SB46 HD1.DOC

PART I

SECTION 1. In October 2010, the United States Department of Education issued new regulations for programs authorized under Title IV of the Higher Education Act of 1965, as amended, to hold programs accountable for preparing students for gainful employment, protect students from misleading recruiting practices, ensure that only eligible students receive financial aid, and strengthen federal student aid programs at for-profit, non-profit, and public institutions. The regulations also include requirements for state authorization of institutions that offer educational programs beyond secondary education for purposes of federal program eligibility. Federal expectations have major implications for the State and post-secondary institutions, as there is now a clear federal requirement that post-secondary institutions receive authorization from the State to operate.

The state post-secondary education commission, established under section 304A‑3151, Hawaii Revised Statutes, qualifies the State to receive funds made available under the Higher Education Act of 1965, as amended, and may serve as the state agency for the receipt of federal funds when necessary. However, the commission does not authorize institutions to operate educational programs beyond secondary education, as may be required under new federal regulations. Further, the commission is established under the University of Hawaii for administrative purposes. The legislature finds that reconstituting the post-secondary commission and placing it under the department of commerce and consumer affairs will result in an entity that is more broadly representative of post-secondary education in the State and more appropriate to serve as the authorizing state agency for the diverse institutions that operate educational programs beyond secondary education. In addition, the department of commerce and consumer affairs is the most appropriate entity to deal with consumer complaints by students at post-secondary institutions, which is a crux of the federal requirements.

The State was unable to satisfy all of the requirements of the Higher Education Act of 1965, as amended, relating to state authorization by the July 1, 2011, deadline. However, the United States Department of Education provided the opportunity for states and institutions to receive an extension to July 1, 2013, for certain regulations. In the meantime, it is the intent of the legislature to proactively seek solutions by determining what actions and changes are required for the State to come into compliance with the new regulations.

It is imperative that Hawaii does not jeopardize the receipt of federal funds under Title IV of the Higher Education Act of 1965, as amended. According to the auditor's 2012 Study of the Higher Education Act, "[r]oughly 63,000 students in Hawaii received more than $283,000,000 in Title IV funds in F[iscal] Y[ear] 2011 – about $4,500 per student."

The purpose of this Act is to bring Hawaii into compliance with Title IV of the Higher Education Act of 1965, as amended, by establishing the post-secondary education commission within the department of commerce and consumer affairs and creating the framework for authorizing private post-secondary educational institutions in the State.

PART II

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

post-secondary education AUTHORIZATION

§ -1 Definitions. Whenever used in this chapter, unless the context otherwise requires:

"Accredited" means the status of public recognition that a nationally recognized accrediting agency grants to an institution or educational program that meets the agency's established requirements.

"Alternative enrollment" means the opportunity for a student enrolled in a private college or university that ceases operation to meet the student's educational objectives through education provided by another authorized private college or university, the University of Hawaii system, an area vocational school, or any other educational arrangement acceptable to the department and the commission.

"Authorization" means the authorization granted to a private college, university, seminary, or religious training institution by the commission as provided in this chapter and any applicable rules and policies. Authorization is not an endorsement by either the commission or the department.

"Commission" means the state post-secondary education commission created pursuant to section -3.

"Degree" means a statement, diploma, certificate, or other writing in any language that indicates or represents, or is intended to indicate or represent, that the person named thereon is learned in or has satisfactorily completed a prescribed course of study in a particular field of endeavor or that the person named thereon has demonstrated proficiency in a field of endeavor as a result of formal preparation or training.

"Department" means the department of commerce and consumer affairs.

"Director" means the director of commerce and consumer affairs.

"Enrollment agreement" means the contract prepared by a private college, university, seminary, or religious training institution that a student signs to indicate agreement to the terms of admission, delivery of instruction, and monetary terms as outlined in the private college, university, seminary, or religious training institution's student handbook or catalog.

"Governing board" means the elected or appointed group of persons that oversees and controls a private college, university, seminary, or religious training institution.

"Home state" means the state where the institution holds its principal accreditation.

"Honorary degree" means a statement, diploma, certificate, or other writing in any language that indicates or represents, or that is intended to indicate or represent, that the person named thereon is learned in a field of public service or has performed outstanding public service or that the person named thereon has demonstrated proficiency in a field of endeavor without having completed formal courses of instruction or study or formal preparation or training.

"Nationally recognized accrediting agency" means an agency or association that the Secretary of the United States Department of Education recognizes as a reliable authority to determine the quality of education or training offered by an institution.

"Out-of-state public institution" means an institution of higher education that is established by a government entity in a state other than Hawaii.

"Owner" means:

(1) An individual, if a private for-profit college or university is structured as a sole proprietorship;

(2) Partners, if a private for-profit college or university is structured as a partnership;

(3) Members in a limited liability company, if a private for-profit college or university is structured as a limited liability company; and

(4) Shareholders in a corporation that hold a controlling interest, if a private for-profit college or university is structured as a corporation.

"Physical presence" means having an established physical location within the State and includes but is not limited to:

(1) Having a physical location in the State where students receive synchronous or asynchronous instruction; or

(2) Establishing an administrative office in the State in order to:

(A) Provide information to prospective students, enrolling students, or the general public about the institution;

(B) Provide services to enrolled students;

(D) Maintain an institutional mailing address, street address, or phone number in the State.

"Private college" or "university" means a non-public post-secondary education institution having a physical presence in the State that enrolls students in an associate, baccalaureate, or postgraduate degree program. For purposes of the requirements of this chapter, an out-of-state public institution shall be considered as a private college or university.

"Seminary" or "religious training institution" means a bona fide religious post-secondary educational institution that has a physical presence in the State, that is exempt from property taxation under the laws of the State, and that offers baccalaureate, master's, or doctoral degrees or diplomas.

"Unaccredited post-secondary educational institution" means a degree granting institution that is not accredited or a candidate for accreditation by at least one accrediting agency recognized by the United States Department of Education.

"University of Hawaii system" means the post-secondary educational institution, including all campuses and community colleges, established and existing pursuant to article X, section 5, of the Hawaii state constitution and chapter 304A.

