California charter school oversight bill faces challenges, future uncertain

Interest groups that tussled over legislative efforts to crack down on fraud in charter schools hope to try again when the next legislative session begins in January. 

Key to negotiations is whether Gov. Gavin Newsom is willing to take the lead in bringing opposing sides back to the table.

At issue is the oversight of the state’s 1,280 charter schools in the wake of scandals involving theft or mismanagement. Supporters of reforms say guardrails are urgently needed after cases in which a few unscrupulous charter operators stole hundreds of millions of dollars from state public education funds. In other cases, such as the Highlands Community Charter and Technical Schools, a lack of oversight meant $180 million was misspent. 

“Everything is on the table for negotiations,” said Assemblymember Al Muratsuchi, D-Torrance, the sponsor of Assembly Bill 84, a charter school reform bill that Muratsuchi withdrew days before the end of the last legislative session. “The most important thing that we need to happen is for the governor to bring all stakeholders together to negotiate in good faith to close the deal.” 

A consequence of not passing a reform bill so far means that a moratorium on new nonclassroom-based charter schools that began in 2019 will expire on Jan. 1. That means districts could once again begin approving online and independent-study charters before new accountability regulations are in place. Nonclassroom-based charter schools — virtual, homeschool, hybrids and independent studies — are responsible for the largest incidents of fraud and financial mismanagement.

“Everything is on the table for negotiations.”

Assemblymember Al Muratsuchi

Muratsuchi says his bill would have created stronger mechanisms for tracking spending and investigating suspected fraud. But the bill became a flash point in the long-running battle between teachers unions and charter advocates over how far the state should go in regulating charter schools, which, although public, have greater flexibility in curriculum, operations and management.

Those disagreements haven’t gone away. All sides say they are willing to keep talking. Whether they can reach a deal on the same issues that deadlocked Sacramento this fall remains an open question. 

Newsom played a late but decisive role this year when he vetoed a competing bill, Senate Bill 414, sponsored by Sen. Angelique Ashby, D-Sacramento.

“Charter school accountability remains a top priority for the Senator, and we are reevaluating next steps for the upcoming 2026 legislative session,” said Sen. Ashby’s office in a statement. But, as of now, her office said that she had not decided whether to reintroduce a new version of the bill.

SB 414 — backed by charter schools and opposed by teachers unions and a coalition of local education agencies and statewide education organizations — passed in the final hours of the session. In his veto message, Newsom said it was too costly and “fell short” of key recommendations from statewide investigations into vulnerabilities that enabled charter school operators to steal hundreds of millions of dollars in public funds over the past decade.

Newsom has not publicly responded to Muratsuchi’s request to lead new negotiations. But a person familiar with the discussions said the governor’s office has privately asked stakeholder groups to submit their ideas for next steps. 

What sank AB 84?

Several issues in particular blew up AB 84 at the end of the session: Should small districts – those with fewer than 10,000 students – be prohibited from authorizing nonclassroom-based charter schools with more than twice the enrollment of their entire school district? Should charter schools be required to enact new, costly accounting systems without being reimbursed, even though districts are reimbursed for those expenses? And, who should have the authority — and resources — to investigate financial misconduct?

Much of the fraud uncovered in recent years has involved nonclassroom-based charters that students can attend from anywhere in the region.

The A3 Education charter school network became the poster child case for efforts to strengthen oversight when the operators were indicted in 2019 for fabricating enrollment in its charter schools, which were authorized by some of the smallest districts in the state.

A study commissioned by the state Legislature in the aftermath of A3 warned that small districts lack the capacity to oversee nonclassroom-based charters with thousands of students and may overlook signs of fraud. AB 84 included many of the recommendations from that report, including the proposal to cap total enrollment of nonclassroom-based charters authorized by small districts.

Supporters said the cap targeted a clear vulnerability that had allowed massive schemes to go unchecked. But charter advocates argued that size is not the problem and pointed to small districts that provide high-quality authorizing. 

Who should have the authority to investigate financial misconduct?

