Can an Oregon public charter school hire a private for-profit company to run the school, and must it already have 501(c)(3) tax-exempt status when it applies?

Plain-English summary

Oregon enacted its public charter school law in ORS chapter 338, allowing public charter schools to operate as alternatives to traditional district schools while still being funded as public schools. The Oregon Department of Education needed guidance on three threshold questions: whether a public charter school could outsource its operations to a private for-profit entity, what constitutional constraints applied if it did, and whether a charter school had to be a nonprofit.

For-profit contracting allowed. ORS 338.115(8) gave a public charter school broad contracting authority: "A public charter school may enter into contracts and may lease facilities and services from a school district, education service district, state institution of higher education, other governmental unit or any person or legal entity." The AG read "any legal entity" to mean what it says, including for-profit corporations. The legislature could have restricted charter schools to contracts with specific kinds of entities; it didn't.

The AG also confirmed that the practice of public educational entities contracting with for-profit entities was well-established. School districts already contracted with for-profit entities for food service, transportation, and special and alternative education. ORS 336.631(1)(f) and (4) referenced contracts between school districts and private alternative programs. The state did not have a categorical bar on for-profit involvement in public education.

The AG checked other charter school statutes for restrictions. ORS 338.035(6)(a) prohibited converting a tuition-based private school to a public charter school. The AG read that as a narrow prohibition on a specific conversion, not as a general ban on for-profit contracting. ORS 338.045 listed required items in a charter school application; nothing required identifying contracts for services or required teachers to be public employees. Charter schools were free to staff up through contracts.

Constitutional accountability constraints. Although the AG approved for-profit contracting in principle, the AG flagged the constitutional question: a public charter school is a government entity providing the governmental function of public education. The school cannot delegate that function so completely that no public accountability remains. Two requirements followed.

First, the public charter school had to retain a right of control over the for-profit entity. The contract had to leave the school with ultimate decision-making authority over governmental functions, including the right to review the contractor's decisions and step in; the school could not simply rubberstamp the contractor's actions. The contractor could not be a true autonomous operator.

Second, the public charter school had to provide procedural safeguards to affected members of the public on matters that constituted the governmental function of providing a public education. That meant things like due process for student discipline, public board meetings, public records, and similar accountability mechanisms had to be in place at the charter school level.

The AG framed the test in terms of who was discharging the governmental function. If the public charter school's board genuinely retained ultimate authority and provided the accountability mechanisms that public education required, the use of a for-profit contractor was lawful. If the contractor effectively ran the show without meaningful oversight, the school would have impermissibly delegated a governmental function.

Tax-exempt status need not be granted at application. The third question was whether a public charter school had to be a 501(c)(3) tax-exempt organization at the time of application or at the time of sponsor approval. The AG concluded no. Under ORS 338.035(2), before it operates a charter school must be approved by a sponsor, be established as a nonprofit organization under Oregon law, and have applied to qualify as a 501(c)(3) organization. The AG read the statute's "have applied to qualify" language to mean the school need not have actually been determined tax-exempt when it applies or when the sponsor approves it. An application could not be denied solely because 501(c)(3) status had not yet been granted.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Wall Street company run an Oregon public charter school?
Under ORS 338.115(8) as analyzed, yes, through a contract with the charter school. The charter school had to retain control and accountability. But the day-to-day operational management could be outsourced to a for-profit education management organization.

What did "right of control" mean in practice?
The AG didn't define it precisely. Drawing on federal delegation cases, the AG said the charter school had to retain final decision-making authority over governmental functions, at least a right to review the contractor's decisions and step in, and had to independently consider the contractor's proposed actions rather than rubberstamp them. The contractor could not be effectively immune from the board's authority.

What "procedural safeguards" had to be in place?
The opinion identified the underlying concept (procedural protections for the public in matters of educational governance) but didn't give a complete list. In practice, this meant the kinds of due process for students, public meetings, and public records that any public school had to provide had to be in place at the charter school level.

Could a charter school hire a for-profit company to make all the educational decisions?
The AG implicitly answered no. The opinion identified certain functions as governmental at a minimum: developing and modifying the curriculum, ensuring instruction consistent with the approved curriculum, and decisions affecting a student's access to education (such as suspension or expulsion). A charter school that delegated those entirely to a contractor would have surrendered too much. The board had to retain meaningful authority over them.