§ -2 Applicability of this chapter; exceptions. (a) This chapter shall apply to private colleges, universities, seminaries, and religious training institutions.

(b) This chapter shall not apply to:

(1) Private colleges or universities, including occupational or vocational schools, that enroll their students only at the certificate level in order to engage in a profession or vocation that is regulated under another chapter;

(2) Schools or educational programs conducted by firms, corporations, or persons for the training of their own employees;

(3) Apprentice or other training programs provided by labor unions to union members or applicants for union membership;

(4) Schools or educational programs that provide courses of instruction that do not lead to the conferring of a degree;

(5) Schools or educational programs that offer seminars, refresher courses, and programs of instruction sponsored by professional, business, or farming organizations or associations for their members or the employees of their members;

(6) Schools or educational programs that offer courses of instruction conducted by public school complex areas;

(7) Schools, courses of instruction, or courses of training that are offered by a vendor or the purchaser or prospective purchaser of the vendor's product when the objective of the school or course is to enable the purchaser or the purchaser's employees to gain the skills and knowledge necessary to use the product;

(8) Schools and educational programs conducted by religious entities that are owned, controlled, operated, and maintained by a religious organization lawfully operating as a nonprofit religious corporation and awards only religious degrees or certificates, including a certificate of Talmudic studies, an associate of Biblical studies, a bachelor of religious studies, a master of divinity, or a doctor of divinity;

(9) Non degree-granting post-secondary educational institutions licensed by any state of Hawaii entity or governed by any other chapter of the Hawaii Revised Statutes;

(10) Schools and educational programs that offer courses of instruction exclusively through online and distance education; and

(11) Unaccredited post-secondary educational institutions governed by chapter 446E.

(c) Nothing in this subsection shall prohibit an entity listed in subsection (b) from applying for authorization; provided that the entity shall meet the criteria for and comply with all authorization requirements under this chapter.

§ -3 Establishment of the state post-secondary education commission; membership; administration. (a) There is established a state post-secondary education commission. The commission shall be placed within the department for administrative purposes.

(b) The commission shall consist of five members, of whom three shall be representative of the general public and two shall be representative of public and private nonprofit and for-profit institutions of post-secondary education in the State. Commission members shall be appointed by the governor, without regard to sections 26-34 and 78-4; provided that the appointments shall be subject to the advice and consent of the senate.

(c) Upon the appointment of the initial members and by July 1 of each year thereafter, the commission shall elect a chairperson and vice chairperson. If neither the chairperson nor vice chairperson is present to preside over a meeting of the commission, the members present shall select a chairperson pro tempore.

(d) Three members of the commission shall constitute a quorum to do business and a concurrence of at least three members shall be necessary to make any action of the commission valid.

(e) Commission members shall not serve more than three consecutive three-year terms, not including the initial member's initial term, with each term starting on July 1; provided that the initial terms that commence after June 30, 2013, shall be staggered as follows:

(1) Two members to serve three-year terms;

(2) Two members to serve two-year terms; and

(3) One member to serve a one-year term.

(f) Notwithstanding the terms of the members, the governor may fill vacancies on the commission at any time when a vacancy occurs due to resignation, non-participation, the request of a majority of the commission members, or termination by the governor for cause.

(g) Commission members shall receive no compensation. When commission duties require that a commission member take leave of the member's duties as a state employee, the appropriate state department shall allow the commission member to be placed on administrative leave with pay and shall provide substitutes, when necessary, to fulfill that member's departmental duties. Members shall be reimbursed for necessary travel expenses incurred in the conduct of official commission business.

(h) The commission shall establish operating procedures that shall include conflict of interest procedures for any member whose school of employment or governing board is before the commission.

(i) The commission shall operate with dedicated resources and staff qualified to execute the day-to-day responsibilities of the commission pursuant to this chapter.

§ -4 Authorization of the University of Hawaii system. The University of Hawaii system is established as an educational institution pursuant to Article X, section 4 of the Hawaii state constitution and is hereby authorized by the State to provide educational programs in and from this State. The University of Hawaii system shall be subject to section -18.

§ -5 Commission's powers and authority. (a) The commission shall:

(1) Unless otherwise provided by law, adopt, amend, and repeal rules pursuant to chapter 91 to carry out the purposes of this chapter;

(2) Issue declaratory rulings or informal, non-binding interpretations and conduct contested case proceedings pursuant to chapter 91;

(3) Grant, deny, confirm, forfeit, renew, reinstate, or restore authorizations, including conditional, probationary, or qualified authorizations;

(4) Revoke, suspend, condition, or otherwise limit the authorization of an institution for any violation of this chapter, applicable rules, or the Higher Education Act of 1965, as amended;

(5) Establish requirements for authorization in accordance with this chapter;

(6) Investigate and conduct hearings regarding any violation of this chapter, applicable rules, or the Higher Education Act of 1965, as amended;

(7) Create fact-finding committees, which may make recommendations to the commission for its consideration;

(8) Contract with qualified persons, including investigative and legal staff, who may be exempt from chapter 76, to assist the commission in exercising its powers and duties;

(9) Subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including communications through electronic media;

(10) Establish the types and amounts of fees that a private college, university, seminary, or religious training institution shall pay pursuant to section -19;

(11) Establish policies to require authorized institutions, upon request, to submit to the commission, data that is directly related to student enrollment and degree completion and, if applicable, student financial aid and educator preparation programs, which policies shall include a determination as to whether data received may be disclosed to the public;

(12) Establish policies and procedures for the handling of proprietary information;

(13) Enter into any post-secondary education authorization reciprocity agreement with other post-secondary educational authorizers of schools whose home state is not Hawaii; provided that the authorization standards of the reciprocity agreement shall be substantially comparable to or exceed the authorization requirements of this chapter and applicable administrative rules; and

(14) Do any and all things necessary or incidental to the exercise of the commission's powers and duties.

(b) The commission may cooperate with the federal government to qualify the State to receive funds made available under the Higher Education Act of 1965, P.L. 89-329, as amended from time to time, and in addition may serve as the state agency for the receipt of federal funds when federal legislation dealing with higher education or post-secondary education requires, as a condition of the receipt of federal funds, the designation of a state agency that is broadly representative of the general public and of post-secondary education in the State and when agencies other than the commission may not qualify.

