California State Auditor Report Number: 2016-117

Alliance College‑Ready Public Schools
The Nonprofit Did Not Spend Public Funds or Divert Classroom Resources in Response to Unionization Efforts

Introduction

Background

In 1992 the Legislature enacted the Charter Schools Act, which authorizes the establishment of charter schools that receive public funding but that operate independently from the school district structure and are generally not subject to most laws governing school districts. According to the California Department of Education (Education), for the 2015–16 school year, nearly 573,000 students—about 9 percent of California students in public schools—were enrolled in 1,222 charter schools throughout the State. According to Education, groups of teachers, parents, and community leaders or community‑based organizations can create charter schools to provide instruction to students from kindergarten through grade 12. Generally, local public school boards, county boards of education, or in some instances, Education authorize charter schools, and the agreements (or charters) between the authorizing boards and the charter organizers detail the charter schools’ specific goals.

State law also allows nonprofit public‑benefit corporations, formed pursuant to applicable state law, to operate charter schools. When a nonprofit operates multiple charter schools, it is commonly referred to as a charter management organization (CMO). CMOs typically provide functions for charter schools such as hiring, professional development, data analysis, public relations, and advocacy, and in return they receive a management fee from the charter schools. Charter schools are public schools and are subject to the EERA, the State’s collective bargaining laws pertaining to teachers and other school employees. Under the EERA, charter school employees are free to unionize, and charter schools must refrain from unlawfully interfering with union activities.

Alliance College‑Ready Public Schools

Alliance is a private nonprofit corporation that currently supports the operation of a network of 25 charter schools throughout the Los Angeles area. The Los Angeles Unified School District authorizes the Alliance charter schools. Alliance’s mission is to open and operate a network of small, high‑performing high schools and middle schools in low‑income communities with historically underperforming schools. For the 2015–16 school year, Alliance charter schools served nearly 12,000 students, 94 percent of whom were eligible for free or reduced‑cost lunches. As evidence of its focus on preparing students for college, 99 percent of the 1,631 Alliance charter school graduates from the 2015–16 school year completed all the courses required for entrance into the University of California and California State University systems.

The Alliance home office, acting as the CMO, provides accounting and contracting services, including payroll, as well as the other services shown in the text box. According to the administrative service agreement between the Alliance home office and the charter schools, the home office functions as an independent contractor to the schools, and it currently charges each school a 10 percent management fee, based on the school’s gross revenue, for these services.

The typical public school district is a local educational agency (LEA) that receives public funds from Education and other public and private funding sources and then distributes those funds to the schools within its district. In contrast, each of the 25 Alliance charter schools is a separate LEA that receives public funds directly from Education and other public funding sources. Alliance charter schools use these funds to pay the Alliance home office’s management fee, among other expenses. Figure 1 illustrates these two funding models.

Figure 1
Excerpt of Sample Timesheet Illustrating Misalignment Between Workweeks and Pay Periods

Sources: California State Auditor generated based on state law and Alliance accounting records.

* There are currently 25 Alliance charter schools, and each school receives funding directly from the California Department of Education and other public funding sources.

As Table 1 shows, Alliance charter schools received $157 million in public funding from state, federal, and local sources in fiscal year 2015–16, representing 94 percent of their total revenue. For that same fiscal year, the schools’ expenditures included $84 million in salaries and benefits and nearly $20 million in professional and consulting services, which included the management fees paid to the home office.

Table 1
Alliance Schools Revenue and Expenses
Fiscal Years 2014–15 and 2015–16

	Fiscal Year
	2014–15	2015–16
Revenue
State revenue	$86,084,274	$119,336,657		Public funding
Local revenue	17,663,488	21,948,280		Fiscal year 2015–16
Federal revenue	15,188,798	15,896,222		$157,181,159
Private grants and contributions	9,626,740	7,742,888
Other revenue*	1,312,900	1,741,034
Total revenue	$129,876,200	$166,665,081
Expenses
Salaries and benefits	$62,421,666	$84,173,850
Professional/consulting services	14,059,794	19,593,888
Operations	4,705,063	8,352,396
Facilities, repairs, and other leases	14,733,094	18,152,280
Other expenses†	21,282,117	25,840,408
Total expenses	$117,201,733	$156,112,822

Sources: Alliance audited financial statements for fiscal years 2014–15 and 2015–16 and Alliance accounting records.
* Other revenue includes interest and other income.
^† Other expenses include books and supplies, subagreement services, depreciation expenses, and interest.

Also in the same fiscal year, as shown in Table 2, the Alliance home office received more than $29 million in private grants and contributions, accounting for approximately 56 percent of its revenue, and nearly $12 million, or 22 percent of its revenue, in management fees from the charter schools. Because the Alliance home office functions as an independent contractor for Alliance charter schools, it recognizes the management fees it receives from the Alliance charter schools as private revenue.

Table 2
Alliance Home Office Revenue and Expenses
Fiscal Years 2014–15 and 2015–16

	Fiscal Year
	2014–15	2015–16
Revenue
Private grants and contributions	$16,958,133	$29,357,409
Management fees	9,077,837	11,757,097
Federal revenue	2,970,227	4,299,003
State revenue	3,289,032	–
Other revenue*	157,612	7,139,546
Total revenue	$32,452,841	$52,553,055
Expenses
Operations	$16,350,440	$30,118,639
Salaries and benefits	9,151,182	9,909,200
Professional/consulting services	1,733,967	4,803,708
Facilities, repairs, and other leases	998,563	801,145
Other expenses†	843,128	840,622
Total expenses	$29,077,280	$46,473,314

Sources: Alliance audited financial statements for fiscal years 2014–15 and 2015–16 and Alliance accounting records.
* Other revenue includes interest, rental income, and investment gain in subsidiaries.
^† Other expenses include books and supplies, subagreement services, depreciation expenses, interest, and facility development costs.

Unionization Efforts by United Teachers Los Angeles

Currently, employees of Alliance charter schools are
not represented by a union. In March 2015, a group of 67 teachers and counselors working at Alliance charter schools announced their decision to unionize and join UTLA. In that same month, Alliance began to take actions in response to these unionization efforts, some of which UTLA would later claim violated the EERA. In April 2015, UTLA filed unfair labor practice charges with the Public Employment Relations Board (PERB) against Alliance and three of its charter schools, alleging that they violated provisions of the EERA, as summarized in the text box.

In his June 2016 proposed decision, the PERB judge dismissed many of the charges against Alliance but did find that Alliance violated the EERA by blocking UTLA emails, by interfering with UTLA organizers’ access to two of the charter school campuses, and because a principal made threatening statements to an Alliance teacher. The PERB judge ordered Alliance to desist from these unfair practices and to take proposed affirmative actions, but he dismissed the other UTLA allegations against Alliance related to its communications with teachers and the public. As shown in Figure 2, UTLA appealed the PERB judge’s proposed decision, Alliance responded and these appeals were still pending.³ In addition to the unfair labor practice charges addressed in the PERB judge’s proposed decision and pending appeals, UTLA has alleged other unfair labor practices, but as of March 2017 no proposed or final decision has been issued on the allegations.

Figure 2
Timeline of Recent Unionization Efforts at Alliance College‑Ready Public Schools

Sources: California State Auditor’s review of UTLA and Alliance documents regarding unionization efforts at the Alliance charter schools and the PERB judge’s 2016 proposed decision.

* An appeal of an administrative law judge’s proposed decision in this circumstance is called a statement of exceptions.

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Footnotes

³ An appeal of an administrative law judge’s proposed decision in this circumstance is called a statement of exceptions.Go back to text

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