SAN DIEGO CITY SCHOOLS Office of the Superintendent. PROPOSED CHARTER SCHOOL TEMPLATE MEMORANDUM OF UNDERSTANDING (MOU) First Reading: March 11, 2003

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1 SAN DIEGO CITY SCHOOLS Office of the Superintendent PROPOSED CHARTER SCHOOL TEMPLATE MEMORANDUM OF UNDERSTANDING (MOU) First Reading: March 11, 2003 Introductory Statement San Diego Unified School district (SDUSD) adopted the Charter School Policy and Guidelines on November 27, 2001, which committed the district to provide to charter schools the same services it provides to district-managed schools at fair and reasonable prices. The policy and guidelines also committed the district to developing a template MOU that would establish contractually binding rules and expectations for the district s provision of services to charter schools. Finally, the policy and guidelines called for the district to describe in detail the services it provides to charter schools so that the district and its charter schools may share a common understanding of the level of service that is to be expected. Working in consultation with representatives of the Charter School Consortium, charter school operators and business managers and other community leaders, SDUSD has developed the proposed Charter School MOU (Attachment A). Ten drafts of the document have been generated in the fifteen months that the district has been working on the MOU, and the issuing of each new draft was preceded by at least three consultative meetings between district staff and members of the charter community. An informal survey of large school districts in the State of California performed by the California Network of Education Charters (CANEC) reveals that San Diego s proposed template MOU is among the most comprehensive and thorough in the state. As with the district s Charter School Policy and Guidelines, it is likely that this MOU will serve as a model for chartering authorities throughout California. The need for such a comprehensive and thorough MOU is pronounced. In the absence of clearly articulated expectations being in place regarding the district s provision of services, district staff and charter school operators have worked diligently to ensure that the district provides services in a way that is fair and reasonable for both the district and charter schools. However, frequent miscommunications and inefficiencies have hampered the efforts of both district staff and charter operators to maintain optimal focus on our shared central mission, which is to support improved teaching and learning in the classroom. As we enter an era of severely restricted budgets, the district is simultaneously challenged to efficiently manage relationships with an ever-growing number of charter schools. This makes it essential that a comprehensive and thorough Charter School MOU be adopted so that services can be delivered to charter schools in the most efficient and fair way possible.

2 Page 2 of 9 The district believes that the proposed MOU will improve its ability to deliver services to charter schools in a manner consistent with the Charter School Policy and Guidelines. The district looks forward to ongoing consultation with members of the charter school community to further refine the MOU as necessary in the years to come. Background San Diego Unified School district (SDUSD) adopted the Charter School Policy and Guidelines on November 27, 2001, which committed the district to develop a template MOU establishing clearly articulated, contractually binding rules and expectations regarding the district s provision of services to charter schools. The recommendation contained in this report for board consideration establishes a template MOU, which achieves the objective articulated in the Charter School Policy and Guidelines. If this MOU is adopted, the district and all district-authorized charter schools would use it to annually and contractually bind parties to provisions pertaining to the district s delivery of services to charter schools. The MOU contains the following Articles: Article 1 Recitals Article 2 Term; Renewal; Modifications Article 3 Reaffirmation of Status of Charter School Article 4 Elected Services Available to all Charter Schools Article 5 Arm-of-the-district Charter Schools Article 6 Schools Operating as or by Non Profit Public Benefit Corporations Article 7 Other Agreements Article 8 Special Education Article 9 Dispute Resolution Article 10 Notifications Article 1 through 3 of the MOU define the purpose of the MOU, establish terms, renewal and modifications provisions, and reconfirm the status of the charter school entering into agreement with the district. Among the important elements contained in these articles are provisions stipulating that the term of the MOU will be for the duration of the school s charter with pricing changes, service definition alterations and other modifications happening on an annual basis. The district is to provide an updated Service Menu and Service Price List to charter schools by March 1 annually and charter schools are to respond by May 1. Pending board approval, these dates would be moved forward one month to April 1 and May 1 respectively for this year only. The district also commits to not generating profits from the services it offers to charter schools and to providing annual assurance that prices for services are consistent with district costs. Articles 4 through 6 contain language describing the services that the district provides to all schools, to arm-of-the-district charter schools only and to schools operating as or by nonprofit public benefit corporations (501c3 s) only.