(c) No funds appropriated by the legislature may be used to aid a person attending an institution not owned or exclusively controlled by the State or a department of the State or to pay for any staff work distributing federal or private funds to students attending such schools. The maximum amount of any grant awarded under the Hawaii state incentive grant program shall be equal to the maximum allowed by federal law.

(d) The commission, when appropriate and necessary, may be assisted by other state agencies, including but not limited to the University of Hawaii system and the department of education.

§ -6 Department's powers and authority; delegated authority. (a) The department shall administer the provisions of this chapter and any administrative rules, policies, and procedures adopted by the commission.

(b) To administer this chapter, the commission shall delegate to the department the following authority:

(1) Maintaining a list of the private colleges, universities, seminaries, and religious training institutions that have been authorized by the commission and making the list available to the public;

(2) Maintaining a list of the states with which the commission has entered into a post-secondary education authorization reciprocity agreement and making the list available to the public; and

(3) Appropriately acting on a complaint, concern, or violation concerning a private college, university, seminary, or religious training institution.

(c) The commission may also delegate to the department any of its powers or duties as it deems reasonable and proper for the administration of this chapter. These delegated powers and duties may be exercised by the department in the name of the commission; provided that the commission shall not delegate the authority to adopt, amend, or repeal rules or to take final disciplinary action against an institution.

(d) In administering responsibilities delegated to it by the commission, the department may assess fees sufficient to provide for the self-sufficiency of the program pursuant to section 26-9.

§ -7 Awarding degrees. Notwithstanding any law to the contrary, a person, partnership, corporation, company, society, or association with a physical presence in the State shall not award, bestow, confer, give, grant, convey, or sell to any other person a degree or honorary degree upon which is inscribed, in any language, the word "associate", "bachelor", "baccalaureate", "master", or "doctor", or any abbreviation thereof, or offer courses of instruction or credits purporting to lead to any such degree, unless the person, partnership, corporation, company, society, or association is:

(1) A private college, university, seminary, or religious training institution that is authorized pursuant to this chapter; or

(2) A part of the University of Hawaii system.

§ -8 Authorization to operate in the State; private college or university. (a) To operate in the State, a private college or university shall:

(1) Be party to a reciprocity agreement to which the State is a member; or

(2) Apply for, on a form prescribed by the department, and receive authorization from the commission; provided that a private college or university shall apply for and obtain a separate authorization for each campus, branch, or site that is separately accredited. A separate authorization shall not be required for additional professional accreditations. A private, nonprofit college or university shall submit verification of its nonprofit status with its application.

(b) Upon receiving an application for authorization, the commission shall review the application to determine whether the private college or university is institutionally accredited by a regional or national accrediting body recognized by the United States Department of Education. The commission shall not approve an application from a private college or university that, in the two years preceding submission of the application, has:

(1) Had its accreditation suspended or withdrawn;

(2) Been prohibited from operating in another state; or

(3) Substantially the same owners, governing board, or principal officers as a private college or university that has:

(A) Had its accreditation suspended or withdrawn; or

(B) Been prohibited from operating in another state.

(c) To operate in the State, a private college or university shall be institutionally accredited on the basis of an on-site review by a regional or national accrediting body recognized by the United States Department of Education.

(d) A private college or university shall notify the department within thirty days of any material information related to an action by the institution's accrediting body concerning the institution's accreditation status, including but not limited to reaffirmation or loss of accreditation, approval of a request for change, a campus evaluation visit, a focused visit, or approval of additional locations. In addition, the institution shall immediately notify the department if the institution's accrediting body is no longer recognized by the United States Department of Education.

(e) A private college or university authorized pursuant to this chapter shall pay any and all fees established pursuant to section -19.

§ -9 Authorization to operate in the State; seminary or religious training institutions. (a) To operate in the State, a seminary or religious training institution shall:

(1) Be party to a reciprocity agreement to which the State is a member; or

(2) Apply for, on a form prescribed by the department, and receive authorization from the commission; provided that the institution shall establish that it qualifies as a bona fide religious training institution and as an institution of post-secondary education.

(b) Nothing in this section shall preclude a seminary or religious training institution from seeking accreditation.

§ -10 Confirmation of authorization. Upon the request of an institution to confirm authorization, the commission shall consider whether an authorization shall be issued. The commission shall issue written findings and if appropriate, a certificate of authorization. The certificate of authorization shall have the effect of establishing that the institution is legally authorized by the State, as contemplated by 34 Code of Federal Regulations section 600.9.

§ -11 Reauthorization. (a) A private college or university that is authorized pursuant to section -8 and maintains its accreditation shall apply to the department for reauthorization in accordance with its schedule for reaccreditation or every three years, whichever is longer. A private college or university that has its accreditation reaffirmed without sanction, continues to demonstrate its continued compliance with section -15, and is not subject to investigation pursuant to section -13, shall otherwise be presumed to be qualified for reauthorization under this chapter for a period of three years or the length of the private college or university's accreditation, whichever is longer.

(b) A seminary or religious training institution authorized pursuant to section -9 shall apply to the department for reauthorization every three years. A seminary or religious training institution that continues to meet the minimum operating standards imposed upon it by this chapter and is not subject to investigation pursuant to section -13, shall otherwise be presumed to be qualified for reauthorization under this chapter for a period of three years.

(c) By June 30, 2014, the commission shall adopt policies and procedures, without regard to chapter 91, for reauthorization under this section.

(d) Private colleges, universities, seminaries, and religious training institutions applying for reauthorization under this section shall pay the fees required pursuant to section -19.

(e) If a private college, university, seminary, or religious training institution cannot demonstrate that it meets the minimum operating standards of this chapter, the commission shall deny the application for reauthorization. The commission shall provide the private college, university, seminary, or religious training institution with written notification of the denial of the application for reauthorization and the basis for the denial. If, within six months of receiving notice that its application for reauthorization has been denied, the private college, university, seminary, or religious training institution corrects the action or condition upon which the denial was based, it may reapply for reauthorization. If the private college, university, seminary, or religious training institution does not correct the action or condition upon which the denial was based, it may submit a new application for authorization pursuant to section -8 or -9, whichever is applicable, once the action or condition has been corrected.

