SCH CD-CHARTER SCHOOL-CLOSURE

Illinois General Assembly - Full Text of SB3391

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SB3391 - 104th General Assembly

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SB3391 Engrossed
LRB104 20151 LNS 33602 b
1

AN ACT concerning education.

2

Be it enacted by the People of the State of Illinois,
3
represented in the General Assembly:

4

Section 1.
This Act may be referred to as the Charter
5
School Closure Financial Accountability Law.

6

Section 5.
Findings.
The General Assembly finds and
7
declares all of the following:
8

(1) Public funds and public property provided to
9

charter schools must be protected and used for students'
10

education.
11

(2) Charter schools in this State may close during a
12

school year, and when they do there is a risk that
13

students, employees, and public assets will suffer harm
14

while the charter operator faces no meaningful financial
15

accountability.
16

(3) Current law and administrative guidance address
17

closure procedures but do not uniformly require a
18

prefunded financial mechanism sufficient to cover
19

transition costs, severance, and the return of publicly
20

funded property.
21

(4) It is, therefore, necessary to require charter
22

operators to maintain closure reserves, require return of
23

public assets purchased with public funds, provide

SB3391 Engrossed
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1

remedies to recover costs incurred by authorizers and
2

students' home districts, and impose penalties for
3

mid-year abandonment that is negligent or in bad faith.

4

Section 10.
The School Code is amended by changing
5
Sections 27A-3 and 27A-9 and by adding Sections 27A-9.5,
6
27A-10.15, and 27A-10.20 as follows:

7

(105 ILCS 5/27A-3)
8

Sec. 27A-3.
Definitions.
For purposes of this Article:
9

"At-risk pupil" means a pupil who, because of physical,
10
emotional, socioeconomic, or cultural factors, is less likely
11
to succeed in a conventional educational environment.
12

"Authorizer" means an entity authorized under this Article
13
to review applications, decide whether to approve or reject
14
applications, enter into charter contracts with applicants,
15
oversee charter schools, and decide whether to renew, not
16
renew, or revoke a charter.
17

"Charter operator" means the entity that has entered into
18
a charter agreement with an authorizer under this Article and
19
is legally responsible for the operation of the charter
20
school.

21

"Charter school" means a school established under this
22
Article and operated under an agreement between an authorizer
23
and a charter operator.

24

"Closure event" means any termination, revocation,

SB3391 Engrossed
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1
nonrenewal, or voluntary cessation of operations of a charter
2
school resulting in the charter school's permanent cessation
3
of instruction to enrolled pupils that occurs during the
4
school year.
5

"Closure security" means a financial instrument listed
6
under subsection (a) of Section 27A-10.15.
7

"District signed-agreement requirements" means any
8
standard provisions that are required in any agreement entered
9
into by an authorizer.

10

"Financial distress" means one or more of the following
11
conditions, as determined by an authorizer based on documented
12
evidence:
13

(1) failure to timely meet payroll, benefits, or other
14

operating obligations;
15

(2) material audit findings indicating insolvency,
16

negative cash flow, or substantial doubt as to a charter
17

school's ability to continue as a going concern;
18

(3) default or imminent default on debt or lease
19

obligations;
20

(4) failure to maintain required closure security or
21

other financial reserves required under this Article;
22

(5) evidence of misuse or misappropriation of public
23

funds; or
24

(6) any financial condition that poses an imminent
25

risk to the continued operation of a charter school or to
26

the orderly transition of enrolled pupils.

SB3391 Engrossed
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1

"Financial intervention" means a temporary, limited
2
assumption of financial oversight authority by an authorizer
3
for the purpose of stabilizing a charter school and protecting
4
students, employees, and public assets.
5

"Good faith" means the duty to cooperate with an opposing
6
party fairly in reaching an agreement.

7

"Local school board" means the duly elected or appointed
8
school board or board of education of a public school
9
district, including special charter districts and school
10
districts located in cities having a population of more than
11
500,000, organized under the laws of this State.
12

"Public assets" means equipment, furniture, books,
13
instructional technology, real estate, or any other real or
14
personal property purchased or leased with public funds or
15
purchased with funds subject to public oversight.