Was the charter school itself required to be a nonprofit?
Yes. Under ORS 338.035(2), before it could operate a charter school had to be established as a nonprofit organization under Oregon law and had to have applied to qualify as a 501(c)(3) tax-exempt organization. What the AG concluded was narrower: the school did not have to have actually been granted 501(c)(3) tax-exempt status by the time of application or sponsor approval. Having applied was enough.

What about converting an existing private school into a charter school?
ORS 338.035(6)(a) specifically prohibited the conversion of a tuition-based private school to a public charter school. The legislature drew that line, but the AG read it narrowly. ORS 338.035(6)(b) explicitly permitted converting alternative education programs (public or private) to public charter schools.

Background and statutory framework

ORS chapter 338 is Oregon's public charter school law. ORS 338.115(8) provides broad contracting authority: charter schools may contract with "any person or legal entity." That broad language is the textual basis for the for-profit contracting permission.

ORS 338.035(6)(a) prohibits the State Board of Education and school district boards from approving the conversion of a tuition-based private school to a public charter school. ORS 338.035(6)(b) permits converting alternative education programs to public charter schools.

ORS 338.045 lists required items in a charter school application. The required items include a description of staff and teacher qualifications under (2)(p) but do not include teacher employment status, and do not require listing contracted services.

ORS 336.631(1)(f) and (4) reference school district contracts with private alternative programs, establishing the broader Oregon practice of public-private contracting in education.

ORS 338.035(2) sets the threshold conditions a charter school must meet before it may operate: sponsor approval, establishment as an Oregon nonprofit, and having applied to qualify as a 501(c)(3) organization. 26 USC § 501(c)(3) is the federal tax-exemption provision for charitable, educational, and similar organizations.

The constitutional accountability concern derives from general principles of administrative law and the prohibition on improper delegation of governmental functions. The AG did not cite specific Oregon Supreme Court authority for the test but framed it in conventional terms.

Citations

• ORS 338.115(8) (charter school contracting authority)
• ORS 338.035(2) (conditions to operate: sponsor approval, Oregon nonprofit status, applied for 501(c)(3))
• ORS 338.035(6)(a) (prohibition on converting tuition-based private school to charter school)
• ORS 338.035(6)(b) (alternative education program conversion permitted)
• ORS 338.045 (required content of charter school application)
• ORS 336.631(1)(f), (4) (school district contracts with private alternative programs)
• 26 USC § 501(c)(3) (federal tax exemption)

Source

• Landing page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2000/09/op8273.pdf

Original opinion text

September 13, 2000

No. 8273
This opinion is issued in response to questions from Greg McMurdo, Executive Legal
Officer, Oregon Department of Education, about public charter schools.
FIRST QUESTION PRESENTED
Under ORS chapter 338, may a public charter school contract out its
operations to a private, for-profit entity?
ANSWER GIVEN
Yes. Assuming that the contract is consistent with the terms of the charter and all
applicable laws, a public charter school may contract with a private, for-profit entity to operate
the school. Unless the contract ensures that the public charter school remains accountable as
described in the discussion of question 2 below, however, the contract will be unlawful.
SECOND QUESTION PRESENTED
What constitutional restrictions apply to a public charter school
contracting out its operation to a private for-profit entity?
ANSWER GIVEN
Because a public charter school is a government entity, when contracting out its
operations to a private, for-profit entity, a public charter school must retain a right of control over
the for-profit entity and provide procedural safeguards to affected members of the public in
relation to those aspects of the school’s operations that constitute the governmental function of
providing a public education.

THIRD QUESTION PRESENTED
Must a public charter school be a tax exempt organization under section
501(c)(3) of the Internal Revenue Code (a) at the time of application, or (b) at the
time of sponsor approval?
ANSWER GIVEN
No.
I.

Statutory Contracting Authority
ORS 338.115(8) provides a broad grant of contract authority to a public charter school. It

