RELATING TO PUBLIC CHARTER SCHOOLS.

SB2163

THE SENATE

S.B. NO.

2163

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

relating
to public charter schools
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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SECTION 1.
�
The legislature finds that public charter
schools fulfill a critical need in Hawaii's public education system by
providing diverse, innovative, and community-based learning opportunities for
students.
�
For the 2025-2026 school year,
a total of 13,371 students were enrolled across Hawaii's thirty-eight public
charter schools and received in total approximately $150,000,000 in state
general funds for the fiscal year, which is approximately five to eight per
cent of the department of education's budget.
�

As recipients of significant state funds and as stewards of public
resources, public charter schools must demonstrate fiscal accountability consistent
with public expectations.

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The
legislature further finds that section 302D-32, Hawaii Revised Statutes,
requires that each public charter school conduct an annual independent
financial audit.
�
However, the audits are
not publicly reported or presented to the authorizer, which is the state public
charter school commission, in a uniform or standardized manner.
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In addition, the authorizer lacks an explicit
enforcement mechanism if a public charter school does not properly complete the
audit.

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Accordingly,
the purpose of this Act is to ensure that each public charter school exercises
fiscal accountability consistent with public expectations by:

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(1)
�
Standardizing
the annual independent financial audits each charter school is required to
complete;

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(2)
�
Requiring
that all annual independent financial audits be publicly accessible;

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(3)
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Requiring
the board of education, the authorizer, and the auditor to review each annual
independent financial audit;

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(4)

Authorizing
the auditor to conduct its own financial audit of a public charter school if
the public charter school is a high risk for financial insolvency; and

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(5)
�
Requiring
the auditor to conduct a one-time financial audit or each public charter school
covering the past three years and other information.

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SECTION 2.
�

Chapter 23, Hawaii Revised Statutes, is amended by adding a new section
to be appropriately designated and to read as follows:

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"
�23-
��
��
Public
charter schools; independent financial audits
.
�
The auditor shall
review each completed independent financial
audit received under section 302D-32(d).
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If the auditor determines that a public charter school is a high risk for
financial insolvency or if requested to do so by the board of education or the
applicable authorizer under section 302D-32(g), the auditor may conduct an
auditor's financial audit of the public charter school.
�
The auditor shall submit the auditor's
financial audit to the board, authorizer, and legislature no later than ninety
days after the conclusion
of
the
auditor's
financial
audit.
"

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SECTION

2
.
�
Section
302D-17, Hawaii Revised Statutes, is amended by amending subsection (d) to read
as follows:

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"(d)
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Notwithstanding section 302D-18 to the
contrary, every authorizer [
shall have the authority to
]
may
take
appropriate corrective actions or exercise sanctions short of revocation in
response to apparent deficiencies in public charter school performance or legal
compliance[
.
�
Such
]
, including failure
to comply with the requirements of section 302D-32(c).
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The
actions or sanctions may include, if
warranted:

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(1)
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Requiring a school to develop and
execute a corrective action plan within a specified time frame; and

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(2)
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Reconstituting the governing board of the
charter school; provided that the following conditions are met:

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(A)
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Reconstitution occurs only under
exigent circumstances, including the following:

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(i)
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Unlawful or unethical conduct by
governing board members;

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(ii)
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Unlawful or unethical conduct by the
charter school's personnel that raises serious doubts about the governing
board's ability to fulfill its statutory, contractual, or fiduciary
responsibilities; and

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(iii)
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Other circumstances that raise serious
doubts about the governing board's ability to fulfill its statutory,
contractual, or fiduciary responsibilities;

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(B)
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The authorizer shall replace up to, but
no more than, the number of governing board members necessary so that the newly
appointed members constitute a voting majority in accordance with the governing
board's bylaws; except that the authorizer may replace the entire governing
board if the alternative is the initiation of revocation of the charter
school's charter contract and the governing board opts instead for
reconstitution; and

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(C)
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Reconstitution occurs in accordance
with processes set forth by the authorizer that provide the charter school's
personnel and parents with timely notification of the prospect of
reconstitution."