(f) If a private college or university is under a sanction from its accrediting body at the time it submits its application for reauthorization, the commission may:

(1) Approve the private college or university's reauthorization; or

(2) Grant probationary approval of the private college or university's reauthorization; provided that if the private college or university is granted probationary reauthorization:

(A) The commission shall provide the private college or university with written notice of its probationary status;

(B) The private college or university shall reapply for reauthorization on an annual basis until the accrediting body lifts its sanction; and

(C) The private college or university shall provide the commission with an annual report on its progress in removing the sanction.

§ -12 Grounds for refusal to reauthorize, reinstate, or restore and for revocation, suspension, probation, or denial; condition of authorization or sanctions. (a) In addition to any other acts or conditions provided by law, the commission may refuse to reauthorize, reinstate or restore, or may deny, revoke, suspend, or condition in any manner, including but not limited to probation, any authorization for any one or more of the following acts or conditions on the part of the institution or applicant:

(1) Failure to meet or maintain the conditions and requirements necessary to qualify for or maintain an authorization;

(2) Engaging in false, fraudulent, or deceptive advertising, or making untruthful or improbable statements;

(3) Procuring an authorization, reauthorization, or certification through fraud, misrepresentation, material omission, or deceit;

(4) Misconduct, incompetence, gross negligence, or manifest incapacity in the operation of the institution;

(5) Failure to maintain a record or history of competency, trustworthiness, fair dealing, and financial integrity;

(6) Conduct or practice contrary to recognized standards of ethics for the industry;

(7) Engaging in business under a past or present authorization issued pursuant to this chapter in a manner causing injury to one or more members of the public;

(8) Failure to comply with, observe, or adhere to any law in a manner such that the commission deems the applicant or holder to be an unfit or improper institution for authorization;

(9) Revocation, suspension, deauthorization, or other disciplinary action by another state or federal agency against an institution or applicant for any reason provided by this chapter or rules adopted hereunder;

(10) Criminal conviction, whether by nolo contendere or otherwise, of a penal crime directly related to the qualifications, functions, or duties of the institution or applicant in any jurisdiction in which the institution operates;

(11) Failure to report in writing to the commission any disciplariy decision issued against the institution or the applicant in another jurisdiction within thirty days of the disciplinary decision;

(12) Failure to report in writing to the commission any change in accreditation status by any accrediting agency; or

(13) Violating any provision of this chapter or rules adopted hereunder.

The department may issue sanctions for any violation of this subsection.

(b) It shall be a violation of this chapter for a private college or university, seminary, or religious training institution or its agent to:

(1) Make or cause to be made any statement or representation, oral, written, or visual, in connection with the offering of educational services if the private college or university, seminary, or religious training institution or its agent knows or reasonably should have known the statement or representation to be false, inaccurate, or materially misleading;

(2) Falsely represent or deceptively conceal, directly or by implication, through the use of a trade or business name, the fact that the institution is a private college or university, seminary, or religious training institution;

(3) Adopt a name, trade name, or trademark that represents falsely, directly or by implication, the quality, scope, nature, size, or integrity of the private college or university, seminary, or religious training institution or its educational services;

(4) Intentionally and materially represent falsely, directly or by implication, that students who successfully complete a course or program of instruction may transfer the credits earned to any institution of higher education;

(5) Intentionally and materially represent falsely, directly or by implication, in its promotional materials or in any other manner:

(A) Its size, location, facilities, or equipment;

(B) The number, educational experience, or qualifications of its faculty;

(D) The extent or nature of any accreditation received from any accrediting agency, body, or association;

(6) Provide prospective students with testimonials, endorsements, or other information that has the tendency to mislead or deceive prospective students or the public regarding its current practices;

(7) Designate or refer to its sales representatives by titles that imply that the sales representatives have training in academic counseling or advising if they do not; and

(8) Represent, directly or by implication, that it is authorized by the State or approved or accredited by an accrediting agency or body when it has not been authorized, approved, or accredited.

(c) Any private college or university, seminary, or religious training institution or its agent that violates this chapter may be subject to one or more of the following sanctions:

(1) A fine equal to a sum of not less than $500 or more than $10,000 for each violation. The penalties provided in this subsection are cumulative to the remedies or penalties available under all other laws of this State. Each day that a violation occurs shall be considered a separate violation;

(2) An order directing corrective action on the part of the institution;

(3) An order of restitution to one or more affected students;

(4) Revocation, suspension, probation, or conditions on the institution's authorization;

(5) An order relating to cessation of operations or alternate enrollment; or

(6) The payment of costs of investigation and legal action, irrespective of the outcome.

§ -13 Requirements to maintain authorization. (a) Authorization by the commission shall be conditioned on the maintenance of national accreditation by the institution and a valid surety bond as provided for in section -15. Authorization shall be automatically suspended effective as of the date of the cancellation or expiration of accreditation or the cancellation or expiration of the surety bond. The commission shall not reinstate the affected institution until satisfactory proof of compliance is submitted to the commission. Failure to reinstate a suspended authorization within sixty days of suspension shall result in the termination of the authorization and the institution shall forfeit all fees and shall be required to apply for authorization as a new applicant.

(b) An institution's authorization shall be placed on probationary status without further action by the commission or department in the event that:

(1) The institution is placed on probationary status by its nationally recognized accrediting agency, contemporaneous with the action of such agency; or

(2) The institution's nationally recognized accrediting agency ceases to be recognized by the United States Department of Education.

(c) An institution may, within fifteen days of the receipt of the notification of probation under this section, request an administrative hearing for review pursuant to chapter 91.

(d) The commission may revoke a private college or university's authorization or place a private college or university on probationary status if:

(1) The private college or university fails to substantially comply with the applicable laws or rules of any other state board or agency that has jurisdiction over the private college or university; or

(2) The private college or university violates any criminal law of this State, the federal government, or any other state in which it operates, that is directly relevant to the institution's authorization status.