states:
(8) A public charter school may enter into contracts and may lease
facilities and services from a school district, education service district, state
institution of higher education, other governmental unit or any person or legal
entity.
On its face, this statute permits a public charter school to contract with “any person or
legal entity.” Thus, ORS 338.115(8) would necessarily authorize a public charter school to
contract with a for-profit entity that is legally authorized to engage in business in Oregon. The
practice of public educational entities’ contracting with for-profit entities for services, including
direct services to children, is well established. For example, many school districts contract with
for-profit entities for food, transportation and special and alternative education services. See ORS
336.631(1)(f), (4) (referencing contracts between school district and private alternative
program).1/ Had the legislature wanted to restrict public charter schools’ contracting authority to
certain types of contractors or to certain kinds of services, it could have done so.
Consequently, we conclude that, unless other statutes restrict the contracting authority of
public charter schools, ORS 338.115(8) authorizes a public charter school to contract with any
legal entity for any purpose consistent with the public charter school law. We now review other
statutes that apply to public charter schools to determine if the broad contracting authority
granted by ORS 338.115(8) is limited by other statutes.
ORS 338.035(6)(a) prohibits the State Board of Education (State Board) and school
district boards from approving the conversion of a tuition-based private school to a public charter
school. The question then is whether this prohibition means that a public charter school may not
contract with a private for-profit entity for some or all educational and administrative functions.
We do not read the prohibition in ORS 338.035(6)(a) to mean any more than it says. By its
terms, this statute does not prohibit a public charter school from contracting with a for-profit
entity. Moreover, ORS 338.035(6)(b) expressly permits alternative education programs, public
or private, to be converted to public charter schools. Therefore, we do not find any basis in ORS

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338.035(6) to conclude that a public charter school may not contract with a for-profit entity for
any or all educational or administrative services.2/
ORS 338.045 requires a public charter school applicant’s proposal to contain numerous
items. None of the listed items compels the applicant to identify contracts for services.
Although a description of staff members and teacher qualifications must be reported, ORS
338.045(2)(p), there is no requirement in this section that teachers and staff be public employees.
Nothing in this statute suggests that contracting with a for-profit entity for any or all educational
or administrative services is prohibited.
ORS 338.055 specifies the criteria that a school district must use to evaluate a charter
proposal. ORS 338.055(2)(c) and (d) require the district to determine the capability of the
“applicant” to provide comprehensive instructional programs to regular and academically low
achieving students. The phrasing of these requirements does not expressly or implicitly require
the applicant itself to perform the instructional services. We conclude an applicant can
demonstrate capability to render the necessary educational programs without being required to
perform those services with its own employees. For example, a public charter school might
choose to contract with an education service district for certain services, instead of providing
these services in-house. Consequently, we do not interpret ORS 338.055 as restricting the
authority of a public charter school in contracting with a private for-profit entity for educational
programs.
ORS 338.115 lists the laws applicable to public charter schools. This statute does not
materially affect the analysis of public charter school contracting authority. The requirements in
this statute cannot be waived and apply to the public charter school regardless of whether
services are contracted. Failure to comply with those statutes, directly or through its contractor,
would be grounds for terminating the charter.3/ ORS 338.105(1)(a), (c).
ORS 338.135 relates to public charter school employment (including teachers and
administrators), leaves of absence granted to school district employees who choose to work in a
public charter school, the public charter school’s participation in the Public Employee
Retirement System, and collective bargaining rights of a public charter school’s employees.
Although ORS 338.135 anticipates that a public charter school will have employees (either
school district employees on leave or independently employed individuals), nothing in this
statute requires a public charter school to provide any particular services by employees rather
than by contractors. ORS 338.135(3) and (4) protect the rights of public employees who are
selected for employment by the public charter school and who leave sponsoring district
employment to work in public charter schools. However, the law does not require a public
charter school to hire sponsoring district employees, does not extend statutory transfer rights
(ORS 236.605 to 236.640) to sponsoring district employees and does not affirmatively require
the public charter school to employ any person.
ORS 338.135(5) provides that a public charter school shall be considered a public
employer and must participate in the Public Employee Retirement System. This provision does
not require a public charter school to employ any person, but instead to properly account for
individuals who are employed.

