ariz. 555, 556-57, 617 P.2d 63, 64-65).

Opening a charter school site is an operational decision, not a policy decision. If a governing body is only responsible for policy decisions, the decision to open a site would never come to a vote before the governing body. In such circumstances, ARS § 15-183(C)(5) should not be applicable.

It is noteworthy, however, that ARS § 15-183(C) sets out the general process for charter applications. AAR R7-5-204(E)(6) also requires evidence of the public meeting mandated by ARS § 15-183(C)(5) at least 10 days prior to the first day of operation of a charter school. Viewed in this context, ARS § 15-183(C)(5) appears to be necessary during the startup phase of a charter school. The statute seems to recognize that opening of an initial site could occur prior to formation of a governing body.

To fully implement SB 1302, ARS § 15-183(C)(5) should be amended to be consistent with amended ARS § 15-183(E)(8). ARS § 15-183(C)(5) could achieve the practical realities of the startup phase of a charter school without compromising the intent of SB 1302.

Election to Participate in State Risk Retention Pools, the State Retirement System, and State Health and Accident Insurance Coverage
ARS § 15-183(M) allows charter schools to participate in State risk retention pools. To participate, a governing body must “enter into an intergovernmental agreement or otherwise contract” with a pool. Participation in a State risk retention pool is arguably an operational decision. Yet, an intergovernmental agreement requires the public body of a charter school to be the contract party.

ARS § 15-183(M) should be reconciled with amended ARS § 15-183(E)(8). It is noteworthy that ARS § 15-183(M) does not require governing bodies to make the decision to participate in a State risk retention pool. The statute only requires governing bodies to implement the decision by executing an intergovernmental agreement or contract. Therefore, a charter operator could make the decision and then direct its governing body to implement the decision. But implementing an operational decision is not within the limits of policy decisions. ARS § 15-183(E)(8) should be amended to incorporate the requirements of ARS § 15-183(M).

ARS § 15-187(C) provides, “A charter school…is eligible to participate in the Arizona state retirement system pursuant to title 38, chapter 5, article 2. The charter school is a political subdivision of this state for purposes of title 38, chapter 5, article 2.” In contrast to ARS § 15-183(M), ARS § 15-187(C) does not require governing bodies to implement the decision to participate in the State retirement system. As a result, charter operators may make and implement the decision if their charter does not vest their governing boards with responsibility for operational decisions.

ARS § 15-187.01(A) states, “If a governing body of a charter school determines that state health and accident insurance coverage is necessary or desirable and in the best interest of the charter school, it may provide for inclusion of the charter school’s employees and spouses and dependents of the charter school’s employees in state health and accident insurance coverage pursuant to § 38-651.” ARS § 38-651(A) provides for “health and accident coverage for full-time officers and employees of the state and its departments and agencies.” ARS § 38-651(J) allows charter schools to participate in coverage if they “meet the requirements of ARS § 15-187.01.” It also states that “any public entity organized pursuant to the laws of the state rather than the state shall pay directly to the benefits provider the premiums for its employees.”

The decision to participate and participation in state health and accident insurance coverage relate more to operations than policy. Therefore, ARS § 15-187.01 should be reconciled with amended ARS § 15-183(E)(8) to properly implement SB 1302.

Conclusion
Hopefully, this series of articles will lead to productive discussions in the industry. Charter operators often find it difficult to comply with complex and sometimes ambiguous regulations. It is more difficult when statutes and regulations are inconsistent and create apparent conflicts. SB 1302 was a step in the right direction for achieving the goals of privatization. Unfortunately, it didn’t go far enough to distinguish private decision making from public decision making.

This column is legal commentary and is not intended to be legal advice. If you need legal advice, you should consult an attorney about your factual circumstances.

Keith Layton is an attorney licensed to practice law in Arizona and Nevada.