SB3391 104TH GENERAL ASSEMBLY

LRB104 20151 LNS 33602 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
SB3391

Introduced 2/4/2026, by Sen. Celina Villanueva

SYNOPSIS AS INTRODUCED:

105 ILCS 5/27A-3
105 ILCS 5/27A-9.5 new
105 ILCS 5/27A-10.15 new
105 ILCS 5/27A-10.20 new

Amends the Charter Schools Law of the School Code. Provides that upon approval of a charter renewal by an authorizer, the charter operator shall execute the renewal agreement no later than 90 days after the date of the authorizer's final renewal approval. Provides that a charter school that is deemed nonrenewed is ineligible to receive any payments from a school district. Provides that a charter operator that fails to execute a renewal agreement within a specified period may not continue to operate the charter school beyond the expiration of the existing charter term and is subject to closure procedures. Requires every charter operator to maintain closure security. Provides that failure to maintain closure security is a basis for the authorizer to withhold a portion of per-pupil payments until compliance is achieved and for consideration in denying a charter renewal or revoking the charter or ineligibility to operate additional charter campuses. Provides that if the closure security is insufficient to cover the costs of a closure event, the authorizer or the State Board of Education may bring a civil action against the charter operator to recover the unpaid amounts and seek to impose a lien on any property owned by the charter operator to secure recovery. Provides that if an authorizer determines that a charter school is in financial distress, the authorizer may require the charter operator to submit a financial remediation plan within 30 days. Provides that if the authorizer determines that the charter school has failed to implement an approved remediation plan or the financial distress presents an immediate risk to students, employees, or public funds, the authorizer may initiate financial intervention by appointing an independent fiscal manager approved by the authorizer and the State Board. Allows the fiscal manager to exercise authority limited to financial matters. Provides that financial intervention is temporary and may not exceed 180 days, except that the authorizer may extend the intervention once for good cause. Makes other changes. Effective immediately.

A BILL FOR

AN ACT concerning education.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. This Act may be referred to as the Charter School Closure Financial Accountability Law.

Section 5. Findings. The General Assembly finds and declares all of the following:

(1) Public funds and public property provided to charter schools must be protected and used for students' education.

(2) Charter schools in this State may close during a school year, and when they do there is a risk that students, employees, and public assets will suffer harm while the charter operator faces no meaningful financial accountability.

(3) Current law and administrative guidance address closure procedures but do not uniformly require a prefunded financial mechanism sufficient to cover transition costs, severance, and the return of publicly funded property.

(4) It is, therefore, necessary to require charter operators to maintain closure reserves, require return of public assets purchased with public funds, provide remedies to recover costs incurred by authorizers and students' home districts, and impose penalties for mid-year abandonment that is negligent or in bad faith.

Section 10. The School Code is amended by changing Section 27A-3 and by adding Sections 27A-9.5, 27A-10.15, and 27A-10.20 as follows:

(105 ILCS 5/27A-3)

Sec. 27A-3. Definitions. For purposes of this Article:

"At-risk pupil" means a pupil who, because of physical, emotional, socioeconomic, or cultural factors, is less likely to succeed in a conventional educational environment.

"Authorizer" means an entity authorized under this Article to review applications, decide whether to approve or reject applications, enter into charter contracts with applicants, oversee charter schools, and decide whether to renew, not renew, or revoke a charter.

"Closure event" means any termination, revocation, nonrenewal, or voluntary cessation of operations of a charter school resulting in the charter school's permanent cessation of instruction to enrolled pupils outside the normal end-of-school-year phase-out.

"Closure security" means a financial instrument listed under subsection (a) of Section 27A-10.15.

"Financial distress" means one or more of the following conditions, as determined by an authorizer based on documented evidence:

(1) failure to timely meet payroll, benefits, or other operating obligations;

(2) material audit findings indicating insolvency, negative cash flow, or substantial doubt as to a charter school's ability to continue as a going concern;

(3) default or imminent default on debt or lease obligations;

(4) failure to maintain required closure security or other financial reserves required under this Article;

(5) evidence of misuse or misappropriation of public funds; or

(6) any financial condition that poses an imminent risk to the continued operation of a charter school or to the orderly transition of enrolled pupils.

"Financial intervention" means a temporary, limited assumption of financial oversight authority by an authorizer for the purpose of stabilizing a charter school and protecting students, employees, and public assets.

"Local school board" means the duly elected or appointed school board or board of education of a public school district, including special charter districts and school districts located in cities having a population of more than 500,000, organized under the laws of this State.

"Public assets" means equipment, furniture, books, instructional technology, real estate, or any other real property purchased or leased with public funds or purchased with funds subject to public oversight.

"State Board" means the State Board of Education.