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ORS 338.135(7)(b) requires “[a]ny person employed as a teacher in a public charter
school to be licensed or registered to teach by the Teacher Standards and Practices Commission.”
(Emphasis added.) This provision does not require teachers to be employed by a public charter
school. It ensures that anyone employed to teach in a public charter school, whether by the
school or by a contractor, will be held to the same qualifications.
Finally, ORS 338.135(8) provides that employees at a public charter school may be
represented by a labor organization, but this does not require teachers to be public employees nor
does it necessarily preclude the contracting out of services previously performed by public
employees.4/
Thus, we do not find in ORS 338.135 any curtailment of the contracting authority granted
to public charter schools in ORS 338.115(8). Accordingly, we conclude that ORS 338.135 does
not prohibit the contracting for any or all education or administrative services by a public charter
school.5/
The intent of ORS chapter 338 is to allow the creation of public charter schools “as a
legitimate avenue for * * * new, innovative and more flexible ways of educating children within
the public school system.” ORS 338.015. The legislature directed that the provisions of ORS
chapter 338 “should be interpreted liberally to support the goals of this section.” Id. We have
found no statutes that limit the broad contracting authority granted to public charter schools in
ORS 338.115(8). Accordingly, we conclude that under ORS chapter 338, a public charter school
may contract with a for-profit entity to operate the school if the terms of the contract are
consistent with the terms of the charter and all applicable laws. Unless the contract ensures that
the public charter school remains accountable as described in the discussion in Part II, below,
however, the contract will be unlawful.
II.

Constitutional Limitations

We have been asked to identify the extent to which a for-profit entity may operate a
public charter school. In response to question 1, we concluded that ORS chapter 338 permits a
public charter school to contract out operational responsibilities. Having resolved the statutory
interpretation question, we next consider whether contracting out a public charter school’s
operational responsibilities to a for-profit entity would violate the Oregon Constitution because it
would result in the loss of governmental accountability for the performance of governmental
functions. To answer this question, we must first determine if public charter schools perform
governmental functions. If they do, we must then determine the elements that must exist in the
relationship between the public charter school and its for-profit contractor to ensure that the
public charter school remains accountable for the governmental functions delegated to the
contractor.
A.

Governmental Nature of Public Charter schools

To determine whether public charter schools perform governmental functions, we first
consider whether public charter schools are public or private schools. The legislature is

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cognizant of the distinction between private and public means of education, and refers to private
means of education when it so intends. See, e.g., ORS 336.615 to 336.665 (providing for private
as well as public alternative programs) and ORS 345.505 to 345.565 (providing for registration
of private elementary and secondary schools). In ORS chapter 338, the legislature deliberately
used the term “public charter schools” and provided for their creation as part of the public school
system. ORS 338.015 specifies that the intent of ORS chapter 338 is for public charter schools
to be a means of creating more flexible ways of educating children “within the public school
system” and to “serve as models and catalysts for the improvement of other public schools.”
(Emphasis added.) ORS 338.095(3) authorizes the State Board to require public charter schools
to provide information for inclusion in the Oregon Report Card, which relates only to public
schools. See ORS 329.115. A review of ORS chapter 338 shows no intent by the legislature for
public charter schools to be considered anything other than public schools within the public
school system.
Concluding that public charter schools are public schools, we look to case law for an
understanding of the significance of this conclusion. Early in the last century, the Oregon
Supreme Court, in holding that a school district has the capacity to receive property by will,
stated that “under our form of government the conduct of the public schools is a governmental
function.” Vestal v. Pickering, 125 Or 553, 557, 267 P 821 (1928). A few years later, the court
said:
It is unquestionably the function of government to establish and maintain public
schools. Indeed, the Constitution of Oregon, Art. VIII, Sec. 3, specifically
commits to the legislative assembly the “establishment of a uniform and general
system of the public schools.”
Campbell v. Aldrich, 159 Or 208, 218, 79 P2d 257 (1938) (holding that legislature had authority
to mandate retirement of public school teachers age 65 or older). The court again addressed
whether public schools perform governmental functions in deciding whether a public school
teacher who served in the state legislature violated the separation of powers restriction in the
Oregon Constitution, Article III, section 1.6/ Monaghan v. School Dist. No. 1, Clackamas
County, 211 Or 360, 315 P2d 797 (1957), superceded by Or Const Art XV, § 8. After
concluding that the appellant, Thomas Monaghan, was charged with official duties as a
legislator, the court decided that he violated Article III, section 1 because, as a public school
teacher, he exercised the functions of the executive branch of government.
Looking at the legislature’s duty under Article VIII, section 3, to “provide by law for the
establishment of a uniform, and general system of Common schools,” the court stated that
education is “a governmental obligation of the state” and characterized education as “an
administrative function of the executive department.” Monaghan, 211 Or at 373, 375. The
court reaffirmed its conclusions regarding the governmental nature of public education in 1979,
when it held that a judge who taught college classes violated Article III, section 1, because “a
part-time teacher regularly employed for compensation by a state-funded college to perform the
duties of a teacher * * * performs ‘functions’ of the executive department of government.” In
the Matter of Sawyer, 286 Or 369, 378, 594 P2d 805 (1979).

