After returning from recess on August 12, the California Senate Appropriations Committee took up the package of six remaining higher education bills intended to address concerns about private postsecondary education providers in the state, sending three forward for floor action and holding three bills under submission in committee, meaning they will not be considered for further action in 2019. Note that AB 1343, which would have created a California version of the federal 90/10 rule, did not pass the Senate Business, Professions and Economic Development committee, so it too is not moving forward.
All but one of the proposed bills would have amended the California Private Postsecondary Education Act (CPPEA). The CPPEA, which is enforced by the Bureau for Private Postsecondary Education (BPPE), governs the operations of private postsecondary providers in California. Contrary to popular belief, that does not mean CPPEA is limited to for-profit institutions, although many nonprofit institutions are eligible for exemption from the CPPEA and therefore outside of the BPPE’s jurisdiction. Institutions that are subject to some level of BPPE oversight, fall into one of three categories: (1) BPPE authorized (whether full approval, or approved by means of accreditation) and thus subject to the entirety of the CPPEA; (2) an exempt California “independent institution” with a contract for BPPE complaint processing; or (3) a registered out-of-state institution that offers online education to California residents. (Please review our recent posts on CooleyED (here, here and here) regarding the curious effects of California being the sole holdout from the State Authorization Reciprocity Agreement.) Exempt and out-of-state institutions are subject to only limited sections of the law specifically addressing their category of operations. These distinctions are important because while the pending bills primarily impact BPPE authorized institutions, they also expand the BPPE’s authority over out-of-state institutions as well.
Below is a summary of the bills, who they will impact, and how.
Bills Held under Submission and Not Proceeding in 2019
Three bills were held under submission, meaning they will not proceed to a floor session or further voting in 2019. Further, unless these bills are placed into “two year” status by the Senate Appropriations Committee, the bills will not be considered in their current form for the remainder of the legislative session, which runs through 2020, requiring them to be introduced anew after the end of this year. As these three bills contained the proposals that created the greatest concern, we discuss them first.
AB 1341 – Nonprofit conversions
The intent of AB 1341 had been clear from its introduction: increase scrutiny of institutions (including but not limited to those that formerly were for-profit) that operate as, or have plans to convert to, nonprofit status. The bill would have added a new definition of “nonprofit corporation” that would have granted the California Attorney General discretion to determine that an institution is not a nonprofit entity for California education regulatory purposes, even if it is recognized by the Internal Revenue Service as such. The bill would also have prohibited BPPE from verifying an institution’s exemption from the CPPEA (including the registration process) based on its IRS-determined nonprofit status, or from contracting to handle complaints for a nonprofit institution located in California, if the institution previously operated as a for-profit institution during any period on or after January 1, 2010, unless the AG determines, with considerable discretion, that the institution meets a new state definition of “nonprofit corporation.”
Particularly problematic was the risk that existing nonprofit institutions could have been required to undergo a new determination, at the discretion of the AG, of their status under California law, potentially requiring the BPPE to treat them as for-profit, and therefore ineligible for exemption from the CPPEA.
AB 1342 – Nonprofit transaction approval
AB 1342 would have explicitly required a nonprofit corporation that operates or controls a private postsecondary educational institution to obtain the AG’s consent before entering into certain agreements or transactions, including an agreement or transaction to sell or convey its assets to, or to transfer control, responsibility, or governance of a material amount of its assets to, a for-profit corporation or mutual benefit corporation. This was clearly targeted at nonprofit institutions that have broad service or other agreements with for-profit entities with which they were once affiliated, but as drafted could have had substantially wider impact on nonprofit educational institutions’ operational flexibility.