3 Page 3 of 9 Section 5.2 states that arm-of-the-district charter schools shall maintain their funds in the schools County Treasury Accounts, which are established in the schools names by the San Diego County Treasurer. Those charter schools purchasing the district s district Wide Application Services (DWAS) package will be allowed to use the district s Federal Tax Identification number to establish a revolving cash fund in a financial institution acceptable to the district and consistent with the district s oversight obligations in light of usual and customary practice for districts in the state, and to maintain up to $10,000 or $10/pupil (whichever greater) in that account. District staff recommend this language because it is believed that arm-of-the-district charter schools, having no separate legal status from the district, are not entitled to establish their own bank accounts and to maintain public funds in those accounts. Revolving cash fund limits have been established to be consistent with the district s intention to offer schools a simple way to pay for small incidental expenses. In recent years, some charter schools had begun to use their revolving cash accounts to pay large bills, including payroll. To allow for a continuation of this practice would, in the opinion of district staff, violate sound fiscal practice and would compromise the district s oversight responsibilities. Some arm-of-the-district charter school operators have maintained that language contained in Section 5.2 unnecessarily hampers the ability of arm-of-the-district charter schools to conduct their business operations, leaving the schools no choice but to purchase the district s financial services. During the process of developing this MOU, district staff investigated this contention and discovered that the San Diego County Office of Education (SDCOE) is expanding its ability to perform financial services for charter schools. Furthermore, SDCOE s services do not involve the creation of accounts prohibited in the MOU. As such, it is clear that arm-of-the-district charter schools may conduct their business without having to purchase services from the district, a position consistent with Education Code (d) that states This section shall not prevent a charter school from separately purchasing administrative or other services from the chartering agency or any other source. Section 5.3.i states that the district will offer to arm-of the-district charter schools human resources (HR), financial and information technology (IT) services as a bundled package. District staff has recommended the bundling of these services because, after 18 months of attempting to offer an ala carte menu of financial, HR and IT services to charter schools, the district has determined that it simply lacks the capacity to do so. Services provided by the district s human resources and financial divisions are very integrated across departments and this will only increase as the district s new DWAS comes online in the near future. From the very beginning, the district s intention has only been to offer unbundled services if it had the capacity to do so. Indeed, the Charter School Policy and Guidelines states: The district will entertain requests that service be customized or unbundled in order to meet the specific needs of individual charter schools, but the district reserves the right to refuse service if the district determines it lacks the capability or capacity to deliver requested services.

4 Page 4 of 9 The DWAS is not being offered to 501c3 charter schools because neither the district s current systems nor the DWAS as currently envisioned has or will have the capacity to process payroll or tax reporting information for entities with different tax identification numbers than the district s. For that reason 501c3 s will be required to seek HR, financial and IT services from outside providers. The district will, however, consistent with charter law, continue to provide STRS and PERS reporting for any charter school, including any 501c3 charter school, that requests the service. Section 5.3.ii states that arm-of-the-district charter schools have the option of contributing an equitable share to the district s general liability program or of securing a minimum level of coverage from outside providers. Some arm-of-the-district charter school operators have questioned why risk management services are being charged for separately in the template MOU when past practice has been that charter schools receive risk management services as part of the district s oversight responsibilities. District staff, consistent with the findings in Mandated-Costs Charter Claim II, contends that oversight activities are those functions that the district performs to ensure that charter schools are adhering to their charters and to all applicable law. Providing liability services to charter schools is, thus, clearly distinct from performing oversight, and the district is entitled to charge schools for the additional services it performs. As noted above, the district s mandated reimbursement unit has recently received clear direction from the state that risk management costs for charter schools may not be included as a mandated cost within oversight. If the district is prohibited from filing for risk management services within mandated oversight costs, it only follows that charter schools cannot insist that their risk management services should be paid for out of oversight fees. In order to ensure equitable treatment of charter schools and district-managed schools, the district must charge all charter schools for the services they are receiving. District prices for risk management services will be significantly lower than the price schools could find independently. Even so, risk management services are elected services, and arm-of-the-district charter schools may seek service elsewhere as long as minimum requirements are met. Section 5.4 establishes clear expectations and timelines for the district to provide monthly invoices to charter schools for the services the district performs. Payment procedures are clearly defined, as are procedures for schools to withhold payment when they believe that they have not received services that they have contracted for. Section 5.6 establishes expectations and timelines for arm-of-the-district charter schools having contracts approved by the Board of Education. Among the important aspects of the MOU pertaining to 501c3 charter schools is Section 6.4 which addresses the district s processing of electronic funds transfers from schools County Treasury Accounts to separate accounts held by schools. The issue as to whether a charter school operating by or as a non profit public benefit corporation is authorized by

