As you may know, if a Texas charter school maintains a website, Texas law requires certain information be posted on the website.  To assist you in compliance with the current laws, I have summarized the requirements for two categories of website postings: required and allowed postings.  Please thoroughly check your website for compliance with the required postings and consider adding the allowed postings to your school website if you have not already done so. 

Required Postings (Only if a website is maintained)

Administrative

1.     Post all Board meeting notices.

Notice of School Board Meeting (Government Code, § 551.056(a)-(b))

2.     Post the Board meeting agenda concurrent with the posting of the meeting notice. (Does not apply UNLESS the charter school's primary geographic area includes all or part of a municipality with a population of 48,000 or more.)

Agenda for School Board Meeting (Government Code, § 551.056(c))

3.     Post completed Conflict Disclosure Statements and Questionnaires.

Conflict Disclosure Statements and Questionnaires (Local Government Code, § 176.009(a), as amended by HB 1491 (80th Legislature))

4.     Post names of the members of the governing body on the home page of the school’s website.

Names of Members of Governing Body Listed on Website (Education Code § 12.1211, as amended by SB 2 (83rd Legislature))

5.     Post a prominently displayed link – no more than one click away from home page of the school’s website – to an online message board or similar Internet application owned or controlled by the school through which a communication or exchange of information between Board members about public business or school policy.

Written Electronic Communications Accessible (Government Code §551.006, as amended by SB 1297 (83rd Legislature))

Finance

6.     Post a copy of the budget adopted by the board of trustees [directors] upon final approval of the budget and prominently display an electronic link to the adopted budget.  The budget must remain on the website until the third anniversary of the date the budget was adopted. 

Posting of Adopted Budget (Education Code § 39.084)

7.     Post a copy of the school’s financial statement prepared under Local Government Code § 140.005.

Publication of Annual Financial Statement (Local Government Code § 140.006, as amended by SB 2 (83rd Legislature))

8.     Post the salary of the school’s superintendent or, as applicable, of the administrator serving as educational leader and chief executive officer.

Posting of Chief Executive Officer Salary (Education Code § 12.136, as amended by SB 2 (83rd Legislature))

Academic

9.     Post, at least 72 hours prior to a hearing, the Targeted Improvement Plan the board of trustees [directors] will consider as required by a Campus Intervention Team. 

Targeted Improvement Plan (Education Code § 39.106(e-1)(2); 19 Tex. Admin. Code § 97.1063)

10.  Post notice of an Accredited-Warned or Accredited-Probation status and provide a link to information about the accreditation status, the implications of such status, and the steps taken to address the areas of deficiency identified by the commissioner.  The notice shall use the format and language determined by the commissioner.  The required format and notification language is located at http://ritter.tea.state.tx.us/accredstatus/ (scroll to the “Authority and Background” section, locate “TEA required Notification Language,” and choose either “Charter School District Accredited-Warned” or “Charter School District Accredited-Probation”).  The notice must appear no later than 30 calendar days after the status is assigned and must remain until the school is assigned an Accredited status. 

Accreditation Status (19 Tex. Admin. Code § 97.1055(f)(3)(A))

Health

11.  Post a statement of physical activity policies for elementary, middle, and junior high schools with a statement of: (1) the number of times during the previous year the school health advisory council met; (2) whether the school adopted and enforces policies to ensure schools comply with vending machine and food service guidelines to restrict student access to vending machines; and (3) whether the school adopted and enforces policies and procedures which penalize the use of tobacco products by students and others on school grounds or at school-sponsored or school-related activities.  Additionally, post a statement which provides parents with notice that they may require in writing their child’s physical fitness assessment results at the conclusion of the school year. 

Physical Activity Policies (Education Code § 28.004(k) and § 38.0141)

12.  Post prominently, in English and Spanish, the required or recommended immunizations or vaccines for public school students, all known health clinics within school boundaries that offer the influenza vaccine, and a link to the Department of State Health Services website on which a person may obtain information concerning the procedures by which someone may claim an exemption from the immunization requirements. 

Immunization Awareness (Education Code § 38.1019(a))

General Topics

13.  Post the “Transition and Employment Guide” for special education programs and their parents developed by the Texas Education Agency.