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While the issue in Monaghan was the nature of the functions performed by a public
school teacher, the setting within which that teacher performs is the public school. In
Monaghan, the court analyzed public education within the framework of school districts, the
unit of the system of common schools established by the legislature, rather than individual public
schools, concluding that a school district “acts wholly as a governmental agency when
performing duties imposed by statute.” Monaghan, 211 Or 374. Because individual schools
within a school district are the resource through which a school district provides education to the
state’s children, we believe that the court’s conclusions regarding the governmental nature of
education and the functions performed by school districts and public school teachers are equally
applicable to individual public schools.
In light of the fact that ORS chapter 338 provides for public charter schools to be public
schools operating as a part of the public school system, we conclude that public charter schools
perform the executive department’s administrative function of educating the state’s children.
Not all aspects of operating a public school fall within the governmental function of
providing a public education. Janitorial services are one example of an operational responsibility
that does not involve a governmental function. Without determining the governmental nature of
all school operations, it is clear that some responsibilities in operating a public school are
governmental functions in that they go to the essence of providing a public education to students.
In Monaghan, the court said that “[i]t is through the teacher, not the school district, that the
state’s standards of educational excellence are disseminated. When so engaged, they are
exercising one of the functions of the executive department of our state government.” 211 Or
at 376.
We conclude, in relation to the operation of public charter schools, that, at a minimum,
the following are governmental functions: developing and modifying the curriculum, ensuring
appropriate instruction consistent with the approved curriculum, and making decisions affecting
a student’s access to education, such as disciplinary decisions contemplating suspension or
expulsion.7/
B.

Public Charter School’s Accountability for Governmental Functions
Contracted Out to a Non-profit Entity

As a public school performing the governmental function of providing a public
education, a public charter school’s ability to delegate that function in part or in whole to private,
for-profit entities is restricted. Relying on Oregon Supreme Court cases addressing delegation,
the Oregon Court of Appeals held that a rule promulgated by the Oregon Liquor Control
Commission (OLCC) giving Class A licensees partial control over OLCC decisions regarding
the permit applications submitted by Class B licensees was an invalid delegation of government
authority to private entities.8/ Corvallis Lodge No. 1411 Loyal Order of Moose v. OLCC, 67 Or
App 15, 22, 677 P2d 76 (1984). The court held the rule invalid because it did not provide
“procedural safeguards to protect against the unaccountable exercise of governmental power
delegated to the Class A licensees.” Id. (citations omitted).

6

In reaching its decision in Corvallis Lodge, the court concluded that the Supreme Court
had developed “a general ‘nondelegation’ doctrine that emphasizes the need for legislative
standards as a precondition for the delegation of any governmental function.” Id. at 19 (citing
General Electric Co. v. Wahle, 207 Or 302, 330, 296 P2d 635 (1956); Foeller v. Housing
Authority of Portland, 198 Or 205, 265, 256 P2d 752 (1953); and Van Winkle v. Fred Meyer,
Inc., 151 Or 455, 463, 49 P2d 1140 (1935)). In 1960, the Supreme Court modified the doctrine
to require that adequate “procedural safeguards to protect against arbitrariness,” rather than
standards, accompany the delegation of governmental functions. Id. at 20 (citing Warren v.
Marion County, et. al., 222 Or 307, 314, 353 P2d 257 (1960)). While the cited Supreme Court
precedents address the delegation of legislative authority, i.e., authority to promulgate general
standards of future effect, the court in Corvallis Lodge appears to consider the principles
governing delegation in those cases to be equally applicable to a government entity’s delegation
of administrative authority to a private entity. 9/
The Corvallis Lodge court concludes that “[a]ccountability of government is the central
principle running through the [Supreme Court’s] delegation cases.” Id. at 20. We believe that
“accountability” as used in Corvallis Lodge means that the government entity must retain the
authority necessary to exert control over the private entity’s execution of delegated governmental
functions. Based on the Corvallis Lodge court’s application of Supreme Court precedents to the
delegation of governmental functions by an executive agency to private entities, we also believe
that to remain accountable requires the government entity to provide safeguards that may be
invoked by persons affected by the contractor’s actions.
To summarize, in order for a public charter school’s contracting out of the school’s
operations to a private, for-profit entity to be constitutional, the public charter school must
maintain a right of control over delegated governmental functions and provide safeguards for
those affected by the contractor’s actions.10/ We discuss both of these necessary elements for
delegation below.
1.

