Lawmakers pass sweeping charter school anti-fraud bill

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At midnight Friday — the final day of the legislative session — California lawmakers hadn’t acted on either of two competing bills to curb charter school fraud, which has cost taxpayers hundreds of millions of dollars over the past decade.

But legislative deadlines are fungible, and legislators extended the session into Saturday. An hour later, the Assembly passed Senate Bill 414, introduced by Sen. Angelique Ashby, D-Sacramento, with more than two-thirds support. The Senate followed later that day, sending the measure to Gov. Gavin Newsom with bipartisan backing.

The passage capped weeks of stalemate between SB 414, supported by charter advocates, and a rival measure, Assembly Bill 84 by Assemblymember Al Muratsuchi, D-Torrance, and backed by the unions for teachers and other school employees. Both sought tougher oversight of charter schools, but through different approaches, setting off one of the session’s most intense fights over education, including public internecine squabbles among Democratic colleagues.

In the end, legislators decided some action was better than no action. They approved SB 414 while keeping the door open for revisiting components of AB 84 when they reconvene in January.

“This was a victory of content and needed reforms over politics,” said David Patterson, co-founder and board president of California Charter Authorizing Professionals, a nonprofit that provides training and resources to strengthen authorization.

Among its key provisions, SB 414 requires stronger auditing, expands fiscal transparency and establishes the Office of the Inspector General to investigate allegations of fraud and financial abuse in all public schools. The bill also strengthens technical assistance for districts that authorize charter schools, including training for school boards on fiscal oversight.

Specifically, the bill addresses the loopholes and shortcomings exposed by California’s largest charter school fraud cases. Operators of the A3 Education network bilked the state out of more than $400 million in public school funds by inflating enrollment in their online schools. Parents who thought they were registering their children for summer athletic programs were shocked to receive letters welcoming their kids into an A3 school.

Traditional audits, conducted months after the fact, failed to flag the irregularities, in large part because auditors used data supplied by the schools themselves. 

SB 414 also extends the moratorium on approving additional petitions for nonclassroom-based charter schools from Jan. 1, 2026, to July 1, 2026, to give time for the new regulations to take effect. 

It also prohibits instructional funds from being spent on non-educational purposes, such as amusement park tickets and other entertainment purchases that past audits uncovered in some homeschool charters.

Fraud cases that drove reforms

In the wake of the A3 Education scandal, lawmakers created three separate task forces to examine different aspects of charter school oversight. Their reports, released last year, offered overlapping recommendations for stronger audits, clearer financial rules and more consistent authorizing practices. This legislative session provided the first opportunity to turn those findings into law.

Added to the urgency for action, a state audit in June concluded that Highlands Community Charter and Technical Schools in Sacramento had “received more than $180 million in K-12 funds for which it was not eligible” by claiming to have nearly 14,000 students. Earlier this month, EdSource detailed the rise and fall of Highlands Community Charter and how it evaded state regulations. 

The state audit found numerous irregularities, including unqualified teachers, lax or nonexistent attendance records and lavish, wasteful spending. The school spent nearly $2 million from a state grant for what was described as a three-day professional development trip to a posh hotel in San Diego.

None of it was picked up in the audit by its authorizer, the Twin Rivers Unified School District. 

That case highlighted how auditors had limited authority to dig into spending decisions or follow up on red flags. 

At Inspire Charter Schools, a network of homeschool charters with thousands of students, recordkeeping was so scattershot that a FCMAT audit could only speculate on the alleged malfeasance that occurred. The founder also refused to provide auditors with the requested documents.

SB 414 would curb this type of deception by expanding the scope and number of financial reviews, strengthening auditing practices, mandating independent verification of student enrollment and standardizing reporting. It also requires auditors to complete training on how to conduct thorough school audits, and adds a new level of transparency by requiring authorizers to post audit reports online.

Crucially, creating the Office of the Inspector General adds real teeth to state oversight. This independent state agency will have the power to launch its own investigations and subpoena documents.

Taken together, supporters argue, these changes are meant to catch fraud earlier, give the state new tools to recover misspent dollars, and restore public confidence in California’s more than 1,270 charter schools.

100 hours of negotiations

In the six weeks preceding the vote, lawmakers and staff logged nearly 100 hours of negotiations, resolving 90% of the disagreements. Ashby amended her bill to fold in the areas of agreement. The final version runs more than 100 pages and 55,000 words — much of it devoted to laying out auditing requirements.

The other 10% were deal-breakers.

Sticking points involved questions of how much authority the state should exercise over charter schools and how far new financial restrictions should go. Those differences ultimately left lawmakers with no choice but to proceed with separate bills.

The standoff reflected a familiar divide in California education politics: organized labor on one side, charter school advocates on the other. Teachers unions pressed hard for AB 84, which emphasized tighter restrictions and union-backed oversight. Charter advocates rallied behind SB 414, arguing it struck a more balanced approach. 

For charter advocates, the fight was not only about oversight, but also about survival. They viewed AB 84 as another attempt by unions to chip away at charter schools, pointing to provisions that would have limited the size of nonclassroom-based charters approved by small districts. Critics countered that size alone does not predict fraud; in fact, Highlands Community Charter, one of the most brazen cases, would not have been covered under AB 84’s definition of a small authorizer.

This tension surfaced during the floor debate. Sen. Christopher Cabaldon, D-West Sacramento, urged colleagues to stay focused on financial safeguards rather than turning the bill into yet another proxy battle over whether charter schools should exist at all. “This bill is not that,” he said. 

Cabaldon argued that without tighter audit controls and training and revised rules from the State Board of Education, the state would remain vulnerable to the kind of abuse that had already cost millions.

Sen. Akilah Weber Pierson, D-San Diego, struck a pragmatic note: “Colleagues, this is our opportunity to fix what is broken without breaking what works.”

She also emphasized that SB 414 “strikes the right balance. It protects families’ access to innovative learning models — rural, online, personalized — while also putting enforceable guardrails around how those programs are run.”

Several senators abstained rather than vote yes, a move that could signal support for revisiting AB 84 when the Legislature reconvenes in 2026. 

Charter advocates hailed the bill as long-overdue reform. Gregory McGinity, chief government and public affairs officer for the California Charter Schools Association, said SB 414 “provides a comprehensive set of reforms that will make an immediate difference in addressing the issues of fraud and misappropriation of public funds. The bill will improve audit standards and financial transparency across the board.”

Labor leaders were quick to criticize it. In an email to EdSource, California Teachers Association President David Goldberg said, “SB 414 not only fails to address the issues that have led to massive cases of fraud in some charter schools, but it also significantly weakens existing requirements for non-classroom-based charter schools to prioritize spending on student learning. We urge the governor to veto this legislation and are dedicated to our fight for meaningful reform next year.”

Newsom will have until Oct. 12 to sign SB 414, veto it, or allow it to become law without his signature.

The unresolved disagreements between unions and charter advocates ensure the fight will continue. Even Ashby, emphasizing her ties to the CTA and the California Federation of Teachers, promised to work with them on “clean-up” language or additional audit provisions in the months ahead. She suggested another bill could be introduced as early as January.

This story was originally published by EdSource and is republished here with permission.