Transition and Employment Guide (Education Code § 29.0112(a), as amended by HB 617 (83rd Legislature))

Allowed Postings

Administrative

1.     Schools may post the superintendent’s contract as opposed to submitting it to the school’s annual financial management report. 

Superintendent’s Contract (19 Tex. Admin. Code § 109.1005(b)(2)(A))

If you require further assistance on the above, please do not hesitate to ask.

Procuring Architects, Engineers and Land Surveyors by Texas School Districts and Charter Schools: Do I have to RFQ or Not?

We have recently received a number if inquiries, many of which appear to have been generated after a recent training event on charter school facilities (not by our Firm) about whether or not a "request for qualifications" or "RFQ" for professional services for architects, engineers and land surveyors is required or not. Sure, in a pinch maybe you can get away with something less than a full-blown RFQ.  But why then is it that almost everyone falls back on the good old stand by RFQ?

For your consideration, here is legal authority for why an RFQ should be conducted:

The Texas Attorney General has determined that “the most reasonable way to assure that such service providers [architects, engineers, surveyors] are selected on the basis of demonstrated competence and qualification to perform the services, as the statute mandates, is through a request for qualifications or similar competitive process” followed by the necessary negotiation process.[1]  In its Financial Accountability System Resource Guide (“FASRG”), the Texas Education Agency (“TEA”) states that the PSPA:

"requires a two-step procedure … for the procurement of architectural and engineering services. Competitive proposal procedures are recommended, where other procurement procedures are not required … to stimulate competitive prices for services.  In connection with … architectural or engineering, Chapter 2254, Government Code, requires a two-step negotiation process.  The two-step process only allows negotiation of price after an initial selection based upon demonstrated competence and qualifications of the person/firm."[2]

FASRG also provides that, “Chapter 2254 of the Government Code does specify a two-step proposal process for obtaining services from architects and engineers.”[3]  FASRG emphasizes the use of "proposal" which for professional services is essentially the RFQ process or something so close to it that it might as well be an RFQ.

As the PSPA itself does not prescribe the exact process that must be followed, specific advice may vary from attorney to attorney in regard to methods for compliance.  Nevertheless, it cannot be disputed that the two-step process must take place, and a school district must keep adequate records to document compliance with both steps.  As the Attorney General and TEA have opined in their opinions and regulations, the only safe way to assure full compliance with the PSPA is to utilize something like a structured Request for Qualifications process, and such is the recommendation, and we suggest, expectation of the Texas Attorney General and the TEA have recommended.



What is the potential exposure:  If your documentation is inadequate in demonstrating compliance, the contracts are subject to legal challenge by non-selected competitors and the contracts entered into may be "void" as a matter of public policy.

[1] Tex. Atty. Gen. Op. No. GA-0494 (2006) (emphasis added).

[2] TEA Financial Accountability System Resource Guide (FASRG), v. 12.0 (2004) (Competitive Proposals Defined) (emphasis added)

[3] FASRG § 3.2.3.2 (emphasis added).  The FASRG is not merely a guide as the title suggests, but is given the power and effect of law under 19 Texas Administrative Code § 109.41, which adopts FASRG as the TEA’s official rule and incorporates it by reference as a formal regulation.

Recent Legislative Updates Affecting

Required Website Postings for Charter Schools

Texas law requires charter schools who maintain a website to post certain information on their websites.  During the recently concluded 83rd Legislative Session, a handful of additions to these requirements were made.  The following notes summarize these new required postings. 

·      Names of Governing Bodies

As part of Senate Bill 2, Chapter 12 of the Education Code was amended by adding Section 12.1211, which requires charter schools to list the names of board members on the home page of the school’s website.  This requirement takes effect on September 1, 2013. 

·      Superintendent’s Salary

Senate Bill 2 also amended Chapter 12 of the Education Code by adding Section 12.136, which requires charter schools to post the salary of the school’s superintendent (or the administrator serving as educational leader and chief executive officer) on the school’s website.  This requirement also takes effect on September 1, 2013.

While this requirement may seem a bit jarring and invasive at first, please remember that superintendent salaries are already a matter of public record, as they are reported on your charter holder’s IRS Form 990. 