5 Page 5 of 9 law to withdraw funds deposited by the San Diego County Superintendent of Education in the San Diego County Treasury in an account of that charter school, and redeposit those funds in a financial institution selected by the charter school and beyond the management and control of the County Treasurer, is under review. The Office of General Counsel continues to work with appropriate representatives at the San Diego County Office of Education and the County Treasury to define and determine what fiduciary responsibilities are required from these public entities pertaining to the transfer of public funds to charter schools. It is contemplated that a request for direction from the Attorney General of the State of California will be made as well. Section 6.5 establishes minimum risk management expectations for 501c3 charter schools. Some representatives of 501c3 charter schools have questioned the district s legal rationale for imposing minimum liability requirements on charter schools. It is district staff s belief that the ambiguity of charter law leaves chartering districts potentially liable for the errors and omissions of schools that they have chartered. As well, staff believe that an imposition of minimum liability requirements are consistent with the District s oversight responsibilities. Because of that, the district is fully justified in establishing minimum risk management requirements for charter schools. The requirements contained in the MOU are consistent with the requirements that the district imposes on itself for district-managed schools. 501c3 charter schools may purchase the minimum levels of coverage though a range of outside provider but may not purchase risk management services through the district. Article 7 includes many important provisions. Section 7.6 states that the district will not require deposits from schools that make consistent timely payments for services. Schools that fail to make timely payments will be required by the district to provide a deposit equal to twice the amount for which the school failed to make timely payment. Schools making 12 months of timely payments thereafter shall have their deposits refunded. Section 7.7 states that the district will provide the Student Information System to charter schools as a part of oversight. This recommendation is made because it is believed that the district s current pupil accounting and SIS system and the future SIS capabilities within the future DWAS are essential to the performance of the district s oversight responsibilities. This language institutes a change from the district s current practice of providing pupil accounting as an elected service. Article 7.12 states that the district will provide documentation of the costs that it incurs in the performance of its oversight responsibilities and will refund to schools any unused portion of oversight fees that the district has collected from charter schools. Much effort has gone into the development of a comprehensive list of the costs that the district may include within its accounting for oversight activities. District staff are using the parameters for oversight which were communicated to the district by the Controller of the State of California in a letter dated January 3, 2003 in response to the district s mandated cost reimbursement application.

6 Page 6 of 9 Article 8 establishes clear rules and expectations for the provision of special education services to charter schools by the district. Consistent with the Charter School Policy and Guidelines, the MOU addresses the three special education options available to schools authorized by SDUSD. For schools exercising option 1, the MOU establishes clear expectations for service delivery, training and online monitoring of IEPs. The MOU also describes procedures and timelines to be followed when either the school or the district is responsible for a deficiency in special education service. For both Option 1 and 2 schools, the MOU states that the district will defend schools in any legal proceeding arising from the schools adherence to the district s position that students attending district charter schools who have IEPs and reside outside the district shall have services called for in the IEPs delivered at the charter schools provided that the IEPS can be implemented within the schools educational programs. Finally, for schools wishing to convert to Option 3, the MOU establishes clear timelines and expectation for the submission to the district of materials pertaining to the school being admitted to another SELPA as a LEA. Articles 9 and 10 contain provisions explaining how disputes pertaining to service provision are to be resolved and how communications are to occur between the district and charter schools. Instructional Implications The recommendations included in this report are not anticipated to have an effect on the instructional programs of district-authorized charter schools. Facilities Implications The recommendations included in the report do not change district procedures for making facilities available to charter schools in a manner consistent with all applicable laws. Budget Implications The recommendations contained in this report represent a likely increase in revenue of approximately $212,000 in to the district. This figure aggregates different revenue enhancements, revenue reductions and new costs, which would result from adoption of the recommended MOU.