Right of Control

To maintain government accountability for a contractor’s exercise of governmental
functions requires that the public charter school maintain a right of control over the contractor’s
decisions. Maintaining a right of control means that the public charter school cannot treat its
contractor as an independent contractor with respect to the contractor’s exercise of governmental
functions. The public charter school, instead of the contractor, must retain the ultimate authority
to make decisions about governmental functions. Because Oregon case law does not discuss in
any detail the right to control that a government entity must maintain when delegating
responsibility to private, for-profit entities, we have reviewed federal cases to gain insight into
the issue.
In considering the adequacy of an environmental impact statement (EIS) that federal law
required be prepared by the Army Corps of Engineers in relation to possible construction in
Galveston Bay and the Port of Galveston, the Fifth Circuit Court of Appeals considered whether
the Corps had improperly delegated preparation of the EIS to a private entity. Sierra Club v.

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Sigler, 695 F2d 957, 962 n 3 (5th Cir 1983). While the Sierra Club did not allege an improper
delegation, the facts of the case caused the court to raise the following concern:
This record leaves us with the distinct impression that most, if not all, of the
preparation of the [EIS] was done by the private consulting firm hired by the
applicants [for a permit to do the construction]. While the Corps ostensibly was
supervising, we are concerned by the relatively brief time the Corps was given to
review and comment on the documents, and the degree of thoroughness of the
Corps’ review and supervision.
Id. Without deciding the issue, the court went on to say that it would be impermissible for the
Corps to simply “rubberstamp” a private consultant’s work. Id. (citing Sierra Club v. Lynn, 502
F2d 43, 58-59 (5th Cir 1974), cert den, 412 US 994, 95 S Ct 2001, 44 L Ed2d 484; 422 US 1049,
95 S Ct 2668, 45 L Ed2d 701 (1975) (“permitting a ‘financially interested private contractor’ to
participate in EIS preparation, but barring agency abdication of its duties by ‘reflexively
rubberstamping a statement prepared by others’”).
In an antidumping case, the U.S. Court of International Trade had to decide whether the
International Trade Administration (ITA) could completely delegate to the Federal Reserve Bank
of New York (NY Fed) the ITA’s authority to select an appropriate exchange rate for use in a
fair value investigation. Pistachio Group of the Ass’n of Food Industries, Inc. v. U.S., 671
FSupp 31, 11 C.I.T. 668 (1987). The court found that, although subject to supervision by the
Board of Governors of the Federal Reserve System, the NY Fed “is also a private corporation
whose stock is owned by the member commercial banks within its district.” Id. at 35. While the
court concluded that the ITA was authorized to delegate the calculation of exchange rates, it held
that the ITA could not “abandon” the decision to the NY Fed, leaving the NY Fed’s calculation
“isolated from all types of review, administrative or judicial, merely for reasons of convenience.”
Id. at 36. Distinguishing delegation of authority within a government entity from delegation to a
private entity, the court stated:
Presumably there is accountability if the decision is made within the same agency.
* * * The courts have consistently required subdelegation of significant functions
to be checked by some form of review, either within the agency itself, or
ultimately by the courts. Lower level procedural decisions generally require less
oversight than decisions which affect the substantive rights of regulated parties, or
which embody the agency’s most potent use of its discretionary authority.
Id.
Issues raised by the federal courts in the Sierra Club and Pistachio cases suggest two
concerns that an Oregon court is likely to have in assessing a public charter school’s retention of
a right to control a private, for-profit contractor to which it has delegated governmental
functions. First, a public charter school must be able to demonstrate that it retains final decisionmaking authority, at least by retaining a right to review its contractor’s decisions. For example,
we do not believe that a public charter school could leave to the contractor’s discretion, subject
only to conformance with applicable law and the charter, whether, or how, to respond to parental

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complaints regarding the teaching methodologies used by a particular teacher. If it did so, the
public charter school would not be accountable for the performance of teachers in educating the
school’s children. This does not mean that the public charter school must direct its contractor’s
actions in such a situation. Rather, the public charter school must retain the right to step in if the
school’s governing body questions the appropriateness of the contractor’s response.
Second, while the public charter school may concur in the contractor’s decisions, the
public charter school must be able to show that it independently considered those decisions
rather than “rubberstamping” them. As in Sierra Club, a court may look at the amount of time
the public charter school had to consider the contractor’s proposed actions as well as “the degree
of thoroughness” of the public charter school’s review and supervision of its contractor. Sierra
Club, 695 F2d at 962 n 3.
2.