16

"State Board" means the State Board of Education.
17

"Union neutrality clause" means a provision whereby a
18
charter school agrees: (1) to be neutral regarding the
19
unionization of any of its employees, such that the charter
20
school will not at any time express a position on the matter of
21
whether its employees will be unionized and such that the
22
charter school will not threaten, intimidate, discriminate
23
against, retaliate against, or take any adverse action against
24
any employees based on their decision to support or oppose
25
union representation; (2) to provide any bona fide labor
26
organization access at reasonable times to areas in which the

SB3391 Engrossed
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1
charter school's employees work for the purpose of meeting
2
with employees to discuss their right to representation,
3
employment rights under the law, and terms and conditions of
4
employment; and (3) that union recognition shall be through a
5
majority card check verified by a neutral third-party
6
arbitrator mutually selected by the charter school and the
7
bona fide labor organization through alternate striking from a
8
panel of arbitrators provided by the Federal Mediation and
9
Conciliation Service. As used in this definition, "bona fide
10
labor organization" means a labor organization recognized
11
under the National Labor Relations Act or the Illinois
12
Educational Labor Relations Act. As used in this definition,
13
"employees" means non-represented, non-management, and
14
non-confidential employees of a charter school.
15
(Source: P.A. 103-175, eff. 6-30-23; 103-416, eff. 8-4-23;
16
103-605, eff. 7-1-24.)

17

(105 ILCS 5/27A-9)
18

Sec. 27A-9.
Term of charter; renewal.
19

(a) An initial charter shall be granted for a period of 5
20
school years. A charter may be renewed in incremental periods
21
not to exceed 10 school years. Authorizers shall ensure that
22
every charter granted on or after January 1, 2017 includes
23
standards and goals for academic, organizational, and
24
financial performance. A charter must meet all standards and
25
goals for academic, organizational, and financial performance

SB3391 Engrossed
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LRB104 20151 LNS 33602 b
1
set forth by the authorizer in order to be renewed for a term
2
in excess of 5 years but not more than 10 years. If an
3
authorizer fails to establish standards and goals, a charter
4
shall not be renewed for a term in excess of 5 years. Nothing
5
contained in this Section shall require an authorizer to grant
6
a full 10-year renewal term to any particular charter school,
7
but an authorizer may award a full 10-year renewal term to
8
charter schools that have a demonstrated track record of
9
improving student performance.
10

(b) A charter school renewal proposal submitted to the
11
local school board or the State Board, as the chartering
12
entity, shall contain:
13

(1) a report on the progress of the charter school in
14

achieving the goals, objectives, pupil performance
15

standards, content standards, and other terms of the
16

initial approved charter proposal; and
17

(2) a financial statement that discloses the costs of
18

administration, instruction, and other spending categories
19

for the charter school that is understandable to the
20

general public and that will allow comparison of those
21

costs to other schools or other comparable organizations,
22

in a format required by the State Board.
23

(c) A charter may be revoked or not renewed if the local
24
school board or the State Board, as the chartering entity,
25
clearly demonstrates that the charter school did any of the
26
following, or otherwise failed to comply with the requirements

SB3391 Engrossed
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1
of this law:
2

(1) Committed a material violation of any of the
3

conditions, standards, or procedures set forth in the
4

charter.
5

(2) Failed to meet or make reasonable progress toward
6

achievement of the content standards or pupil performance
7

standards identified in the charter.
8

(3) Failed to meet generally accepted standards of
9

fiscal management.
10

(4) Violated any provision of law from which the
11

charter school was not exempted.
12

(5) Failed to execute a charter contract after good
13

faith negotiations in accordance with Section 27A-9.5.

14

In the case of revocation, the local school board or the
15
State Board, as the chartering entity, shall notify the
16
charter school in writing of the reason why the charter is
17
subject to revocation. The charter school shall submit a
18
written plan to the local school board or the State Board,
19
whichever is applicable, to rectify the problem. The plan
20
shall include a timeline for implementation, which shall not
21
exceed 2 years or the date of the charter's expiration,
22
whichever is earlier. If the local school board or the State
23
Board, as the chartering entity, finds that the charter school
24
has failed to implement the plan of remediation and adhere to
25
the timeline, then the chartering entity shall revoke the
26
charter. Except in situations of an emergency where the