7 Page 7 of 9 Cost/Benefit Analysis of Recommended MOU Estimated Per Pupil Cost of Risk Management Services in Total Forecasted Risk Management Revenue Estimated Per Pupil Cost of Pupil Accounting Services in Total Forecasted Pupil Accounting Revenue Cost of installing Student Information System Terminals Total Estimated Benefit to District of Recommended MOU $26.86 $229, ($1.51) ($14,011.29) ($3,500.00) $212, Adoption of the proposed MOU will increase the fees the district collects from charter schools because risk management services will no longer be provided at no cost to armof-the-district charter schools. The district s risk management services department projects that risk management fees for arm-of-the-district charter schools will be approximately $27/pupil enrolled in It is anticipated that all arm-of-the-district charter schools will purchase the district s risk management services because it will almost certainly be more expensive for schools to independently secure minimum levels of coverage. Projected enrollment at arm-of-the-district charter schools in is 8,550, meaning that the district will collect approximately $230,000 from charter schools for risk management services. Adoption of the proposed MOU will eliminate the fees the district is currently collecting for providing pupil accounting as an elected service to charter schools. The proposed MOU states that the district will providing pupil accounting to all charter schools at no cost as a part of the district s oversight responsibilities. This will result in an estimated $14,000 reduction in revenue coming to the district. The district also anticipates incurring additional cost associated with providing access to a single networked terminal capable of housing the district s DWAS at all district charter schools. Most charter schools already have the required terminal paid, but the district anticipates having to provide to 7 schools next year, with a cost of approximately $500 per terminal. That equates to a $3,500 dollar cost to the district. The language in Article 7.12 commits the district to account for all oversight activities performed and to refund any unused fees. In , the district collected over $950,000 in oversight fees from charter schools. District staff are confident that when all oversight activities are accounted for accurately, including the new commitment to provide to charter schools the district s Student Information System as part of oversight, it will be shown that the district spends far beyond what it collects from charter schools on oversight. Nevertheless, the possibility of the district having to refund a portion of oversight fees would be created if this MOU is adopted, and the possibility should be duly noted.

8 Page 8 of 9 It should also be noted that adoption of the proposed MOU might encourage some armof-the-district charter schools to convert to 501c3 status. This would result in a reduction in fees collected for services performed to charter schools because, under the proposed MOU, the district will not offer some services, including the DWAS and risk management services, to 501c3 charter schools. However, because the district is committed to not generating profits from the services it provides charter schools, any reduction in revenue should be matched by a corresponding reduction in cost. As such, an increase in the number of 501c3 charter schools should not have budgetary implications for the district. All of the changes to district fees and costs discussed above are anticipated to recur annually for the foreseeable future. As such, a similar budgetary impact would be anticipated to recur annually if the recommended MOU is adopted. Public Support and Engagement Implications The district s effort to develop a Charter School MOU started at the Charter School Conference, which the superintendent convened in June The first draft of the MOU was finished in November of 2001, nearly simultaneous to the approval of the Charter School Policy and Guidelines. Since that time, district staff has worked in close consultation with representatives of the Charter School Consortium, charter school operators and business managers and other community leaders, to develop the proposed Charter School MOU. Ten drafts of the document have been generated and the issuing of each new draft was preceded by at least three consultative meetings between district staff and members of the charter community. As the proposed MOU neared completion, district staff redoubled their effort to seek input from as many interested charter representatives as possible and to be as responsive as possible to concerns brought up by members of the charter community. Attachment B contains a list of meetings the district held in the development of the MOU and a list of edits made to the MOU in response to input provided by charter operators. The attachment clearly shows that the district has shown a genuine commitment to consult with and respond to the charter community in the development of the MOU. Consistent with that commitment, district staff continues to consult with members of the charter community about the proposed MOU, and it is anticipated that the proposed MOU will be edited slightly between the first and second reading of this report. The three sections of the proposed MOU that will be discussed and possibly edited between the first and second reading are: 1. Section 5.3.i district staff and the charter community continue to discuss language pertaining to the information technology services that will be provided to charter schools as part of the DWAS 2. Section 6.5 district staff and the charter community have approved in concept a revision of the section to allow charter schools to seek general liability coverage through insurance pools.

9 Page 9 of 9 3. Attachments A,B and C district staff continue to generate language defining the services that the district performs for charter schools. District staff and the charter community will also discuss language defining the oversight activities that the district performs. It is important to note that district staff will seek to further refine the Charter School MOU in the years to come. Indeed, Article 2.6 commits the district to communicating modifications by March 1 annually. At the Charter MOU Summit, the superintendent committed to developing these modifications in ongoing consultation the charter community. Policy Implications There are no policy implications for the adoption of this recommendation. Recommendations The superintendent recommends that the Board of Education conduct a first reading of the proposed Charter School MOU and order staff to bring forward a final proposed Charter School MOU for Board action on March 25. Prepared by Superintendent, Alan D. Bersin /jmw