(e) The commission shall place a seminary or religious training institution on probationary status if the seminary or religious training institution no longer meets the definition of a seminary or religious training institution under this chapter.

(f) The commission may revoke a seminary or religious training institution's authorization or place the seminary or religious training institution on probationary status if the seminary or religious training institution:

(1) No longer meets the definition of a seminary or religious training institution under this chapter;

(2) Fails to meet any of the minimum standards set forth in this chapter or in administrative rules adopted pursuant to this chapter; or

(3) Violates any criminal law of this State, the federal government, or any other state in which it operates, that is directly relevant to the institution's authorization status.

(g) If the commission has reason to believe that a private college or university, seminary, or religious training institution meets one or more of the grounds specified in subsections (a), (b), (d), (e), or section -12, as applicable, the commission may order the department to investigate whether to revoke its authorization or place it on probation.

(h) In conducting an investigation, the department may physically inspect the private college or university, seminary, or religious training institution's facilities and records, and the institution shall have an affirmative duty to cooperate with requests from the department for information regarding any investigation or inspection.

(i) Upon the conclusion of any investigation pursuant to subsections (g) and (h), the department shall make available the results of the investigation to the commission so the commission may decide whether or not to revoke the private college or university, seminary, or religious training institution's authorization or place it on probation; provided that the department shall identify the applicable grounds for revocation or probation as specified in subsections (a), (b), (d), (e), or section -12.

(j) If the commission revokes a private college or university, seminary, or religious training institution's authorization or places it on probationary status pursuant to this section, the commission shall accord the private college or university, seminary, or religious training institution the right to contest the decision pursuant to chapter 91.

(k) If an institution's authorization is revoked due to the institution's loss of accreditation, the institution shall provide written notice to all students within thirty days.

(l) A private college or university, seminary, or religious training institution that is authorized pursuant to this chapter shall:

(1) Not make or cause to be made any oral, written, or visual statement or representation that violates section -12(b);

(2) Provide the department with a copy of its enrollment agreement, if applicable, in accordance with its reauthorization schedule;

(3) Provide bona fide instruction, in accordance with the standards and criteria set by its accrediting body; and

(4) If its ownership changes, provide the department with any material information concerning the transaction at least thirty days prior to the transaction.

(m) If a private college or university, seminary, or religious training institution violates any of the requirements of subsection (l), the commission shall determine whether the institution shall be placed on probation or have its authorization revoked.

§ -14 Deposit of records upon discontinuance. (a) If a private college, university, seminary, or religious training institution ceases operating within the State, its owner or the owner's designee shall deposit with the department the original or legible copies of all of its educational records.

(b) If the commission determines that the records of a private college, university, seminary, or religious training institution that ceases operating within the State are in danger of being destroyed, secreted, mislaid, or otherwise made unavailable to the department, the commission may seek a court order authorizing the department to seize or take possession of the records.

(c) Upon the request of the commission, the department or the department of the attorney general may enforce this section by filing a request for an injunction with a court of competent jurisdiction.

(d) The department shall permanently retain any student transcripts received pursuant to this section. The department shall retain any other records obtained pursuant to this section for ten years; provided that after this period, the department shall dispose of the records in a manner that will adequately protect the privacy of any personal information included in the records.

§ -15 Financial integrity; surety bond. (a) A private college or university shall provide evidence of financial integrity at the time of its application for authorization. A private college or university may demonstrate financial integrity by meeting the criteria specified in subsection (b) or (c).

(b) A private college or university may demonstrate financial integrity if it:

(1) Has been accredited for at least ten years by an accrediting agency that is recognized by the United States Department of Education;

(2) Has operated continuously in the State for at least ten years;

(3) Has not filed for bankruptcy protection pursuant to title 11 of the United States Code;

(4) Maintains a composite score of at least 1.5 on its equity, primary reserve, and net income ratios, as required in title 34 Code of Federal Regulations section 668.172; and

(5) Meets or exceeds the pro rata refund policies required by the United States Department of Education in title 34 Code of Federal Regulations part 668; provided that if it does not participate in federal financial aid programs, its refund and termination procedures comply with the requirements of its accrediting body;

provided that a private college or university is not required to meet the criteria specified in paragraphs (1) and (2) if the private college or university is part of a group of private colleges or universities that is owned and operated by a common owner and the other private colleges and universities meet the specified criteria in paragraphs (1) and (2).

(1) Has received and maintains full accreditation without sanction from an accrediting body that is recognized by the United States Department of Education, and which accrediting body requires the private college or university to maintain a surety bond or an escrow account or has affirmatively waived or otherwise removed that requirement for the private college or university;

(2) Owns and operates a permanent instructional facility in the State;

(3) Annually provides to the commission audited financial statements for the most recent fiscal year that demonstrate that the private college or university maintains positive equity and profitability;

(4) Maintains a composite score of at least 1.5 on its equity, primary reserve, and net income ratios, as required in title 34 Code of Federal Regulations section 668.172; and

(d) If a private college or university cannot demonstrate financial integrity as provided in subsections (b) and (c), the private college or university shall file with the director a surety bond in favor of the State in an amount calculated pursuant to subsection (f) prior to receiving authorization under this chapter. The surety bond shall be executed by the private college or university as the principal and by a surety company authorized to do business in the State.

(e) The surety bond under subsection (d) shall be conditioned to provide indemnification to any student or enrollee, to any parent or legal guardian of a student or enrollee, that the commission finds to have suffered a loss of tuition or any fees as a result of any act or practice that is a violation of this chapter and to provide alternative enrollment as provided in section -16 for students enrolled in a private college or university that ceases operation.

(f) The amount of the surety bond under subsection (d) that a private college or university submits pursuant to subsection (d) shall be the greater of $5,000 or an amount equal to a reasonable estimate of the maximum prepaid, unearned tuition and fees of the private college or university for the period or term during the applicable academic year for which programs of instruction are offered, including but not limited to programs offered on a semester, quarter, monthly, or class basis; provided that the private college or university shall use the period or term of greatest duration and expense in determining this amount if its academic year consists of one or more periods or terms. Following the initial filing of the surety bond with the department, the private college or university shall recalculate the amount of the surety bond annually based on a reasonable estimate of the maximum prepaid, unearned tuition and fees received by the institution for the applicable period or term.