·      Written Communications of Board Members

Senate Bill 1297 amended Chapter 551 of the Government Code (the Open Meetings Act) by adding section 551.06, provides an additional opportunity for board members to communicate with each other without fear of violating the Open Meetings Act.  Specifically, section 551.06 allows a charter school to create an online message board or similar Internet application through which board members may communicate about public business or school policy so long as:

1.     The message board or other application is supervised or controlled by the school;

2.     The communication is in writing;

3.     The message board or other application is viewable and searchable by the public; and

4.     The communication is displayed in real time and for no less than 30 days after the communication was first posted. 

Schools are limited to only one message board or similar application for posting online messages, and the online forums may only be used by board members or staff members who have been given authorization from the board to post.  Most importantly, the board cannot vote or take action required to be taken during a meeting through the message board service, and no message board postings are to be considered an action of the board.  This requirement also takes effect on September 1, 2013.

·      “Transition and Employment Guide” for Special Education Programs

Finally, House Bill 617 amended Chapter 29 of the Education Code by adding section 29.0112, which requires the TEA to develop a “transition and employment guide” for students enrolled in special education programs and their parents to provide information on statewide services and programs that assist in the transition to life outside the public school system.  Once TEA publishes this guide, charter schools are required to post it on their websites.  However, since this will be a huge undertaking, the Legislature gave TEA until September 1, 2014 to complete the guide.  Charter schools are then required to post the guide as soon as it is made available.

We recommend that you begin updating your school websites as soon as possible so that you don’t miss any deadlines set by these new requirements. 

Sequestration Goes Into Effect

News from the Office of Grants and Federal Fiscal Compliance

Sequestration Goes into Effect

On Friday, March 1, 2013, President Obama signed an order putting into effect the automatic across-the-board cuts to the federal budget known as the sequester.

The following text is taken from testimony provided to the House Subcommittee on Budget Transparency and Reform on February 25, 2013. That testimony is also available online, from a link in the Chief Grants Administrator section of the Grants page of the TEA website.
Mostly No Retroactive Cuts

Most federal education programs are forward- or advance-funded, meaning the state receives the majority of the federal fiscal year funding on July 1, at the end of the federal fiscal year for use primarily in the following fiscal year. USDE has reported that forward-funded programs will not be retroactively cut back to the October 1 beginning of the federal fiscal year, but will take the full reduction from the July 1 allocation. What this means for LEAs is that their school year (SY) 2012-2013 entitlements will not be reduced mid-year, but rather the full reduction will be taken from their SY 2013-2014 entitlement amounts.

However, some local educational agencies (LEAs) receiving direct grants from USDE, such as Impact Aid programs, will start seeing federal reductions as quickly as USDE is able to calculate the reductions to grantees.


Projected Amount of Reductions

Many education groups following the sequestration process are calculating the estimated potential impact of the reductions. USDE has used an estimated impact of 5% while other groups have calculated reductions of 5.1% to 5.3%, which due to the two month postponement of the sequester is less than prior estimates of 8.2% reductions.

Since Congress has not yet completed work on appropriations for fiscal year 2013, TEA can only model data based on federal fiscal year 2012 data. Actual reductions will differ slightly once federal fiscal year 2013 appropriations are finalized. The Office of Management and Budget (OMB), which has responsibility at the federal level for determining the actual percentage of the reductions, will release the amount and percentage of reductions required by the Budget Control Act. This process is expected to take at least 30 days.


Potential Impact

For discussion purposes, the state’s largest federal programs demonstrate the potential impact on LEAs.

• ESEA, Title I allocation could be reduced by $67-71 million depending on a 5.0% or 5.1% reduction.  
• Based on a 5.1% reduction, the Individuals with Disabilities Education Act (IDEA, Part B) allocation is expected to be reduced by approximately $50 million.  
• The ESEA, Title III, Part A—English Language Acquisition allocation is expected to be reduced by approximately $5.2.
• The Perkins Career and Technical Education allocation is expected to be reduced by approximately $4.5 million.

Planning for Next Year

One of the largest concerns for LEAs (school districts and open-enrollment charter schools) is the need for more information to be able to plan for next year’s staffing, services, and program budgets. Also of concern to states and LEAs are the impact on the sequestration reductions on federal maintenance of effort (MOE) and supplement, not supplant requirements at both the state and/or local levels.

