Existing law establishes a system of public elementary and secondary schools in this state and provides for their funding and governance. Existing law establishes school districts throughout the state to administer the public elementary and secondary schools within their respective jurisdictions.

This bill would authorize school districts to establish auxiliary organizations, as defined, for purposes of providing supportive services and specialized programs for the general benefit of schoolsites, as defined. The bill, among other things, would require a school district that establishes an auxiliary organization, in accordance with regulations adopted by the State Department of Education, to institute an accounting and reporting system for the operation of the auxiliary organization, and procedures to ensure that transactions of the auxiliary organization are within the educational mission of the school district, as specified.

(a) The Legislature finds and declares all of the following:

(1) California school districts increasingly rely on philanthropic support, grants, partnerships, and community donations to supplement their public funding and to support pupils, programs, and facilities.

(2) Community college districts and public universities in California have long been authorized to establish auxiliary organizations as separate nonprofit entities to support their educational missions, while remaining subject to public oversight, transparency, and accountability.

(3) Existing law does not provide a comparable statutory framework for school districts to establish auxiliary organizations, resulting in inconsistent governance structures, limited fundraising capacity, and unnecessary administrative and employment constraints.

(4) Authorizing governing board of school districts to establish auxiliary organizations that are legally distinct yet purpose-aligned will promote transparency, accountability, operational efficiency, and responsible stewardship of private funds in support of public education.

(b) It is therefore the intent of this act to authorize governing boards of school districts to establish auxiliary organizations subject to governing board oversight, public transparency laws, and appropriate fiscal safeguards.

Chapter 5. Auxiliary Organizations

35800.

(a) The governing board of a school district may establish auxiliary organizations for the purpose of providing supportive services and specialized programs for the general benefit of its schoolsite or schoolsites.

(b) As used in this article, the following definitions apply:

(1) “Auxiliary organization” may include, but is not limited to, any of the following entities:

(A) Any entity in which any official of a school district participates as a director as part of their official position.

(B) Any entity which operates a commercial service for the benefit of a schoolsite or school district on a schoolsite or other property of the school district.

(C) Any entity whose governing instrument provides in substance both of the following:

(i) Its purpose is to promote or assist a schoolsite or the school district, or to receive gifts, property, and funds to be used for the benefit of the schoolsite or the school district or any person or organization having an official relationship therewith.

(ii) Any of its directors, governors, or trustees are either appointed or nominated by, or subject to, the approval of the governing board of the school district, an official of the school district, or selected, ex officio, from the membership of the teachers, the governing board, or the administrative staff of the school district.

(D) Any entity which is designated as an auxiliary organization by the governing board of a school district.

(2) “Schoolsite” means a school maintained by a school district.

35801.

An auxiliary organization may enter into a joint powers agreement with any federal, state, or local governmental entity pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code.

35802.

(a) A certified public accountant shall be selected by each auxiliary organization described in Section 35800. Upon being notified of the certified public accountant selected by an auxiliary organization, the school district shall forward the applicable auditing and reporting procedures to the selected certified public accountant. In accordance with procedures prescribed by the department, such certified public accountant shall annually audit any and all funds of the auxiliary organization. The auxiliary organizations shall contract for and receive such audit annually, and shall submit such audit to the department. Auxiliary organizations shall annually publish an audited statement of their financial condition which shall be disseminated as widely as feasible and be available to any person on request. When an auxiliary organization primarily serves a single schoolsite of the school district, publication in the schoolsite’s newspaper or on the schoolsite’s internet website shall be deemed compliance with this requirement. When an auxiliary organization serves the governing board of the school district, distribution of the published audited statement of its financial condition at a regularly scheduled meeting of the district governing board shall be deemed compliance with this requirement.

(b) When an auxiliary organization primarily serves a single schoolsite of the school district, the principal of that schoolsite, and when an auxiliary organization primarily serves a school district, the superintendent of the school district, shall be responsible for ascertaining that all expenditures are in accordance with policies of the governing board of the school district, the propriety of all expenditures, and the integrity of the financial reporting made by auxiliary organization.

(c) The purposes and operations of an auxiliary organization shall be conducted in conformity with general regulations established by the department and with implementing regulations which shall be established by the governing board of each school district prior to the establishment of an auxiliary organization. The implementing regulations established by a school district shall be submitted to, and approved by, the department prior to the recognition of an auxiliary organization by the governing board. At such time as a school district may recognize an auxiliary organization, it shall submit a copy of the articles of incorporation, bylaws, or other governing instruments of the auxiliary organization to the department. The accounting procedures of such auxiliary organizations shall be comparable to those that govern the auxiliary organizations established under Article 6 (commencing with Section 72670) of Chapter 6 of Part 45 of Division 7 of, and Chapter 7 (commencing with Section 89900) of Part 55 of Division 8 of, Title 3. The regulations shall include provisions requiring the governing board of each auxiliary organization to provide salaries, working conditions, and benefits for the full-time employees of each auxiliary organization which are comparable to those provided to employees of the school district performing similar services; provided, however, that the regulations may permit retirement benefits, or permanent status benefits, or both, to be withheld from temporary and executive employees of each auxiliary organization. For the purposes of this subdivision, a “temporary employee” is (1) an employee employed for a research project, workshop, institute, or other special project funded by any grant, contract, or gift; or (2) an employee whose contract of employment is for a fixed term not exceeding three years. For the purposes of this subdivision, an “executive employee” is any management employee with responsibility for the development and execution of auxiliary organization policy and includes, but is not limited to, general managers, business managers, directors, and similar positions. For those full-time employees whose duties are not comparable to classes in the school district, the salaries established shall be at least equal to the salaries prevailing in other school districts in the area or commercial operations of like nature.