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SECTION

3
.
�
Section
302D-21, Hawaii Revised Statutes, is amended to read as follows:

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"
�302D-21
�

Annual board report.
�
No later
than the opening day of each regular session of the legislature, the board
shall issue to the governor, the legislature, and the public, an annual report
on the State's public charter schools, drawing from the annual reports
submitted by every authorizer, as well as any additional relevant data compiled
by the board, for the school year ending in the preceding calendar year.
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The annual report shall include:

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(1)
�
The board's assessment of the
successes, challenges, and areas for improvement in meeting the purposes of
this chapter, including the board's assessment of the sufficiency of funding
for public charter schools, and any suggested changes in state law or policy
necessary to strengthen the State's public charter schools;

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(2)
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A line-item breakdown of all federal
funds received by the department and distributed to authorizers;

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(3)
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Any concerns regarding equity and
recommendations to improve access to and distribution of federal funds to
public charter schools;

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(4)
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A summary of the criteria used by the
charter school facilities funding working group, established pursuant to
section 302D-29.5, in allocating facilities funding;

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(5)
�
A detailed breakdown of the allocation
of funding through general funds and bond funds;

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(6)
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A detailed list of the projects funded
by general funds and bond funds;

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(7)
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The status of funding for projects
previously awarded; [
and
]

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(8)
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A discussion of all board policies
adopted in the previous year, including a detailed explanation as to whether
each policy is or is not applicable to charter schools[
.
]
; and

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(9)
�
A summary of the independent financial
audits pursuant to section 302D-32 that includes any patterns of fiscal
deficiencies, notable comments, or recommended actions.
"

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SECTION

4
.
�
Section
302D-32, Hawaii Revised Statutes, is amended to read as follows:

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"
�302D-32
�

[
Annual audit.
]

Independent financial audits; auditor's
financial audits.

�
[
Each
charter school shall
annually complete an independent financial audit that complies with the
requirements of its authorizer and the department.
]
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(a)
�
The board, in consultation with all
authorizers and the auditor, shall adopt rules under chapter 91 that establish
standards for independent financial audits of public charter schools, including
standards for format, reporting, and public disclosure.

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(b)
�
The authorizer shall provide to each charter
school it oversees a list of approved independent auditors, from which the
charter school shall select one independent auditor to comply with this
section.

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(c)
�
Within
one hundred
twenty days after the close of each fiscal year, each charter school shall
complete an independent financial audit and submit that completed independent
financial audit to the authorizer.

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(d)
�
The authorizer shall then transmit copies of
the completed independent financial audit to the board, legislature, and auditor.
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The auditor shall review each completed independent
financial audit under section 23-
���
.

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(e)

�
The authorizer shall maintain a publicly
accessible online database of all independent financial audits and auditor's
financial audits under
subsection (g)
of each charter school it oversees.

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(f)

�
Failure by any public charter school to
comply with subsection (c), shall be considered a material breach of the
charter contract and the authorizer may sanction the public charter school by
withholding funds, imposing a corrective action plan, or revoking the charter.

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(g)

�
The board and authorizer shall review
the independent financial audits.
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If the
board or authorizer determines that a public charter school is a high risk for
financial insolvency, the board or authorizer may request the auditor to
conduct an auditor's financial audit of the public charter school under section
23-
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; provided that the auditor may
deny the request.
"

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SECTION 5.
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(a)
�
The auditor shall conduct a
financial audit of each charter school.
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For each charter school, the financial audit shall include:

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(1)
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A
list of financial expenditures for the past three years;

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(2)
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Financial
information concerning faculty; and

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(3)
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The
school's cash on hand balance.

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(b) The auditor may contract with private
entities to conduct the financial audits required by this section.

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(c)
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The auditor shall submit a report of its findings and recommendations,
including any proposed legislation, to the legislature no later than twenty
days prior to the convening of the regular session of 2027.

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SECTION 6.
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No later than one year after the auditor's submission of the report to
the legislature under section 5 of this Act, the state public charter school
commission shall take action based on the recommendations made by the auditor.

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SECTION 7.
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There is appropriated out of the general revenues of the State of Hawaii
the sum of $
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or so much thereof as may be necessary
for fiscal year 2026-2027 for the auditor to complete the financial audits under
section 5 of this Act.

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The sum appropriated shall be expended by
the auditor for the purposes of this Act.

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SECTION 8.
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Statutory material to be repealed is bracketed and stricken.
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New statutory material is underscored.

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SECTION 9.
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This Act shall take effect on July 1, 2026.

INTRODUCED BY:

_____________________________

Report Title:

Auditor;
Charter Schools; State Public Charter School Commission; Financial Audit;
Report; Appropriation

Description:

Standardizes
annual independent financial audits for public charter schools.
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Authorizes sanctions for noncompliance with
independent financial audits.
�
Requires
the Board of Education, the Public Charter School Authorizer, and Auditor to
review the annual independent financial audits.
�

Allows the Auditor to conduct its own financial audit if a public
charter school is a high risk for insolvency.
�

Requires for 2026-2027, the Auditor to conduct its own one-time financial
audit of each charter school in addition to the annual independent financial
audits and requires a report to the Legislature.
�
Requires State Public Charter School
Commission to take action based on Auditor's recommendations in the one-time financial
audits.
�
Appropriates moneys.

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not legislation or evidence of legislative intent.