SB2163

SECTION 1. The legislature finds that public charter schools fulfill a critical need in Hawaii's public education system by providing diverse, innovative, and community-based learning opportunities for students. For the 2025-2026 school year, a total of 13,371 students were enrolled across Hawaii's thirty-eight public charter schools and received in total approximately $150,000,000 in state general funds for the fiscal year, which is approximately five to eight per cent of the department of education's budget. As recipients of significant state funds and as stewards of public resources, public charter schools must demonstrate fiscal accountability consistent with public expectations.

The legislature further finds that section 302D-32, Hawaii Revised Statutes, requires that each public charter school conduct an annual independent financial audit. However, the audits are not publicly reported or presented to the authorizer, which is the state public charter school commission, in a uniform or standardized manner. In addition, the authorizer lacks an explicit enforcement mechanism if a public charter school does not properly complete the audit.

Accordingly, the purpose of this Act is to ensure that each public charter school exercises fiscal accountability consistent with public expectations by:

(1) Standardizing the annual independent financial audits each charter school is required to complete;

(2) Requiring that all annual independent financial audits be publicly accessible;

(3) Requiring the board of education, the authorizer, and the auditor to review each annual independent financial audit;

(4) Authorizing the auditor to conduct its own financial audit of a public charter school if the public charter school is a high risk for financial insolvency; and

(5) Requiring the auditor to conduct a one-time financial audit or each public charter school covering the past three years and other information.

SECTION 2. Chapter 23, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§23- Public charter schools; independent financial audits. The auditor shall review each completed independent financial audit received under section 302D-32(d). If the auditor determines that a public charter school is a high risk for financial insolvency or if requested to do so by the board of education or the applicable authorizer under section 302D-32(g), the auditor may conduct an auditor's financial audit of the public charter school. The auditor shall submit the auditor's financial audit to the board, authorizer, and legislature no later than ninety days after the conclusion of the auditor's financial audit."

SECTION 2. Section 302D-17, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) Notwithstanding section 302D-18 to the contrary, every authorizer [~~shall have the authority to~~] may take appropriate corrective actions or exercise sanctions short of revocation in response to apparent deficiencies in public charter school performance or legal compliance[~~. Such~~], including failure to comply with the requirements of section 302D-32(c). The actions or sanctions may include, if warranted:

(1) Requiring a school to develop and execute a corrective action plan within a specified time frame; and

(2) Reconstituting the governing board of the charter school; provided that the following conditions are met:

(A) Reconstitution occurs only under exigent circumstances, including the following:

(i) Unlawful or unethical conduct by governing board members;

(ii) Unlawful or unethical conduct by the charter school's personnel that raises serious doubts about the governing board's ability to fulfill its statutory, contractual, or fiduciary responsibilities; and

(iii) Other circumstances that raise serious doubts about the governing board's ability to fulfill its statutory, contractual, or fiduciary responsibilities;

(B) The authorizer shall replace up to, but no more than, the number of governing board members necessary so that the newly appointed members constitute a voting majority in accordance with the governing board's bylaws; except that the authorizer may replace the entire governing board if the alternative is the initiation of revocation of the charter school's charter contract and the governing board opts instead for reconstitution; and

(C) Reconstitution occurs in accordance with processes set forth by the authorizer that provide the charter school's personnel and parents with timely notification of the prospect of reconstitution."

SECTION 3. Section 302D-21, Hawaii Revised Statutes, is amended to read as follows:

"§302D-21 Annual board report. No later than the opening day of each regular session of the legislature, the board shall issue to the governor, the legislature, and the public, an annual report on the State's public charter schools, drawing from the annual reports submitted by every authorizer, as well as any additional relevant data compiled by the board, for the school year ending in the preceding calendar year. The annual report shall include:

(1) The board's assessment of the successes, challenges, and areas for improvement in meeting the purposes of this chapter, including the board's assessment of the sufficiency of funding for public charter schools, and any suggested changes in state law or policy necessary to strengthen the State's public charter schools;

(2) A line-item breakdown of all federal funds received by the department and distributed to authorizers;

(3) Any concerns regarding equity and recommendations to improve access to and distribution of federal funds to public charter schools;

(4) A summary of the criteria used by the charter school facilities funding working group, established pursuant to section 302D-29.5, in allocating facilities funding;

(5) A detailed breakdown of the allocation of funding through general funds and bond funds;

(6) A detailed list of the projects funded by general funds and bond funds;

(7) The status of funding for projects previously awarded; [~~and~~]

(8) A discussion of all board policies adopted in the previous year, including a detailed explanation as to whether each policy is or is not applicable to charter schools[.]; and

(9) A summary of the independent financial audits pursuant to section 302D-32 that includes any patterns of fiscal deficiencies, notable comments, or recommended actions."

SECTION 4. Section 302D-32, Hawaii Revised Statutes, is amended to read as follows:

"§302D-32 [~~Annual audit.~~] Independent financial audits; auditor's financial audits. [~~Each~~ ~~charter school shall annually complete an independent financial audit that complies with the requirements of its authorizer and the department.~~] (a) The board, in consultation with all authorizers and the auditor, shall adopt rules under chapter 91 that establish standards for independent financial audits of public charter schools, including standards for format, reporting, and public disclosure.

(b) The authorizer shall provide to each charter school it oversees a list of approved independent auditors, from which the charter school shall select one independent auditor to comply with this section.

(c) Within one hundred twenty days after the close of each fiscal year, each charter school shall complete an independent financial audit and submit that completed independent financial audit to the authorizer.

(d) The authorizer shall then transmit copies of the completed independent financial audit to the board, legislature, and auditor. The auditor shall review each completed independent financial audit under section 23- .

(e) The authorizer shall maintain a publicly accessible online database of all independent financial audits and auditor's financial audits under subsection (g) of each charter school it oversees.

(f) Failure by any public charter school to comply with subsection (c), shall be considered a material breach of the charter contract and the authorizer may sanction the public charter school by withholding funds, imposing a corrective action plan, or revoking the charter.

(g) The board and authorizer shall review the independent financial audits. If the board or authorizer determines that a public charter school is a high risk for financial insolvency, the board or authorizer may request the auditor to conduct an auditor's financial audit of the public charter school under section 23- ; provided that the auditor may deny the request."

SECTION 5. (a) The auditor shall conduct a financial audit of each charter school. For each charter school, the financial audit shall include:

(1) A list of financial expenditures for the past three years;

(2) Financial information concerning faculty; and

(3) The school's cash on hand balance.

(b) The auditor may contract with private entities to conduct the financial audits required by this section.

(c) The auditor shall submit a report of its findings and recommendations, including any proposed legislation, to the legislature no later than twenty days prior to the convening of the regular session of 2027.

SECTION 6. No later than one year after the auditor's submission of the report to the legislature under section 5 of this Act, the state public charter school commission shall take action based on the recommendations made by the auditor.

SECTION 7. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2026-2027 for the auditor to complete the financial audits under section 5 of this Act.

The sum appropriated shall be expended by the auditor for the purposes of this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2026.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2163
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII