By Madison Beck

AB 70 (Berman), as amended August 20, 2020, amends section 94801.5 and adds sections 94850.2, 94858.5, and 94874.1 to the Education Code to clarify the conditions under which the Bureau of Private Postsecondary Education (BPPE) may grant oversight exemptions to institutions of higher education that previously operated as for-profit institutions, but have recently converted to nonprofit status. Specifically, the bill defines “nonprofit corporation” and “public institution of higher education” as it is used in the California Private Postsecondary Act of 2009, and specifies that only an institution of higher education meeting these definitions is exempt from BPPE oversight.

Of note, new section 94874.1 prohibits BPPE from verifying the exemption of a nonprofit institution that operated as a for-profit institution during any period on or after January 1, 2010, unless the Attorney General (AG) verifies that the following conditions are met: “(1) The nonprofit institution acquired the for-profit institution’s assets for no more than the fair value of the assets; (2) The nonprofit institution has not executed agreements for goods or services exceeding the fair value of the goods or services; (3) All core functions of the nonprofit institution are conducted by, or under the direction of, the nonprofit institution; and (4) The nonprofit institution has not entered into any contracts, loans, or leases with a term of longer than three years with the former for-profit institution’s owners and managers.”  The bill exempts any nonprofit institution that previously operated as a for-profit institution that is owned by or controlled by a public institution of higher learning.

The bill also requires the AG to provide written notification to the institution and the Bureau of its verification within 90 days of receipt of all information the AG determines is necessary and permits institutions to appeal actions taken by the Bureau and the AG under this section to the superior court.

According to the author, “some for-profit colleges are using complicated financial schemes and shell corporations to covertly pose as nonprofit or public institutions, misleading students while dodging appropriate oversight. AB 70 would prevent these covert for-profit colleges from evading state oversight and deceiving students; a problem even more paramount in light of the current pandemic.”  The author also cites a decline in enforcement of nonprofit statutes by the federal Internal Revenue Service as contributing to the problem, thus necessitating stricter oversight at the state level.

The legislative analyses state that this bill is substantially similar to AB 1341 (Berman), which was part of a 2019 package of seven higher education bills that targeted private postsecondary institutions. That bill was held under submission in the Senate Appropriations Committee in August 2019 and did not make it to the Governor’s desk.  On January 6, 2020, Assemblymember Berman amended AB 70 to include the substance of his former bill, AB 1341.

BPPE has not taken a formal position on AB 70, however, the bill is supported by sixteen advocacy groups including three University of San Diego organizations, the Center for Public Interest Law, the Children’s Advocacy Institute, and the Veterans’ Legal Clinic.

Governor Newsom signed AB 70 on September 25, 2020. (Chapter 153, Statutes of 2020). Pursuant to section 94801.5(f) and section 94874.1(e), the bill will become effective on January 1, 2022.