Many proponents of charter school reform, whether they agree on all provisions in the recent bills, say that limiting charter school size, pushing for greater fiscal transparency, and requiring additional training for school auditors and authorizers may not be enough to identify alleged fraud. These controls still rely on the authorizer to figure out that something is off. What some of them say is needed is a statewide, independent investigative body. 

The tip about the A3 case came from a government corruption official who learned of it by chance and passed his suspicions to the San Diego County District Attorney’s Office. “It just didn’t pass the smell test for him,” said Kevin Fannan, a former deputy assistant district attorney who worked on the case. Stronger oversight measures did not play a role, nor did a letter from the California Charter Schools Association (CCSA) to California’s Department of Education urging the state to investigate concerns.

That February 2018 letter — sent a full year before criminal charges were filed — contained troubling information about some small district authorizers in A3’s network failing “to appropriately hold some operators accountable,” and warned that if found to be true, “we believe that the arrangement may potentially violate the Charter Schools Act.” The letter went unanswered by the state Department of Education.

In response, both AB 84 and SB 414 contained provisions to establish a statewide Office of the Education Inspector General (OIG) for both traditional public and charter schools. This independent agency would be modeled after federal offices of inspectors general, receiving concerns from anyone in the public — who receive whistleblower protection — to determine whether they have merit, and conducting full investigations of those that warrant it, with subpoena power. 

If an OIG existed when CCSA contacted the California Department of Education, the charter association probably would have also sent the letter to the OIG, said Gregory McGinity, the group’s chief government and political affairs officer. There is “absolute value” in oversight when it’s properly targeted, but policymakers need to ensure “the cost is worth the benefit” and that the office wouldn’t be bogged down by routine complaints, added McGinity. The state Department of Education estimates the OIG would cost $13.5 million a year.

Prosecutors involved in the A3 case echoed the need for some independent office or agency, noting that even the largest county district attorney’s office lacks the bandwidth to stay on top of these complaints. As one prosecutor, speaking on background, explained, “there should be someone that’s following these [concerns]” before they become criminal.

It is unclear where the governor comes down on the issue of an OIG. His veto message only suggested cost concerns, and when asked if the OIG fell into that category, Newsom’s office responded that the “veto message speaks for itself.”

Need for more support and clarity for authorizers

Authorizing school districts and county offices of education are responsible for monitoring charter spending. But, even larger districts and county offices of education may lack the staff or expertise to track complex financial operations.

Sara Pietrowski, chief governmental relations officer for the California Association of School Business Officials (CASBO) and a representative in the negotiations on AB 84 and SB 414, said in future legislation negotiations, the focus should be on ensuring “clear direction on the state’s expectations for strong oversight and the right tools to be able to carry out that work.”

Like CASBO, the California School Boards Association supported the governor’s veto of SB 414. Neither bill was perfect, said CSBA spokesperson Troy Flint, but AB 84 did a better job of expanding requirements to audit charter schools, required more data collections and strengthened training for charter school authorizers. In the next round of negotiations, he said, CSBA is seeking “parity in oversight and auditing requirements.”

What stakeholders want in the next round

Despite the stalled talks, some negotiators say they believe there is room for progress.

“There’s a path forward to finding common ground on the unresolved issues,” Pietrowski said. “There were many places where there was agreement.”

Eric Premack, executive director of the Charter Schools Development Center, which backed SB 414, is less optimistic about resolving the issues that led to the breakdown in negotiations.

“We would like to see anti-fraud legislation focus on preventing fraud, not defunding charter schools or burying them in red tape,” said Premack. To do that, he added, requires “addressing California’s dysfunctional charter-authorizing laws” by establishing specific regulations and expectations for authorizers, something he does not think the governor is willing to do.

Neither the California Teachers Association, which represents teachers, nor the California School Employees Association, which represents classified school employees, responded to requests for comment. They, too, strongly supported Newsom’s veto of SB 414.  

Nearly everyone involved in the negotiations in the fall said that they were up against a tight deadline. Muratsuchi said he is eager to move forward with a bill as soon as the Legislature reconvenes next month to ensure that there is time to close the deal.