Procedural Safeguards

The Oregon Supreme Court in Warren judged the constitutionality of a delegation of
legislative authority from the legislature to a county according to whether “the procedure
established for the exercise of the power furnishes adequate safeguards to those who are affected
by the administrative action.” 222 Or at 314. In Warren, the legislature authorized the
governing body of a county to establish a building code for that county. A county building
inspector would then be responsible for enforcing the adopted code by comparing the
construction of a building to the specifications of the code. The court found the statute to be
constitutional because it required the county to establish an appeals procedure “so that persons
dissatisfied with the building inspector’s action * * * may have that action reviewed by a
separate administrative body.” Id. at 315. The court found that the required appeals procedure
was a “sufficient safeguard” for anyone wanting to dispute the county’s enforcement of the
building code. Id.
In Corvallis Lodge, the OLCC claimed that its rule provided adequate safeguards to Class
B licensees because the ultimate decision as to whether to grant a permit remained with the
OLCC. The court, however, found the procedural safeguards provided by the rule insufficient
because Class A licensees could thwart a Class B licensee’s attempt to get a permit. For
example, there was no remedy in the OLCC rule for a Class B licensee to pursue if a Class A
licensee delayed in providing the factual information necessary for the Class B licensee’s permit
application, thereby impairing or preventing the Class B licensee’s ability to comply with the
requirements of the OLCC rule. 67 Or App at 22.
Based on the Supreme Court’s decision in Warren, and its application to the delegation
of factfinding functions by an administrative agency to an interested private entity in Corvallis
Lodge, we conclude that a public charter school must provide procedural safeguards to those
persons affected by its contractor’s execution of governmental functions. By supplying such
safeguards the public charter school allows persons aggrieved by the contractor’s actions to seek
redress from the public charter school. Aggrieved persons could include teachers and other
employees who carry out governmental functions on behalf of the contractor, students and the
students’ parents and guardians. For example, if a teacher employed by a contractor decided to
assign her students a potentially controversial novel, such as THE ADVENTURES OF

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HUCKLEBERRY FINN or CATCHER IN THE RYE, that was not among the texts included in the
approved curriculum, the public charter school would need to have in place a procedure,
ultimately independent of the contractor, by which a student or the student’s parent could
challenge the teacher’s decision.
In sum, we conclude that a public charter school is a government entity. We further
conclude that, when contracting out its operations to a private, for-profit entity, a public charter
school must (1) retain a right of control over the for-profit entity, and (2) provide procedural
safeguards to affected members of the public in relation to those aspects of the school’s
operations that constitute the governmental function of providing a public education. Failure to
do so would result in the loss of governmental accountability for the performance of
governmental functions, making the contract unlawful.
III.

Tax Exempt Status

We are also asked whether a public charter school must be a tax exempt organization
under section 501(c)(3) of the Internal Revenue Code (a) at the time of application, or (b) at the
time of sponsor approval. ORS 338.035(2) states:
(2) Before a public charter school may operate as a public charter school
it must:
(a) Be approved by a sponsor;
(b) Be established as a nonprofit organization under the laws of Oregon;
and
(c) Have applied to qualify as an exempt organization under section
501(c)(3) of the Internal Revenue Code.
This statute requires a public charter school to have “applied” to qualify as a tax exempt
organization under section 501(c)(3) before it may operate as a public charter school. Based on
the law’s plain text a public charter school need not actually have been determined to be a tax
exempt organization when applying or when approved by a sponsor.
Our interpretation is confirmed by the legislative history. When introduced as SB 100 in
the 1999 legislature, there was no requirement that a public charter school either apply for,
qualify for, or be approved as a federal tax exempt organization.
An amendment adopted by the Senate Committee on Education on January 25, 1999, and
passed by the Senate on February 3, 1999, provided:
(2) Before a public charter school may operate as a public charter school
it must:
(a) Be approved by a sponsor;
(b) Be established as a nonprofit organization under the laws of Oregon;
and
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(c) Qualify as an exempt organization under section 501(c)(3) of the Internal
Revenue Code.
SB 100 (A-Eng) (emphasis added). Uncertainty about the delay in becoming “qualified” left the
House Education Committee to consider and pass the SB 100-A67 amendments, which included
the language that ultimately became ORS 338.035(2), requiring only that the public charter
school “[h]ave applied to qualify” as an exempt organization. See Testimony, House Education
Committee (SB 100), March 29, 1999, tape 79, side A at 190-255.
Thus, both the express language and the legislative history of ORS 338.035(2) lead to the
conclusion that a public charter school may apply for and be approved by a sponsor without
actually having qualified as a tax exempt organization under section 501(c)(3). An application
may not be denied solely because the public charter school has not yet been determined to
qualify for tax exempt status under section 501(c)(3) or because of a belief that the applicant
may, at some point in the future, be found not to qualify for tax exempt status under section
501(c)(3).
IV.