(g) The commission may disapprove a surety bond if it finds that the surety bond is not sufficient to provide students with indemnification and alternative enrollment as required by this section.

(h) The authorization for a private college or university shall be suspended by operation of law when it is no longer covered by a surety bond as required by this section. The department shall give written notice to the private college or university at its last-known address, at least forty-five days before the release of the surety bond, to the effect that the private college or university's authorization is suspended by operation of law until it files evidence of a surety bond in a like amount as the surety bond being released.

(i) The principal on a surety bond filed under the provisions of this section is released from the surety bond after the principal serves written notice thereof to the commission at least sixty days before the release. The release does not discharge or otherwise affect a claim filed by a student or enrollee or the student or enrollee's parent or legal guardian pursuant to section -16 for loss of tuition or fees that occurred while the surety bond was in effect or that occurred under any note or contract executed during any period of time when the surety bond was in effect, except when another surety bond is filed in a like amount and provides indemnification for any such loss.

(j) Each private college or university that files a surety bond pursuant to this section shall provide annual verification of continued coverage as required by this section in a report to the commission no later than January 1 of each year.

(k) A seminary or religious training institution shall not be subject to the requirements of this section.

§ -16 Claims against a private college or university; cessation of operation; alternative enrollment. (a) A student or enrollee, or a parent or guardian of the student or enrollee, who claims loss of tuition or fees as a result of cessation of operations may file a claim with the commission if the claim results from an act or practice that violates a provision of this chapter. The claims that are filed with the commission shall be public records and subject to the provisions of chapter 92F; provided that the department shall not make the records public if the release would violate a federal privacy law.

(b) Notwithstanding subsection (a), the commission shall not consider a claim that is filed more than two years after the date the student discontinues enrollment with the private college or university.

(c) If a private college or university ceases operation, the commission may make demand on the surety bond upon the demand for a refund by a student or the implementation of alternate enrollment for the students enrolled in the institution, and the principal on the surety bond filed under section -15(d) shall pay the claim due in a timely manner. To the extent practicable, the commission shall use the amount of the surety bond to provide alternate enrollment for students of the institution that ceases operation through a contract with another authorized private college or university, the University of Hawaii system, an area vocational school, or any other arrangement that is acceptable to the department. The alternate enrollment provided to a student shall replace the original enrollment agreement, if any, between the student and the private college or university; provided that the student shall make the tuition and fee payments as required by the original enrollment agreement, if any.

(d) A student who is enrolled in a private college or university that ceases operation and who declines the alternate enrollment required to be offered pursuant to subsection (c) may file a claim with the commission for the student's prorated share of the prepaid, unearned tuition and fees that the student paid, subject to the limitations of subsection (e). The commission shall not make a subsequent payment to a student unless the student submits proof of satisfaction of any prior debt to a financial institution in accordance with rules adopted by the commission.

(e) If the amount of the surety bond filed under section -15(d) is less than the total prepaid, unearned tuition and fees that have been paid by students at the time the private college or university ceases operation, the department shall prorate the amount of the surety bond among the students.

(f) The provisions of this section are applicable only to those students enrolled in the private college or university at the time it ceases operation, and once a private college or university ceases operation, no new students shall be enrolled therein.

(g) The commission shall be responsible for all prepaid, unearned tuition and fees, student loans, Pell grants, and other student financial aid assistance if an authorized private college or university ceases operation.

(h) The commission shall determine whether offering alternate enrollment for students enrolled in an authorized private college or university that ceases operation is practicable without federal government designation of the commission as trustee for student loans, Pell grants, and other student financial aid assistance pursuant to subsection (g).

(i) For claims made pursuant to this section that do not involve a private college or university that ceases operation, the commission shall conduct a public hearing, without regard to chapter 91, to determine whether there is loss of tuition or fees, and if the commission finds that a claim is valid and due the claimant, the commission shall make demand upon the surety bond filed under section -15. If the principal on the surety bond fails or refuses to pay the claim due, the commission shall commence an action on the surety bond in a court of competent jurisdiction; provided that the commission shall not file an action more than six years after the date of the violation that gives rise to the right to file a claim pursuant to this section.

(j) If a private college or university that is exempt from the provisions of, or that demonstrates financial integrity pursuant to, section -15, ceases to operate in the State, the department of the attorney general may file a claim against the private college or university on behalf of students enrolled in the private college or university at the time it ceases operation to recover any amount of unearned, prepaid tuition that may be owed to the students.

(k) A seminary or religious training institution shall not be subject to the requirements of this section.

§ -17 Reciprocity. The commission may enter into any post-secondary education authorization reciprocity agreement; provided that the authorization standards of the reciprocity agreement shall be comparable to or exceed the authorization requirements of this chapter and any applicable administrative rules.

§ -18 Complaints; injunctive proceedings. (a) By July 1, 2014, the commission shall establish procedures, without regard to chapter 91, by which a student or former student of the University of Hawaii system, a private college, university, seminary, or religious training institution may file a complaint with the department concerning the institution in which the student is or was enrolled; provided that if a former student files a complaint, the complaint shall be filed within two years after the former student discontinued enrollment at the institution.

(b) The commission and the department may initiate complaints based on information received by the commission for possible violations of this chapter or rules adopted hereunder. The department may investigate complaints based on possible violations of this chapter or rules adopted hereunder.

(c) Nothing in this section shall give the commission or department jurisdiction to consider complaints that infringe on the academic or religious freedom of, or question the curriculum content of, a private college, university, seminary, or religious training institution.

