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AB-1341 Private postsecondary education: California Private Postsecondary Education Act of 2009.(2019-2020)



Current Version: 06/27/19 - Amended Senate

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AB1341:v98#DOCUMENT

Amended  IN  Senate  June 27, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1341

Introduced by Assembly Members Berman, Bauer-Kahan, Chiu, Eggman, Low, and McCarty
(Coauthor: Assembly Member Gloria)

February 22, 2019

An act to amend Section 94801.5 of, and to add Sections 94850.2, 94858.5, and 94874.1 to, the Education Code, relating to private postsecondary education.


LEGISLATIVE COUNSEL'S DIGEST


AB 1341, as amended, Berman. Private postsecondary education: California Private Postsecondary Education Act of 2009.
Existing law, the California Private Postsecondary Education Act of 2009, provides, among other things, for student protections and regulatory oversight of private postsecondary institutions in the state. The act is enforced by the Bureau for Private Postsecondary Education within the Department of Consumer Affairs. The act exempts an institution from its application if any of a list of specific criteria are met. Existing law requires an out-of-state private postsecondary educational institution to comply with specified requirements, including providing the bureau evidence of the institution’s accreditation.
This bill would define nonprofit corporation and public institution of higher education specially for the purposes of the act. This The bill would specify that only an institution of higher education meeting the act’s definition of nonprofit corporation or public institution of higher education is exempt from the requirements imposed on an out-of-state private postsecondary educational institution. This The bill would prohibit the bureau from approving, verifying the exemption of, or contracting to handle complaints for any for, a nonprofit institution not previously approved by the bureau or determined by the Attorney General to be a nonprofit corporation or public institution of higher education, and requires the bureau to provide the public with notice on its internet website and on the agenda for its advisory meeting of an application or request from an institution for bureau approval, exemption, or complaint handling. This bill specifies activities that, if engaged in by an institution, would preclude the Attorney General from determining the institution meets the definition of a nonprofit corporation. that operated as a for-profit institution during any period on or after January 1, 2010, unless the Attorney General makes certain determinations.
Under existing law, the act specifies conduct by regulated institutions that, if undertaken, is a crime.
Because this bill would extend the application of those criminal provisions, it would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 94801.5 of the Education Code is amended to read:

94801.5.
 (a) Effective July 1, 2017, an out-of-state private postsecondary educational institution shall register with the bureau, pay a fee pursuant to Section 94930.5, and comply with all of the following:
(1) The institution shall provide the bureau with all of the following information:
(A) Evidence of accreditation.
(B) Evidence that the institution is approved to operate in the state where the institution maintains its main administrative location.
(C) The agent for service of process consistent with Section 94943.5.
(D) A copy of the institution’s catalog and sample enrollment agreement.
(2) The institution shall comply with the requirements of the Student Tuition Recovery Fund, established in Article 14 (commencing with Section 94923), and regulations adopted by the bureau related to the fund, for its students residing in California.
(3) The institution shall provide disclosures pursuant to the requirements for the Student Tuition Recovery Fund, established in Article 14 (commencing with Section 94923), and regulations adopted by the bureau related to the fund, for its students residing in California.
(b) This section does not apply to a higher education institution that grants undergraduate degrees, graduate degrees, or both, and that is either formed as a nonprofit corporation and is accredited by an agency recognized by the United States Department of Education, or is a public institution of higher education.
(c) An institution described in subdivision (a) that fails to comply with this section is not authorized to operate in this state.
(d) A registration with the bureau pursuant to this section shall be valid for two years.
(e) The bureau shall develop, through emergency regulations, a registration form. The adoption of these regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code. These emergency regulations shall become law through the regular rulemaking process by January 1, 2018.

SEC. 2.

 Section 94850.2 is added to the Education Code, to read:

94850.2.
 “Nonprofit corporation” means an institution to which contributions have been determined by the United States Internal Revenue Service to be tax-deductible pursuant to Section 501(c) 501(c)(3) of Title 26 of the Internal Revenue Code (26 U.S.C. Sec. 501(c)(3)), unless the Attorney General determines, pursuant to Section 94874.1, that the institution does not meet the definition of a nonprofit corporation. Code, subject to the limitations described in Section 94874.1.

SEC. 3.

