Veto slows efforts to strengthen California charter school oversight

State Controller's Office

A California lawmaker's attempt to strengthen oversight of virtual charter schools was felled by Gov. Gavin Newsom's veto, partly because last minute additions to the bill upped the cost.

Senate Bill 414, authored by Sen. Angelique Ashby, D-Sacramento, would have changed the oversight, auditing and funding systems for non-classroom-based charter schools, expanded agencies' auditing procedures and created an Office of Education Inspector General. 

Newsom said in his veto statement that, while he "deeply appreciates" Ashby's efforts and those of the negotiating parties to develop legislation that builds on the recommendations and the findings from the state controller, "this bill falls short."

The bill, which passed the Legislature with overwhelming bipartisan support, grew out of a task force created in 2023 after a massive enrollment fraud by the A3 charter school network resulted in an estimated $400 million of misappropriated state funds because the A3 rolls were filled with thousands of students who never took classes there.

A more stringent audit of the school could have prevented the fraud from reaching the dollar value it did, the 2023 court case revealed.

San Diego County Court Judge Robert C. Longstreth signed the order in September 2023 that resulted in the formation of the task force chaired by State Controller Malia Cohen.

Cohen, the Legislative Analyst's Office and the state's Fiscal Crisis Management and Assistance Team for schools worked together to establish audit criteria and best practices to detect and curtail charter school fraud. The legislation was to be based on those recommendations. 

California public schools educate more than six million students in more than 10,000 schools, which includes 1,300 charter schools, according to the controller's report.

The task force's guidelines were to create programs that "foster a culture of transparency and accountability by further enhancing auditor expertise, authorization requirements, evaluation and compliance with the K-12 Audit Guide, audit guide procedures and audit report disclosures for charter schools," according to its report.

"While the oversight and auditing provisions are meaningful, other sections are unworkable, would face legal challenges, and require hundreds of millions of dollars to implement," Newsom said. 

The exact costs of the bill are unknown because the inspector general's office and other provisions that created ongoing costs were added to the bill late in the process.

"This measure was amended substantially in the last days of session – among them being the open-ended establishment of two new grant programs and the creation of a new state agency without funding approved in the budget to support them," said H.D. Palmer, a California Department of Finance spokesman. "These are significant costs. As the state must close a multi-billion shortfall next year, the governor has referenced the potential cost of legislation in measures that he declined to sign."

The Sept. 13 Senate staff analysis of the bill references "unknown, but significant ongoing costs. The analysis was also likely done earlier in the process, when the bill was in the Assembly Appropriations Committee," said Edgar Cabral, deputy legislative analyst for K-12 education.

"One of the provisions of the final bill required our office to estimate the costs of the bill for charter schools, but that will not occur since the bill was vetoed," Cabral said.

Newsom said that while he can't sign the bill, he remains committed to improving oversight of the state's education system while preserving the ability of high-quality charter schools to continue educating the students they serve.

"As such, I am calling on all interested parties to work together in the coming months to find a swift resolution on remaining unresolved issues, so that follow-up legislation can be introduced and passed when the Legislature returns early next year," Newsom said. "This legislation must ensure that public funds are properly utilized, address fraud and malfeasance, improve accountability and oversight, and acknowledge our fiscal reality to allow for successful implementation." 

Ashby declined to comment on the governor's veto of her bill and on whether she would be willing to take another stab at it when session resumes in January.

Newsom added that with significant fiscal pressures and the federal government's hostile economic policies, it is vital for the state to remain disciplined when considering bills with significant fiscal implications that are not included in the budget, such as SB 414.

Cohen supported Newsom's veto saying it "preserves both fiscal responsibility and constitutional integrity."

"While well-intentioned, this bill would have unnecessarily duplicated the powers and duties already vested in the State Controller's Office, California's independent fiscal sentinel," Cohen said. "The framers of our constitution established this office to guard the public purse, audit every dollar collected and spent, and expose fraud before it festers. That mission already includes education audits and oversight."

Each year, according to the controller's office, it audits approximately 64 million disbursements totaling nearly $1 trillion.

"The SCO is authorized to perform compliance audits within the education system, develops the Education Guide, and reviews the work of independent auditors to ensure school district's full compliance with state law," Cohen said. "Creating a new duplicative agency at a cost of hundreds of millions of dollars would not strengthen oversight – it would scatter it." 

The state's Fiscal Crisis and Management Assistance Team also already works with California's local education agencies to prevent and resolve financial and operational challenges. FCMAT provides oversight to local school districts not just to help avert fiscal crisis, but also to promote sound financial practices.

Cohen referred to the proposed inspector general's office as just putting a new sign on the door, adding that California's children and families deserve more.

"They deserve vigilance that is proven, broad and anchored in constitutional authority," Cohen said. "By vetoing SB 414, the governor affirmed that we must keep our fiscal guard strong, unified and accountable to the people – not divided among duplicative bureaucracies."

The controller said she is prepared to work with lawmakers, educators and community stakeholders in the next legislative session to implement the findings of the charter school audit report.

"Together, we can modernize fiscal oversight in education, improve transparency, and build a stronger, more equitable system for students, parents and taxpayers alike," she said.