Currently, TEA has only modeled a 10% reduction (based on earlier projected reductions). However, for some programs with hold-harmless provisions, such as Title I, Part A, in the statutory formula this 10% model suggests the "worst case" scenario. In Title I, Part A statute, the hold-harmless provision applies to state appropriations as well as LEA entitlement calculations. The LEAs that by the data are at or below the hold-harmless amounts must be guaranteed the hold-harmless amount while the LEAs above their hold-harmless amount actually have the sequester reductions taken from their allocations. All LEA hold-harmless calculations are aggregated up to the state level; meaning Texas’ overall state allocation could be reduced more than the estimated 5-5.3% by the statutory formula.

The Texas Education Agency (TEA) has not yet received guidance from the US Department of Education (USDE) regarding the amount of cuts to federal education spending. Once the state receives more detailed information, TEA Grants Administration staff will model the reductions and make planning amounts available to LEAs. It is estimated that the entitlement/planning amount calculations will take three weeks to complete once data are received.

Excess Benefit Transactions and Intermediate Sanctions: Determining Reasonable Compensation

Texas charter schools are no strangers to regulation.  In addition to the myriad of rules and requirements that must be followed to maintain their charter agreement with the State of Texas, the charter holder of a Texas open enrollment charter school is a 501(c)(3) public charity and must maintain 501(c)(3) exempt status as a condition to keeping the open enrollment charter.  Thus, it is necessary for charter leaders to be as informed about IRS regulations as much as any other area of charter regulation.

One area of particular concern and continued focus by the IRS are the  intermediate sanctions rules under Section 4958 of the Internal Revenue Code regarding excess benefit transactions. What might at first sound like total bafflegab, the intermediate sanction rules on excess benefit transactions actually set forth the basic rules and roadmap on how the board of directors of a charter school, or any public charity, should handle a transaction with an interested party, and provides a simple roadmap of compliance not only for IRS purposes, but also conflict of interest rules generally.

Simply put, an interested party may not be overpaid or enriched at the expense of the organization. A prohibited excess benefit transaction occurs when a public charity (or a 501(c)(4) organization) provides an economic benefit to a “disqualified person” and that benefit exceeds the fair value of the consideration received by the charity.  If an organization engages in an excess benefit transaction with a disqualified person, the regulations impose a penalty tax on the disqualified person – not the public charity – and any manager (board members included) who knowingly participated in the improper excess benefit.  A disqualified person must correct the excess benefit transaction by making a payment in cash or cash equivalents equal to the correction amount to the charity (plus interest) and paying a tax equal to 25% of the excess benefit amount. A manager who “knowingly” participated in the transaction would be liable for a penalty equal to 10% of the amount of the excess benefit amount. A board member participating in the affirmative vote of the transaction by the board satisfies the “knowingly  participated” standard.

The penalty tax on the disqualified person gives rise to the name of the rules as “intermediate sanctions” as it is an “intermediate” sanction imposed by the IRS whereas previously, the only sanction available or a violation of private inurement was revocation of the organization’s tax-exempt status. However, it should be noted that while the excess benefit regulations  are the current  enforcement mechanism by the IRS for these types of transactions, the IRS retains the right to revoke an exempt organization’s status for violations of private inurement.

A “disqualified person” is defined broadly and includes any person who is in a position (including a five year look back period from the date of the transaction) to exert substantial influence over the affairs of the organization. The definition also includes family members of those that exert substantial influence over the organization, and an entity owned (at least 35% or more) by such person. For charter holders, this includes board members, officers, superintendents and other highly compensated managers, major contributors, and founders.

Nearly any transaction with a disqualified person qualifies as a transaction subject to the excess benefit transaction regulations. The most common form, and those often the subject of IRS scrutiny, include compensation and benefits to executives,  real property transfers, and the payment of personal expenses of executive employees. The standard of determining whether or not an excess benefit has occurred is one of reasonableness and fair market value. The regulations do not set forth any specific criteria for determining the reasonableness of compensation or the fair market value of property, and thus, an organization must rely on pre-existing tax law standards, particularly concerning fair market value determinations.