(d) Upon receipt of a complaint, the department shall verify that the complaint was properly filed under the procedures established pursuant to subsection (a). The complaint shall warrant investigation only after the student or former student has exhausted all administrative remedies available at the University of Hawaii system, private college, university, seminary, or religious training institution; provided that if the complaint involves a violation of state or federal criminal law, this requirement shall not apply. If a complaint warrants investigation, the department shall forward the complaint to the University of Hawaii system, private college, university, seminary, or religious training institution. The University of Hawaii system, private college, university, seminary, or religious training institution shall have thirty days to respond in writing to the complaint. During the thirty day period, the University of Hawaii system, private college, university, seminary, or religious training institution, with the department's assistance, may attempt to resolve the complaint with the student. If the department determines at any time that the complaint no longer warrants investigation, the department shall dismiss the complaint.

(e) If a complaint is not resolved within the thirty day period, the department may:

(1) Dismiss the complaint based on the University of Hawaii system, private college, university, seminary, or religious training institution's response;

(2) Investigate and, where appropriate, take disciplinary action in a manner consistent with chapter 91.

(f) If the University of Hawaii system, private college, university, seminary, or religious training institution does not take the action recommended by the commission, the commission may forward the complaint and any of the commission's findings to the department of the attorney general.

(g) The commission, acting through the department of the attorney general, may proceed by injunction against any violation of this chapter, but an injunction proceeding or an order issued therein or as a result thereof shall not bar the imposition of any other penalty for a violation of this chapter.

§ -19 Fees; public hearing. (a) A private college, university, seminary, or religious training institution shall pay $ to the department for authorization under this chapter; provided that the commission may change the amount of the fees required by this section at any time without regard to chapter 91, if the commission:

(1) Holds at least one public hearing to discuss and take testimony on the changing of the fees; and

(2) Provides public notice at least thirty days prior to the date of the public hearing.

(b) Fees collected pursuant to this section shall be deposited into the post-secondary education authorization subaccount established pursuant to section 26-9(o).

§ -20 Post-secondary education authorization special subaccount. (a) All moneys collected pursuant to section ‑17 shall be deposited into the post-secondary education authorization special subaccount of the compliance resolution fund established pursuant to section 26-9(o).

(b) Any law to the contrary notwithstanding, the moneys in the special subaccount shall be used to fund the operations of the department in carrying out its duties under this chapter. Any law to the contrary notwithstanding, the director may use the moneys in the special subaccount to employ, in accordance with chapter 76, personnel to carry out the department's duties under this chapter. The moneys in the special subaccount may be used to train personnel as the director deems necessary and for any other activity related to this chapter."

PART III

SECTION 3. Section 26-9, Hawaii Revised Statutes, is amended by amending subsection (o) to read as follows:

"(o) Every person licensed under any chapter within the jurisdiction of the department of commerce and consumer affairs and every person licensed subject to chapter 485A or registered under chapter 467B shall pay upon issuance of a license, permit, certificate, or registration a fee and a subsequent annual fee to be determined by the director and adjusted from time to time to ensure that the proceeds, together with all other fines, income, and penalties collected under this section, do not surpass the annual operating costs of conducting compliance resolution activities required under this section. The fees may be collected biennially or pursuant to rules adopted under chapter 91, and shall be deposited into the special fund established under this subsection. Every filing pursuant to chapter 514E or section 485A-202(a)(26) shall be assessed, upon initial filing and at each renewal period in which a renewal is required, a fee that shall be prescribed by rules adopted under chapter 91, and that shall be deposited into the special fund established under this subsection. Any unpaid fee shall be paid by the licensed person, upon application for renewal, restoration, reactivation, or reinstatement of a license, and by the person responsible for the renewal, restoration, reactivation, or reinstatement of a license, upon the application for renewal, restoration, reactivation, or reinstatement of the license. If the fees are not paid, the director may deny renewal, restoration, reactivation, or reinstatement of the license. The director may establish, increase, decrease, or repeal the fees when necessary pursuant to rules adopted under chapter 91. The director may also increase or decrease the fees pursuant to section 92-28.

There is created in the state treasury a special fund to be known as the compliance resolution fund to be expended by the director's designated representatives as provided by this subsection. Notwithstanding any law to the contrary, all revenues, fees, and fines collected by the department shall be deposited into the compliance resolution fund. Unencumbered balances existing on June 30, 1999, in the cable television fund under chapter 440G, the division of consumer advocacy fund under chapter 269, the financial institution examiners' revolving fund, section 412:2-109, the special handling fund, section 414‑13, and unencumbered balances existing on June 30, 2002, in the insurance regulation fund, section 431:2-215, shall be deposited into the compliance resolution fund. This provision shall not apply to the drivers education fund underwriters fee, sections 431:10C-115 and 431:10G-107, insurance premium taxes and revenues, revenues of the workers' compensation special compensation fund, section 386-151, the captive insurance administrative fund, section 431:19-101.8, the insurance commissioner's education and training fund, section 431:2-214, the medical malpractice patients' compensation fund as administered under section 5 of Act 232, Session Laws of Hawaii 1984, and fees collected for deposit in the office of consumer protection restitution fund, section 487-14, the real estate appraisers fund, section 466K-1, the real estate recovery fund, section 467-16, the real estate education fund, section 467-19, the contractors recovery fund, section 444-26, the contractors education fund, section 444-29, the condominium education trust fund, section 514B-71, and the mortgage foreclosure dispute resolution special fund, section 667-86. Any law to the contrary notwithstanding, the director may use the moneys in the fund to employ, without regard to chapter 76, hearings officers and attorneys. All other employees may be employed in accordance with chapter 76. Any law to the contrary notwithstanding, the moneys in the fund shall be used to fund the operations of the department. The moneys in the fund may be used to train personnel as the director deems necessary and for any other activity related to compliance resolution.

A separate special subaccount of the compliance resolution fund shall be established for fees collected by the state post-secondary education commission established pursuant to section -3, which shall be called the post-secondary education authorization special subaccount. The special subaccount shall be governed by section -20.