(d) Retirement benefits may be provided by other than the Public Employees’ Retirement System. A contract for participation in the Public Employees’ Retirement System in accordance with the terms and conditions of the public employees’ retirement law shall be deemed to satisfy fully the requirements of subdivision (c) with respect to retirement.

(e) Notwithstanding subdivision (c), the regulations established by the governing board of the school district may exempt the board of directors of any newly created auxiliary organization from the requirement of providing retirement benefits for a period not to exceed three years from the date that the auxiliary organization is established.

35803.

(a) Each auxiliary organization formed pursuant to this article shall have a board of directors composed, both as to size and categories of membership, in accordance with regulations established by the governing board of the school district.

(b) Each board of directors shall, during each fiscal year, hold at least one business meeting each quarter. The board of directors shall have the benefit of the advice and counsel of at least one attorney admitted to practice law in this state and at least one licensed certified public accountant. Neither the attorney at law nor the certified public accountant need be members of the board of directors.

(c) No auxiliary organization shall accept any grant, contract, bequest, trust, or gift, unless it is so conditioned that it may be used only for purposes consistent with policies of the governing board of the school district.

(d) Each board of directors of an auxiliary organization shall conduct its business in public meetings in accordance with the provisions of Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 2 of the Government Code.

35804.

(a) The board of directors of an auxiliary organization shall approve all expenditures and fund appropriations. Appropriations of funds for use outside of the normal business operations of the auxiliary organization shall be approved in accordance with school district policy and regulations by an officer designated by the governing board of the school district.

(b) The governing board of the school district, in accordance with regulations of the department, shall do all of the following:

(1) Institute a standard systemwide accounting and reporting system for businesslike management of the operation of these auxiliary organizations.

(2) Implement financial standards that will ensure the fiscal viability of these various auxiliary organizations. The standards shall include proper provision for professional management, adequate working capital, adequate reserve funds for current operations and capital replacements, and adequate provisions for new business requirements.

(3) Institute procedures to ensure that transactions of the auxiliary organizations are within the educational mission of the school district.

(4) Develop policies for the appropriation of funds derived from indirect cost payments not required to implement paragraph (2). Uses of these funds shall be regularly reported to the governing board of the school district.

35805.

(a) Operations of commercial services on a schoolsite, such as a food service or bookstore shall, when operated by an auxiliary organization, be self-supporting.

(b) Any surplus funds from commercial operations shall be used for such purposes as are consistent with regulations of the governing board of the school district.

35806.

No member of the board of directors of an auxiliary organization shall be financially interested in any contract or other transaction entered into by the board of which the board member is a member. Any contract or transaction entered into in violation of this section is void.

35807.

No contract or other transaction entered into by the board of directors of an auxiliary organization is void under the provisions of Section 35806; nor shall any member of such board be disqualified or deemed guilty of misconduct in office under such provisions, if both of the following conditions are met:

(a) The fact of such financial interest is disclosed or known to the board of directors and noted in the minutes, and the board thereafter authorizes, approves, or ratifies the contract or transaction in good faith by a vote sufficient for the purpose without counting the vote or votes of such financially interested member or members.

(b) The contract or transaction is just and reasonable as to the auxiliary organization at the time it is authorized or approved.

35808.

The provisions of Section 35807 shall not be applicable if any of the following conditions are met:

(a) The contract or transaction is between an auxiliary organization and a member of the board of directors of that auxiliary organization.

(b) The contract or transaction is between an auxiliary organization and a partnership or unincorporated association of which any member of the governing board of that auxiliary organization is a partner or in which the board member is the owner or holder, directly or indirectly, of a proprietorship interest.

(c) The contract or transaction is between an auxiliary organization and a corporation in which any member of the board of directors of that auxiliary organization is the owner or holder, directly or indirectly, of 5 percent or more of the outstanding common stock.

(d) A member of the board of directors of an auxiliary organization is interested in a contract or transaction within the meaning of Section 35806, and without first disclosing such interest to the governing board at a public meeting of the board, influences or attempts to influence another member or members of the board to enter into the contract or transaction.

35809.

It is unlawful for any person to utilize any information, not a matter of public record, which is received by the person by reason of the person’s membership on the board of directors of an auxiliary organization, for personal pecuniary gain, regardless of whether the person is or is not a member of the board at the time such gain is realized.