Status of Advice

This advice is provided for the benefit of the Oregon Department of Education and the
State Board of Education. It is not intended as, and should not be considered, advice to anyone
other than state officers acting in their official capacity.

HARDY MYERS
Attorney General
HM:GMC:KBC:AV/GEN54366DOC

1/

ORS 336.635(2) permits school districts that contract with private alternative programs for
educational services to pay tuition for students at either the program’s actual costs or an amount at least
equivalent to 80 percent of the district’s estimated current year’s average per student net operating
expenditure, whichever is less.
2/

If the for-profit entity were an existing tuition-based private school and the public charter school
were contracting with the private school to conduct all of its operations, there might be a question as to
whether that would be equivalent to a “conversion” of the tuition-based school to a public charter school,
but we do not understand those to be the facts underlying the question presented to us.
3/

Depending upon the scope of its contract, a contractor retained by a public charter school may be
directly subject to certain of the statutes listed in ORS 338.115. See Marks v. McKenzie High School
Fact-Finding Team, 319 Or 451, 878 P2d 417 (1994) (Public Records Law applies to an entity that is the
“functional equivalent” of a public body).

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4/

A public employer may legally contract out services of current public employees as long as the
requirements of the Public Employee Collective Bargaining Act, ORS 243.650 to 243.782, are met.
5/

Interpreting ORS 338.135(5) to require that all services be performed by public employees would
run contrary to the multitude of services currently being contracted by school districts under existing law.
Today, many school districts contract for transportation and food services and special and alternative
education services. If ORS 338.135 were read to require that services at public charter schools be
performed by public employees, then public charter schools will be more curtailed in their contracting
than existing school districts. This would violate the overall flexibility mandated in the statement of
legislative intent of ORS 338.015.
6/

Article III, section 1, provides: “The powers of Government shall be divided into three seperate
[sic] departments, the Legislative, the Executive, including the administrative, and the Judicial; and no
person charged with official duties under one of these departments, shall exercise any of the functions of
another, except as in this Constitution expressly provided.”
7/

Plaintiffs challenging the constitutionality of California public charter school legislation posited as
essential educational functions such items as “curriculum, textbooks, education focus, [and] teaching
methods.” Wilson v. State Board of Education, 89 Cal Rptr 2d 745, 751 (1999) (holding state public
charter school legislation constitutional).
8/

The OLCC rule gave Class A licensees the authority “to ascertain facts that ultimately may
determine the success or failure of the [Class B licensee’s permit] application.” Corvallis Lodge, 67 Or
App at 20.
9/

The plaintiffs in Corvallis Lodge based their constitutional challenge on Article I, section 21 (no
law shall be passed “the taking effect of which shall be made to depend upon any authority, except as
provided in the Constitution”), Article III, section 1 (requiring the separation of powers into three
branches of government), and Article IV, section 1 (“The legislative power of the state * * * is vested in a
Legislative Assembly”). 67 Or App at 19 n 2. But the court held the rule invalid without citing to a
particular constitutional provision. Because most of Oregon’s case law addressing delegation, beside
Corvallis Lodge, examines delegation of legislative authority, it is difficult to predict which constitutional
provision(s) a court would look to in scrutinizing a public charter school’s delegation of administrative
functions to a private entity.
10/

The conclusion that the public charter school must maintain a right of control over delegated
governmental functions is consistent with federal legislation controlling the issuance of grants for charter
schools. See 20 USC §§ 8061 to 8067. Federal grants are available for a “charter school” which has been
defined by Congress, in part, as “a public school that * * * is created by a developer as a public school, or
is adapted by a developer from an existing public school, and is operated under public supervision and
direction.” 20 USC § 8066(1)(B).

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