As used in this subsection, unless otherwise required by the context, "compliance resolution" means a determination of whether:

(1) Any licensee or applicant under any chapter subject to the jurisdiction of the department of commerce and consumer affairs has complied with that chapter;

(2) Any person subject to chapter 485A has complied with that chapter;

(3) Any person submitting any filing required by chapter 514E or section 485A-202(a)(26) has complied with chapter 514E or section 485A-202(a)(26);

(4) Any person has complied with the prohibitions against unfair and deceptive acts or practices in trade or commerce; or

(5) Any person subject to chapter 467B has complied with that chapter;

and includes work involved in or supporting the above functions, licensing, or registration of individuals or companies regulated by the department, consumer protection, and other activities of the department.

The director shall prepare and submit an annual report to the governor and the legislature on the use of the compliance resolution fund. The report shall describe expenditures made from the fund including non-payroll operating expenses."

SECTION 4. Section 446E-1.5, Hawaii Revised Statutes, is amended to read as follows:

"§446E-1.5 Advisory board. The state post-secondary education commission, as established by chapter [~~304A, part VII, subpart C,~~] , shall serve as a resource to the director as needed regarding the requirements of this chapter."

SECTION 5. Chapter 304A, part VII, subpart C, Hawaii Revised Statutes, is repealed.

PART IV

SECTION 6. To ensure that the post-secondary education commission established by this Act is formed in time to meet the July 1, 2013, federal deadline, the governor shall immediately appoint, without regard to chapter 78, Hawaii Revised Statutes, and section 26-34, Hawaii Revised Statutes, five interim commissioners, of whom three shall be representative of the general public and two shall be representative of public and private nonprofit and for-profit institutions of post-secondary education in the State. The interim commissioners shall be authorized to exercise all duties and responsibilities accorded the post-secondary education commission under this Act and shall serve until the appointment and confirmation of all members of the post-secondary education commission pursuant to this Act, at which time the interim commissioners shall be discharged and the confirmed members shall begin their service.

SECTION 7. The post-secondary education commission shall report to the legislature no later than twenty days prior to the convening of the 2014 regular session on such matters including but not limited to:

(1) The status of any rulemaking the commission has undertaken;

(2) The number of private colleges, universities, seminaries, and religious training institutions that have applied for authorization under chapter ; and

(3) Any proposed legislation.

PART V

SECTION 8. 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 2013-2014 and the same sum or so much thereof as may be necessary for fiscal year 2014-2015 to be paid into the post-secondary education authorization special subaccount of the compliance resolution fund established pursuant to section 26-9(o), Hawaii Revised Statutes.

SECTION 9. There is appropriated out of the post-secondary education authorization special subaccount of the compliance resolution fund established pursuant to section 26-9(o), Hawaii Revised Statutes, the sum of $ or so much thereof as may be necessary for fiscal year 2013-2014 and the same sum or so much thereof as may be necessary for fiscal year 2014-2015 for full-time equivalent ( .0 FTE) permanent positions at the department of commerce and consumer affairs to implement the provisions of this Act.

The sums appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

PART VI

SECTION 10. (a) To ensure that the post-secondary education commission established in this Act is able to comply in a timely manner with the requirements of the Higher Education Act of 1965, as amended, the department of commerce and consumer affairs shall contract for an implementation coordinator or team to assist with the implementation of this Act.

(b) The minimum qualifications for the implementation coordinator or team shall be the following:

(1) Knowledge and understanding of the United States Department of Education regulations for programs authorized under Title IV of the Higher Education Act of 1965, as amended;

(2) Experience and familiarity with post-secondary educational institutions and related accreditation processes; and

(3) Demonstrated strong written and oral communication skills.

(c) The scope of work developed pursuant to subsection (a) shall require at a minimum the implementation coordinator or team to:

(1) Develop a comprehensive plan for the implementation of this Act;

(2) Assist in developing any policies and procedures, including administrative rules, required for the implementation of this Act;

(3) Assist the post-secondary education commission to meet the reporting requirements of section 7 of this Act.

(c) The department of commerce and consumer affairs shall be responsible for awarding and overseeing the contract for the implementation coordinator or team. The term of the contract shall be for one year; provided that the department of commerce and consumer affairs and the implementation coordinator or team may enter into supplemental contracts as the department of commerce and consumer affairs deems necessary to carry out the purposes of this Act.

(d) Chapter 103D, Hawaii Revised Statutes, shall not apply to the contracting of the implementation coordinator or team.

SECTION 11. 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 2013-2014 for the department of commerce and consumer affairs to contract for an implementation coordinator or team.

The sum appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

SECTION 12. All rights, powers, functions, and duties of the University of Hawaii are transferred to the department of commerce and consumer affairs with regard to the state post-secondary education commission.

All officers and employees whose functions are transferred by this Act shall be transferred with their functions and shall continue to perform their regular duties upon their transfer, subject to the state personnel laws and this Act.

No officer or employee of the State having tenure shall suffer any loss of salary, seniority, prior service credit, vacation, sick leave, or other employee benefit or privilege as a consequence of this Act, and such officer or employee may be transferred or appointed to a civil service position without the necessity of examination; provided that the officer or employee possesses the minimum qualifications for the position to which transferred or appointed; and provided that subsequent changes in status may be made pursuant to applicable civil service and compensation laws.

An officer or employee of the State who does not have tenure and who may be transferred or appointed to a civil service position as a consequence of this Act shall become a civil service employee without the loss of salary, seniority, prior service credit, vacation, sick leave, or other employee benefits or privileges and without the necessity of examination; provided that such officer or employee possesses the minimum qualifications for the position to which transferred or appointed.

If an office or position held by an officer or employee having tenure is abolished, the officer or employee shall not thereby be separated from public employment, but shall remain in the employment of the State with the same pay and classification and shall be transferred to some other office or position for which the officer or employee is eligible under the personnel laws of the State as determined by the head of the department or the governor.

SECTION 13. All appropriations, records, equipment, machines, files, supplies, contracts, books, papers, documents, maps, and other personal property heretofore made, used, acquired, or held by the University of Hawaii relating to the functions transferred to the department of commerce and consumer affairs shall be transferred with the functions to which they relate.

PART VII

SECTION 14. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 15. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 16. This Act shall take effect on July 1, 2013.

THE SENATE	S.B. NO.	46
TWENTY-SEVENTH LEGISLATURE, 2013		S.D. 2
STATE OF HAWAII		H.D. 1