Instead, the regulations offer compliance procedures known as the “safe harbor rebuttable presumption procedures”.  If an organization follows these procedures,  the compensation to a disqualified person is presumed to be fair and reasonable and the burden shifts to the IRS to prove otherwise:

(i)            The Board approves the transaction in advance without the participation of the disqualified person;

(ii)          The Board obtains and relies upon appropriate comparability data; and

(iii)         The decision is appropriately and contemporaneously documented.

Appropriate comparability data in the case of compensation means obtaining data on similarly situated organizations for functionally comparable positions, including current compensation surveys compiled by independent firms and actual written offers from similar institutions competing for the services of the disqualified person.  For example, in determining the compensation of a school superintendent, the charter school would want to look at comparable salaries of other superintendents in Texas and the same city and county.  Ideally, data would be drawn from charter schools of a similar size and budget, but can also include data from private and public schools. While the regulations do not specify the amount of comparability data an organization should rely upon, it is clear that an organization with gross receipts over $1 million should, at a minimum, obtain more than 3 sources of comparability data.  

In the case of property, appropriate comparability data includes current (at the time of transfer) independent appraisals, market reports, and offers received as part of an open and competitive bidding process.

Putting the rebuttable presumption procedures into practice is not difficult and will safeguard not only against excess benefit transactions, but conflicts of interest generally. Organizations seeking to comply with the safe harbor rebuttable presumption procedures often make the mistake of not gathering appropriate comparability data sufficiently in advance of the board decision regarding the transaction, and do not “adequately and contemporaneously” document, in the minutes of the board, the procedures taken by the board (including documenting the comparability data relied upon) to ensure that the organization receives the benefit of the presumption of reasonableness. The minutes of a board decision will be the only evidence demonstrating whether or not a board has complied with the safe harbor procedures, and thus, charter school leaders should ensure that board minutes are properly and adequately recorded. It is also advisable that the safe harbor procedures be incorporated into a written conflict of interest policy that is easy to follow so that identifying and addressing conflicts through proper procedures becomes routine practice for the board of directors.

Lindsey B. Jones

Of Counsel

Schulman, Lopez & Hoffer, LLP

Recent EEOC Guidance on Using Criminal History in Employment Decisions

The EEOC recently issued updated guidance on the use of criminal history record information in employment decisions. While the EEOC had previously warned against the use of arrest records in employment decisions, since arrests alone do not establish that criminal conduct occurred, this new guidance stakes out a more extreme position.  Now, the EEOC suggests that even the use of criminal convictions as an absolute bar to employment can have a disparate impact based on race and national origin, thus exposing employers to potential Title VII claims.

For a potential plaintiff to make a claim for discrimination based on the employer’s use of a criminal conviction record, the plaintiff first has to establish that the policy creates a disparate impact.  The burden then shifts to the employer to demonstrate “that the challenged practice is job related for the position in question and consistent with business necessity.”  See Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971).  To meet this rebuttal burden, the employer must show that the policy or practice is one that “bears a demonstrable relationship to successful performance of the jobs for which it was used” and “measures the person for the job and not the person in the abstract.”  See id. 

The new EEOC guidance includes in its recommended “Employer Best Practices” that employers eliminate policies that exclude people from employment based on any criminal record.  In its place, the EEOC suggests that an employer develop a “narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct.”  The EEOC suggests that this policy should identify the essential job requirements and determine the specific offenses that might demonstrate unfitness for performing such jobs.  We believe that conforming to these recommended “best practices” would be somewhat prohibitive for an employer like a charter school, which is going to have so many different types of positions to fill.  While these are the recommended best practices, based on the legal authority on which the EEOC builds its disparate impact argument against using criminal conviction background in employment decisions, there may be other less-burdensome policy options.  Any such policy will have to be closely aligned with requirements of this new guidance, which is essentially using criminal conviction history as an employment “screen” and providing an opportunity for individual review of the policy’s application based on the position sought.