SB3391 Engrossed
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1
health, safety, or education of the charter school's students
2
is at risk, the revocation shall take place at the end of a
3
school year. Nothing in this Section shall be construed to
4
prohibit an implementation timetable that is less than 2 years
5
in duration. No local school board may arbitrarily or
6
capriciously revoke or not renew a charter. Except for
7
extenuating circumstances outlined in this Section, if a local
8
school board revokes or does not renew a charter, it must
9
ensure that all students currently enrolled in the charter
10
school are placed in schools that are higher performing than
11
that charter school, as defined in the State's federal Every
12
Student Succeeds Act accountability plan. In determining
13
whether extenuating circumstances exist, a local school board
14
must detail, by clear and convincing evidence, that factors
15
unrelated to the charter school's accountability designation
16
outweigh the charter school's academic performance.
17

(d) (Blank).
18

(e) Notice of a local school board's decision to deny,
19
revoke, or not renew a charter shall be provided to the State
20
Board.
21

The State Board may reverse a local board's decision to
22
revoke or not renew a charter if the State Board finds that the
23
charter school or charter school proposal (i) is in compliance
24
with this Article and (ii) is in the best interests of the
25
students it is designed to serve. The State Board may
26
condition the granting of an appeal on the acceptance by the

SB3391 Engrossed
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1
charter school of funding in an amount less than that
2
requested in the proposal submitted to the local school board.
3
The State Board must appoint and utilize a hearing officer for
4
any appeals conducted under this subsection. Final decisions
5
of the State Board are subject to judicial review under the
6
Administrative Review Law.
7

(f) Notwithstanding other provisions of this Article, if
8
the State Board on appeal reverses a local board's decision or
9
if a charter school is approved by referendum, the State Board
10
shall act as the authorized chartering entity for the charter
11
school and shall perform all functions under this Article
12
otherwise performed by the local school board. The State Board
13
shall report the aggregate number of charter school pupils
14
resident in a school district to that district and shall
15
notify the district of the amount of funding to be paid by the
16
State Board to the charter school enrolling such students. The
17
charter school shall maintain accurate records of daily
18
attendance and student enrollment and shall enter data on the
19
students served, their characteristics, their particular
20
needs, the programs in which they participate, and their
21
academic achievement into the statewide student information
22
system established by the State Board. The State Board shall
23
withhold from funds otherwise due the district the funds
24
authorized by this Article to be paid to the charter school and
25
shall pay such amounts to the charter school in quarterly
26
installments, calculated as follows:

SB3391 Engrossed
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1

(1) The amount of the first quarterly payment shall be
2

based on the projected number of students who will be
3

enrolled in the charter school in the upcoming school
4

year, multiplied by one-fourth of the resident district's
5

per capita tuition amount. Each charter school shall
6

submit its projected enrollment by no later than August 1
7

of each year on a form provided by the State Board for this
8

purpose.
9

(2) The amount of the second quarterly payment shall
10

be calculated such that the aggregate amount of the first
11

and second quarterly installments is equal to the number
12

of students reported as enrolled at the charter school on
13

October 1 in the State Board's student information system,
14

multiplied by one-half of the resident district's per
15

capita tuition amount.
16

(3) The amount of the third quarterly payment shall be
17

based on the number of students enrolled in the charter
18

school on January 1, multiplied by one-fourth of the
19

resident district's per capita tuition amount. Each
20

charter school shall submit its January 1 enrollment by no
21

later than January 5 of each year on a form provided by the
22

State Board for this purpose.
23

(4) The amount of the fourth quarterly payment shall
24

be calculated such that the aggregate amount of the third
25

and fourth installments is equal to the number of students
26

reported as enrolled at the charter school on March 1 in

SB3391 Engrossed
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LRB104 20151 LNS 33602 b
1

the State Board's student information system, multiplied
2

by one-half of the resident district's per capita tuition
3

amount.
4

(g) (Blank).
5

(h) The State Board shall pay directly to a charter school
6
it authorizes any federal or State funding attributable to a
7
student with a disability attending the school.
8
(Source: P.A. 103-175, eff. 6-30-23.)

9

(105 ILCS 5/27A-9.5 new)
10

Sec. 27A-9.5.
Charter renewal; timely execution; funding
11
consequences.
12

(a) This Section applies to all charter renewals approved
13
on or after the effective date of this amendatory Act of the
14
104th General Assembly.
15

(b) For an initial agreement, no public funds may be
16
disbursed to a charter operator unless and until a charter
17
agreement has been fully executed by both the charter operator
18
and the authorizer.
19

After the initial agreement, the charter operator and the
20
authorizer shall negotiate the terms of the charter renewal
21
agreement within 90 days after the authorizer's passage of a
22
renewal resolution consistent with applicable State law and
23
district policy. In no circumstance may the charter operator
24
operate under an expired agreement at the start of a school
25
year that begins more than 90 days after the authorizer's

SB3391 Engrossed
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LRB104 20151 LNS 33602 b
1
passage of the renewal resolution. No public funds may be
2
distributed after 90 days until an agreement is reached.
3

A charter operator's refusal to execute or negotiate, in
4
good faith, a charter renewal agreement that incorporates the
5
requirements of State law or district signed-agreement
6
requirements constitutes grounds for nonrenewal.