"Union neutrality clause" means a provision whereby a charter school agrees: (1) to be neutral regarding the unionization of any of its employees, such that the charter school will not at any time express a position on the matter of whether its employees will be unionized and such that the charter school will not threaten, intimidate, discriminate against, retaliate against, or take any adverse action against any employees based on their decision to support or oppose union representation; (2) to provide any bona fide labor organization access at reasonable times to areas in which the charter school's employees work for the purpose of meeting with employees to discuss their right to representation, employment rights under the law, and terms and conditions of employment; and (3) that union recognition shall be through a majority card check verified by a neutral third-party arbitrator mutually selected by the charter school and the bona fide labor organization through alternate striking from a panel of arbitrators provided by the Federal Mediation and Conciliation Service. As used in this definition, "bona fide labor organization" means a labor organization recognized under the National Labor Relations Act or the Illinois Educational Labor Relations Act. As used in this definition, "employees" means non-represented, non-management, and non-confidential employees of a charter school.

(Source: P.A. 103-175, eff. 6-30-23; 103-416, eff. 8-4-23; 103-605, eff. 7-1-24.)

(105 ILCS 5/27A-9.5 new)

Sec. 27A-9.5. Charter renewal; timely execution; funding consequences.

(a) This Section applies to all charter renewals approved on or after the effective date of this amendatory Act of the 104th General Assembly.

(b) Upon approval of a charter renewal by an authorizer, the charter operator shall execute the renewal agreement no later than 90 days after the date of the authorizer's final renewal approval.

(c) Failure of a charter operator to execute an approved renewal agreement within the 90-day period shall constitute:

(1) a refusal of the renewal by the charter operator; and

(2) a nonrenewal of the charter for all purposes under this Article, without further action required by the authorizer.

(d) A charter school that is deemed nonrenewed under subsection (c) is ineligible to receive any payments from a school district, including a school district organized under Article 34, after the expiration of the existing charter term, including, but not limited to:

(1) per-pupil tuition or payments;

(2) supplemental, categorical, or grant funding administered by the district; and

(3) any pass-through or discretionary funds controlled by the district.

The school district shall cease payments upon expiration of the charter term if a renewal agreement has not been executed as required by subsection (b).

(e) A charter operator's refusal to execute a renewal agreement under subsection (b) due to disagreement with the terms approved by the authorizer, including labor-related, governance, or accountability provisions, may not delay, toll, or suspend the 90-day execution requirement under subsection (b) or the funding consequences under subsection (d).

(f) A charter operator that fails to execute a renewal agreement within the period specified in subsection (b) may not continue to operate the charter school beyond the expiration of the existing charter term and is subject to the closure procedures under this Article.

(g) At the time an authorizer grants approval of a charter renewal, the authorizer shall provide written notice to the charter operator of the execution deadline under subsection (b) and the funding consequences of a failure to execute under subsection (d).

(h) Nothing in this Section shall be construed to impair the rights of employees or labor organizations under the Illinois Educational Labor Relations Act.

(105 ILCS 5/27A-10.15 new)

Sec. 27A-10.15. Closure financial accountability.

(a) Every charter operator shall maintain, while its charter is in effect, one or more of the following financial instruments to secure closure obligations:

(1) an escrow account held in a financial institution in this State in the name of the charter school, funded in cash;

(2) a surety bond or irrevocable letter of credit issued by a financial institution authorized to do business in this State; or

(3) a segregated reserve fund reflected on the charter school's audited financial statements and held in a manner acceptable to the authorizer and the State Board.

A charter school in operation on the effective date of this amendatory Act of the 104th General Assembly must comply with this Section within 2 fiscal years after the effective date of this amendatory Act of the 104th General Assembly.

(b) The closure security under subsection (a) for a charter school in operation for at least one fiscal year must equal 3 months of the charter school's average operating expenditures based on its last audited fiscal year. If the closure security is below the required amount, the authorizer shall require a remediation plan to reach compliance within 2 fiscal years. Failure to timely comply is grounds for suspension of enrollment growth and may be considered in a charter renewal determination.

For a charter school in operation for less than one fiscal year, the closure security must equal 3 months of the charter school's projected annual budget, as approved by the charter's authorizer. The closure security for such a charter school must be established and funded to at least 50% of the required amount, based on the charter school's projected budget, at the time the charter is granted or, for a charter granted before the effective date of this amendatory Act of the 104th General Assembly, within 30 days after the effective date of this amendatory Act of the 104th General Assembly and must reach the full required amount by the end of the charter's second full fiscal year.