 Section 94858.5 is added to the Education Code, to read:

94858.5.
 “Public institution of higher education” means any of the following:
(a) An institution that meets the definition of subdivision (a) of Section 66010, including a district or campus of the California Community Colleges.
(b) An institution operated by the United States government, a state, as defined in Section 3306(j)(1) of Title 26 of the United States Code, a local government, as defined in Section 1393(a)(5) of Title 26 of the United States Code, or Indian tribal government, as defined in Section 7701(a)(40) of Title 26 of the United States Code.
(c) An institution that is an instrumentality of a state or local government if it meets all of the following:
(1) Its The institution’s employees are government employees.
(2) Its The institution’s liabilities are payable to the same degree as if they were liabilities of the state or local government, in the state or local government jurisdiction where the institution is formed.
(3) It The institution is subject to the same financial oversight and open public records laws as the state or local government, in the state or local government jurisdiction where the institution is formed.

SEC. 4.

 Section 94874.1 is added to the Education Code, to read:

(a)The bureau shall not approve, verify the exemption from this chapter of, or contract for the complaint handling of an institution not previously either approved to operate by the bureau or verified by the Attorney General either as a nonprofit corporation or as a public institution of higher education until both of the following requirements occur:

(1)The bureau provides the public with notice of the application or request for approval, exemption, or complaint handling. The notice shall be posted on the bureau’s internet website and included as an item listed on the agenda prepared for an advisory meeting of the bureau.

(2)The Attorney General determines that the institution meets the definition of a nonprofit corporation or of a public institution of higher education. However, an institution shall not meet the definition of a nonprofit corporation if any of the following applies:

(A)

The Attorney General determines the institution has engaged in an activity in which the net earnings of the institution benefit any person. The Attorney General shall presume the institution has engaged in such an activity if it has engaged in a reportable incident, unless the Attorney General determines otherwise. A reportable incident is the reporting of any item under the following categories on United States Internal Revenue Service Form 990, Return of Organization Exempt from Income Tax, or a successor form:

(i)

An excess benefit transaction.

(ii)

A transaction with a disqualified individual.

(iii)

A prohibited shelter transaction.

(iv)

An equity-based compensation arrangement.

(v)

Compensation based on revenues.

(B)

94874.1.
 (a) The bureau shall not verify the exemption from this chapter of, or contract for the complaint handling for, a nonprofit institution that operated as a for-profit institution during any period on or after January 1, 2010, unless the Attorney General determines all of the following:
(1) The institution acquired the institution’s assets for no more than the value of the assets.
(2) The institution has not executed agreements for goods or services exceeding the value of the goods or services.
(3) All core functions of the institution are conducted by, under the control of, or subject to significant direction by the institution, rather than a person or entity that a public institution of higher education or a nonprofit corporation.
(4) The institution has not committed a substantial share of the institution’s assets to a joint venture with a person or entity, unless the joint venture is with an entity that is a public institution of higher education or nonprofit corporation, and all core functions of the venture are conducted by, under the control of, or subject to significant direction from that entity.
(b) The institution has either acquired assets from another entity or has previously operated as a for-profit institution, and the Attorney General determines that the assets, or a significant portion of the assets, were acquired for more than the value of the assets. Value, “Value,” which shall include includes the value of any ongoing relationship, including any contract, agreement, lease, or other arrangement between the acquiring institution and the acquired institution or asset, as described in Section 180.905 of Title 2 of the Code of Federal Regulations, as it read on January 1, 2020, or between the procuring institution and the procured goods or services, shall be demonstrated through one of the following:

(i)

(1) A third-party valuation. appraisal based on comparable assets acquired by, or goods or services procured by, nonprofit corporations.

(ii)

(2) Independent financing of the acquisition or procurement based upon the asset acquired. acquired or goods or services procured.

(iii)

(3) Full and open competition in the procurement of services or assets, competition, as defined in Section 2.101(b) of Title 48 of the Code of Federal Regulations, as it read on January 1, 2020. 2020, in the acquisition of the assets or procurement of the goods or services.

(C)One or more of the core functions of the institution are conducted by, under the control of, or subject to significant direction from, a person or entity that is not a public institution of higher education and is not a nonprofit corporation. For these purposes, there shall be a conclusive presumption that a person or entity exercises significant direction if one or more of its employees or owners serves as an officer, member of the board, or person holding similar authority for the institution.

(D)A substantial share of the assets of the institution are committed to a joint venture with a person or entity that is not a public institution of higher education and is not a nonprofit corporation, and the core functions of the venture are conducted by, under the control of, or subject to significant direction from that person or entity.

(b)For the purposes of determining tax exempt status for this chapter, the bureau and the Attorney General may consider the tax exempt status of an institution of higher education as determined pursuant to Section 501(c)(3) of the Internal Revenue Code. However, that status shall not be the sole factor for determining whether an entity is a nonprofit corporation.

SEC. 5.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.