7

(105 ILCS 5/27A-10.15 new)
8

Sec. 27A-10.15.
Closure financial accountability.
9

(a) Every charter operator shall maintain, while its
10
charter is in effect, one or more of the following financial
11
instruments to secure closure obligations:
12

(1) an escrow account held in a financial institution
13

in this State in the name of the charter school, funded in
14

cash;
15

(2) a surety bond or irrevocable letter of credit
16

issued by a financial institution authorized to do
17

business in this State; or
18

(3) a segregated reserve fund reflected on the charter
19

school's audited financial statements and held in a manner
20

acceptable to the authorizer.
21

A charter operator in operation on the effective date of
22
this amendatory Act of the 104th General Assembly must comply
23
with this Section within 2 fiscal years after the effective
24
date of this amendatory Act of the 104th General Assembly.

25

(b) The closure security under subsection (a) for a

SB3391 Engrossed
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1
charter school in operation for at least one fiscal year must
2
equal 3 months of the charter school's average operating
3
expenditures based on its last audited fiscal year. If the
4
closure security is below the required amount, the authorizer
5
may require a remediation plan to reach compliance within 2
6
fiscal years. Failure to timely comply is grounds for
7
suspension of enrollment growth and may be considered in a
8
charter renewal determination.
9

For a charter operator in operation for less than one
10
fiscal year, the closure security must equal 3 months of the
11
charter school's projected annual budget, as approved by the
12
charter's authorizer. The closure security for such a charter
13
operator must be established and funded to at least 50% of the
14
required amount, based on the charter operator's projected
15
budget, at the time the charter is granted or, for a charter
16
granted before the effective date of this amendatory Act of
17
the 104th General Assembly, within 30 days after the effective
18
date of this amendatory Act of the 104th General Assembly and
19
must reach the full required amount by the end of the charter's
20
second full fiscal year.
21

(c) Closure security shall be used, in priority order, to
22
pay:

23

(1) the direct costs of transitioning students, such
24

as transportation, records transfer, and student placement
25

assistance, incurred by the authorizer or receiving school
26

district;

SB3391 Engrossed
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1

(2) any outstanding payroll for employees for time
2

worked through the closure date, including legally
3

required benefits, and severance if contractually required
4

under the charter operator's collective bargaining
5

agreements or employment contracts;
6

(3) any costs reasonably incurred for the storage or
7

transfer of student records and special education
8

documents required to ensure continuity of services;
9

(4) any costs to return public assets to the
10

authorizer or otherwise account for disposition of public
11

assets purchased with public funds;
12

(5) any reasonable administrative costs incurred by
13

the authorizer or the State Board to supervise and execute
14

the closure and student transition; and
15

(6) any costs related to emergency expenditures not
16

created by the negligence or mismanagement of the charter
17

operator and agreed to by the authorizer.
18

Closure security may not be used to pay any preexisting,
19
unrelated debt of the charter operator that is not connected
20
to the operating obligations to students, employees, or public
21
property, except as permitted under this subsection.
22

Any remaining closure security funds after satisfaction of
23
the obligations described in this subsection shall be returned
24
to the authorizer and shall remain public funds in accordance
25
with State and federal law.

26

(d) A charter operator must provide the authorizer and the

SB3391 Engrossed
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1
State Board written notice of the charter operator's intent to
2
close a charter school no fewer than 90 days before the planned
3
closure and must provide immediate notice upon any involuntary
4
closure action, insolvency event, or cessation of operations.
5

Within 30 days after a closure event, the authorizer shall
6
publish a closure action statement that lists amounts from the
7
closure security disbursed and the uses.
8

(e) Failure to maintain closure security as required under
9
this Section is a basis for:

10

(1) the authorizer to withhold a portion of per-pupil
11

payments until compliance is achieved; and
12

(2) consideration in denying a charter renewal or
13

revoking the charter or ineligibility to operate
14

additional charter campuses.
15

For purposes of this Section, the State Board may act in
16
its regulatory oversight capacity for all authorizers and in
17
its capacity as an authorizer for charter schools it directly
18
authorizes under this Article.
19

If the closure security is insufficient to cover the costs
20
of a closure event as set forth in subsection (c), the
21
authorizer or the State Board may:

22

(1) bring a civil action against the charter operator
23

to recover the unpaid amounts; and
24

(2) seek to impose a lien on any property owned by the
25

charter operator that is located in this State to secure
26

recovery.