There are two potential circumstances in which the EEOC believes employers will consistently meet the “job related and consistent with business necessity” defense to a disparate impact claim.  They are as follows:

·      The employer validates the criminal conduct exclusion for the position in question in light of the Uniform Guidelines on Employee Selection Procedures (if there is data or analysis about criminal conduct as related to subsequent work performance or behaviors); or

·      The employer develops a targeted screen considering three factors: (i) the nature of the crime; (ii) the time elapsed; and (iii) the nature of the job.  See Green v. Missouri Pacific Railroad, 549 F.2d 1158 (8th Cir. 1977). The employer’s policy then provides an opportunity for an individualized assessment of the screened applicant’s to determine if the policy as applied (barring employment) is job related and consistent with business necessity.

Although Title VII does not require individualized assessment in all circumstances, the EEOC believes that the use of a screen that does not include an individualized assessment is more likely to violate Title VII.  Thus, the EEOC’s guidance confirms that if en employer develops a screening policy that meets these established criteria, then it will satisfy this defense.  However, if an employer’s targeted criminal records screen is sufficiently narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question, the individualized assessment process may not even be required.

To establish that a criminal conduct exclusion that has a disparate impact is job related and consistent with business necessity under Title VII, the employer needs to show that the policy operates to effectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.  Policy should therefore include a factor that is job related, but it is possible that this might also be accomplished broadly, such as “any job that involves contact with students or gives access to students.”  This could be applied to cover almost all positions at a public school.  An additional suggestion might be to establish a criminal record review committee process within the school’s employment screening process where the purpose of the committee is to give an opportunity for an individual assessment to “determine if the policy as applied is job related and consistent with business necessity.” 

Please consult your legal counsel for specific guidance relating to the above EEOC Guidance.

Joe Hoffer

Independent Auditor Findings and TEA Action

All public schools are required to have an annual audit conducted by a certified public accountant and to file an annual audit report with the Texas Education Agency (TEA). Although most audits do not result in the disclosure of audit findings, some schools face the prospect of having to address findings of noncompliance and weaknesses in internal control. In some instances, these issues are labeled as material or significant and include questioned costs. While most school boards will not question the independent auditor and approve the annual audit report, a more prudent course of action is for the board and school administrators to question the substance and veracity of the independent auditor's finding(s) to ensure that the resulting TEA action is well founded. However, in the event that the board approves the annual audit report, this does not mean that the school does not have any other course of action but to accept the TEA's action. In truth, the board should disapprove the annual audit report if it disagress with the independent auditor's finding and include a written statement with the certificate of board citing its disagreement with the finding as the reason for its disapproval of the annual audit report.

Pursuant to §___.405, Management decision, of Office of Management and Budget Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations, the TEA is required to render a management decision concerning findings pertaining to federal awards. In its management decision, the TEA is required to:

• Clearly state whether or not the audit finding is sustained,

• The reasons for the decision,

• The expected action to repay disallowed costs, make financial adjustments, or take other action, and

• A description of any appeal process available to the school.

Additionally, if the school has not completed corrective action, the TEA should provide a timetable for follow-up.

Prior to issuing its management decision, the TEA may request additional information or documentation from the school, including a request for auditor assurance related to the documentation, as a way of mitigating disallowed costs. This latter authority is important for public schools to know in the event that they disagree with an independent auditor's finding and wish to have their disagreement heard and considered by the TEA prior to its rendering a management decision.

In the event that the TEA does not request additional information, the school should be aware that the TEA may require a refund of the amount questioned by the independent auditor pursuant to Section 74.62(a)(2) or 80.43(a)(2) of Title 34 of the Code of Federal Regulations (34 CFR 74.62(a)(2)/80.43(a)(2)). However, pursuant to 34 CFR 74.62(b) or 80.43(b) and 76.783(a)(1), the school may have an opportunity for a hearing or an appeal of an enforcement action ordering the repayment of misspent or misapplied Federal funds in accordance with a final TEA audit resolution determination.

As always, every school should make a good faith effort to address auditor requests for information in a timely manner. This includes maintaining an honest and open dialogue with the independent auditor so that concerns and potential issues can be appropriately addressed and misunderstandings may be avoided. However, in the event that the school and its independent auditor simply cannot agree on the basis or substance of a finding, the school should be aware that it has a legal avenue that it may pursue to address its concerns.

Schulman, Lopez & Hoffer, LLP
By Ramon Medina