(c) Closure security shall be used, in priority order, to pay:

(1) the direct costs of transitioning students, such as transportation, records transfer, and student placement assistance, incurred by the authorizer or receiving school district;

(2) any outstanding payroll for employees for time worked through the closure date, including legally required benefits, and severance if contractually required under the charter school's collective bargaining agreements or employment contracts;

(3) any costs reasonably incurred for the storage or transfer of student records and special education documents required to ensure continuity of services;

(4) any costs to return public assets to the authorizer or otherwise account for disposition of public assets purchased with public funds; and

(5) any reasonable administrative costs incurred by the authorizer or the State Board to supervise and execute the closure and student transition.

Closure security may not be used to pay any preexisting, unrelated debt of the charter operator that is not connected to the operating obligations to students, employees, or public property, except as permitted under this subsection.

(d) A charter operator must provide the authorizer and the State Board written notice of the charter operator's intent to close a charter school no fewer than 90 days before the planned closure and must provide immediate notice upon any involuntary closure action, insolvency event, or cessation of operations.

Within 30 days after a closure event, the authorizer shall publish a closure action statement that lists amounts from the closure security disbursed and the uses.

(e) Failure to maintain closure security as required under this Section is a basis for:

(1) the authorizer to withhold a portion of per-pupil payments until compliance is achieved; and

(2) consideration in denying a charter renewal or revoking the charter or ineligibility to operate additional charter campuses.

If the closure security is insufficient to cover the costs of a closure event as set forth in subsection (c), the authorizer or the State Board may:

(1) bring a civil action against the charter operator to recover the unpaid amounts; and

(2) seek to impose a lien on any property owned by the charter operator that is located in this State to secure recovery.

In cases in which a closure results from gross negligence, willful misconduct, or intentional misappropriation of public funds by the charter operator or its officers or directors, the authorizer or State Board may seek recovery from individual officers, directors, or persons who knowingly caused the gross negligence, willful misconduct, or intentional misappropriation, including civil penalties not to exceed $50,000 per violation and reasonable attorney's fees.

(f) Upon closure, any public assets purchased with public funds must be returned to the authorizer or disposed of according to procedures established by the State Board or the authorizer. Proceeds from any sale of such assets shall be applied first to outstanding obligations to students and employees, and then to the reimbursement of public funds.

(g) The State Board shall adopt rules to implement this Section within 180 days after the effective date of this amendatory Act of the 104th General Assembly, including acceptable forms of closure security, procedures for claims on closure security, and documentation standards for authorizers to approve closure security.

(105 ILCS 5/27A-10.20 new)

Sec. 27A-10.20. Financial distress; charter school financial intervention.

(a) If an authorizer determines that a charter school is in financial distress, the authorizer may require the charter operator to submit a financial remediation plan for approval within 30 days after that determination. The remediation plan shall include, at a minimum:

(1) current cash-flow projections;

(2) corrective actions to address identified deficiencies;

(3) a timeline for achieving fiscal stability; and

(4) enhanced financial-reporting requirements as specified by the authorizer.

Failure to timely submit a remediation plan or implement an approved remediation plan constitutes grounds for financial intervention under subsection (b).

(b) If the authorizer determines that (i) the charter school has failed to implement an approved remediation plan or (2) the financial distress presents an immediate risk to students, employees, or public funds, the authorizer may initiate financial intervention by appointing an independent fiscal manager approved by the authorizer and the State Board.

(c) The fiscal manager may exercise authority, limited to financial matters, over the charter school, including:

(1) approval and oversight of expenditures and disbursements;

(2) oversight of payroll, benefits, and required employee payments;

(3) reviewing, modifying, or terminating any vendor contracts necessary to ensure fiscal stability;

(4) protection, inventory, and preservation of public assets; and

(5) ensuring compliance with financial reporting and audit requirements.

The fiscal manager may not exercise authority over curriculum, instruction, educational programming, or personnel matters unrelated to financial administration.

(d) Financial intervention under this Section is temporary and may not exceed 180 days, except that the authorizer may extend the intervention once for good cause. The intervention shall terminate upon a determination by the authorizer that fiscal stability has been restored or upon charter revocation, surrender, nonrenewal, or closure.

(e) Prior to initiating financial intervention, the authorizer shall provide written notice to the charter operator describing the basis for the intervention and provide an opportunity to respond, except in cases in which immediate action is required to protect students or public funds.

(f) An authorizer's exercise of authority under this Section:

(1) does not constitute operation or management of the charter school;

(2) does not create financial or legal liability for the authorizer or its members; and

(3) shall be deemed an oversight and regulatory function for purposes of immunity under Section 27A-7.10.

(g) Financial intervention under this Section does not preclude charter revocation, nonrenewal, or closure and may be used to stabilize operations pending an orderly closure pursuant to this Article.

Section 97. Severability. The provisions of this Act are severable under Section 1.31 of the Statute on Statutes.

Section 99. Effective date. This Act takes effect upon becoming law.