SB3391 Engrossed
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1

In cases in which a closure results from gross negligence,
2
willful misconduct, or intentional misappropriation of public
3
funds by the charter operator or its officers or directors,
4
the authorizer or State Board may seek recovery from
5
individual officers, directors, or persons who knowingly
6
caused the gross negligence, willful misconduct, or
7
intentional misappropriation, including civil penalties not to
8
exceed $50,000 per violation and reasonable attorney's fees.
9

(f) Upon closure, any public assets purchased with public
10
funds shall be returned to the authorizer or otherwise
11
disposed of in accordance with applicable State and federal
12
law governing property acquired with public funds. Proceeds
13
from any sale of such assets shall be applied first to
14
outstanding obligations to students and employees, and then to
15
the reimbursement of public funds.
16

(g) The State Board shall adopt rules to implement this
17
Section within one year after the effective date of this
18
amendatory Act of the 104th General Assembly, including
19
acceptable forms of closure security, procedures for claims on
20
closure security, and documentation standards for authorizers
21
to approve closure security.

22

(105 ILCS 5/27A-10.20 new)
23

Sec. 27A-10.20.
Financial distress; charter school
24
financial intervention.
25

(a) If an authorizer determines that a charter school is

SB3391 Engrossed
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1
in financial distress, the authorizer may require the charter
2
operator to submit a financial remediation plan for approval
3
within 30 days after that determination. The remediation plan
4
shall include, at a minimum:
5

(1) current cash-flow projections;
6

(2) corrective actions to address identified
7

deficiencies;
8

(3) a timeline for achieving fiscal stability; and
9

(4) enhanced financial-reporting requirements as
10

specified by the authorizer.
11

Failure to timely submit a remediation plan or implement
12
an approved remediation plan constitutes grounds for financial
13
intervention under subsection (b).
14

(b) If the authorizer determines that (i) the charter
15
school has failed to implement an approved remediation plan or
16
(ii) the financial distress presents an immediate risk to
17
students, employees, or public funds, the authorizer may
18
initiate financial intervention.
19

(c) The authorizer may exercise authority, limited to
20
financial matters, over the charter school, including:
21

(1) approval and oversight of expenditures and
22

disbursements;
23

(2) oversight of payroll, benefits, and required
24

employee payments;
25

(3) reviewing, modifying, or terminating any vendor
26

contracts necessary to ensure fiscal stability;

SB3391 Engrossed
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1

(4) protection, inventory, and preservation of public
2

assets; and
3

(5) ensuring compliance with financial reporting and
4

audit requirements.
5

(d) Financial intervention under this Section is temporary
6
and may not exceed 180 days, except that the authorizer may
7
extend the intervention once for good cause. The intervention
8
shall terminate upon a determination by the authorizer that
9
fiscal stability has been restored or upon charter revocation,
10
surrender, nonrenewal, or closure.
11

(e) Prior to initiating financial intervention, the
12
authorizer shall provide written notice to the charter
13
operator describing the basis for the intervention and provide
14
an opportunity to respond, except in cases in which immediate
15
action is required to protect students or public funds.
16

(f) An authorizer's exercise of authority under this
17
Section:
18

(1) does not constitute operation or management of the
19

charter school;
20

(2) does not create financial or legal liability for
21

the authorizer or its members; and
22

(3) shall be deemed an oversight and regulatory
23

function for purposes of immunity under Section 27A-7.10.
24

(g) Financial intervention under this Section does not
25
preclude charter revocation, nonrenewal, or closure and may be
26
used to stabilize operations pending an orderly closure

SB3391 Engrossed
- 19 -
LRB104 20151 LNS 33602 b
1
pursuant to this Article, consistent with paragraph (2) of
2
subsection (c) of Section 27A-9.

3

Section 97.
Severability.
The provisions of this Act are
4
severable under Section 1.31 of the Statute on Statutes.

5

Section 99.
Effective date.
This Act takes effect upon
6
becoming law.

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