California Governor Gavin Newsom has signed a bill into law that will impact how nonprofit higher education institutions will be recognized under the California Private Postsecondary Education Act of 2009 (the Act) as enforced by the Bureau for Private Postsecondary Education (BPPE).
The bill — AB70 — amends the Act by limiting, in certain cases, the BPPE’s authority to accept an institution’s nonprofit status when deciding whether to exempt that institution from BPPE oversight, or enter into a new contract for processing complaints. In addition, the new law requires the California Attorney General to determine the nonprofit status of any institution that operated as a for-profit organization on or after January 1, 2010. To verify nonprofit status, the Attorney General must conclude that:
- The nonprofit acquired the for-profit institution’s assets for no more than their fair value;
- The nonprofit has not executed agreements for goods or services exceeding the fair value of the goods or services;
- All core functions of the nonprofit institution are conducted by, or under the direction of, the nonprofit institution; and
- 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 law also adds a new definition of nonprofit for purposes of the Act:
“Nonprofit corporation” means an institution to which contributions have been determined by the United States Internal Revenue Service to be tax-deductible pursuant to Section 501(c)(3) of Title 26 of the Internal Revenue Code, subject to the limitations described in Section 94874.1.
Nonprofit higher education institutions that already have a BPPE exemption may now have that exemption challenged under the new definition and could face having to prove their nonprofit status to the Attorney General or undertake the challenging process of applying for BPPE approval or registration.
The law also adds numerous additional requirements that will impact out-of-state nonprofit educational institutions seeking to operate in California without BPPE oversight. However, any nonprofit that converted from for-profit status since January 1, 2010 — whether in-state or out-of-state — should be prepared to provide the BPPE and the California Attorney General with information to verify its nonprofit status or get ready for the challenge of complying with this new law.
The Church Law Center of California advises religious and secular nonprofits on governance and risk management matters. To find out how we can assist your organization, call us today at (949) 892-1221 or reach out to us through our contact page.