(a) Loan prohibited. Neither a charter holder or a charter school may accept any loan or credit from, or incur any debt to, a management company that has a contract to provide management services to:
  (1) that charter school; or
  (2) another charter school that operates under a charter granted to the charter holder.
(b) Management contract prohibited. A charter holder or charter school that accepts a loan or credit from, or incurs a debt to, a management company, may not enter into a contract with that management company to provide management services to the school.
(c) Audit disclosure. A charter holder shall separately disclose, in its annual audit report required by §100.1047(c) of this title (relating to Accounting for State Funds), all loans or credit received or indebtedness incurred by the charter holder or the charter school to any person or entity providing management services to the charter school or another charter school that operates under a charter granted to the charter holder.
(d) Agency review. Compliance with this section shall be reviewed in conjunction with the review required by §100.1155(c) of this title (relating to Procedures for Prohibiting a Management Contract).
(e) Implementation schedule and transition. Notwithstanding this subsection, if the affected management contract was executed prior to September 1, 2001, and the affected promissory note or other debt instrument was also executed prior to September 1, 2001, then:
  (1) both the management contract and the indebtedness may continue in effect past September 1, 2001, if each of the following conditions is met:
    (A) no state funds are used to pay any amounts due the management company under the management contract, and all such amounts are paid from a clearly identified source of non-state funds;
    (B) no state funds are used to pay any amounts due the management company under the promissory note or other debt instrument, and all such amounts are paid from a clearly identified source of non-state funds; and
    (C) the terms of the management contract and the promissory note or other debt instrument have not been renewed, modified, or otherwise altered since September 1, 2001; or
  (2) the indebtedness may be refinanced after September 1, 2001, and the management contract may be renegotiated after September 1, 2001, if each of the following conditions is met:
    (A) on or before September 1, 2002, the charter holder and the management company shall file with the TEA division responsible for legal services the following:
      (i) a copy of each and every contract, promissory note, debt instrument, agreement or document executed, or in effect, at any time on or after September 1, 2001, between or among: the charter holder or any of its charter schools or management companies; the management company or any of its subsidiaries, parents, affiliates, or related companies; and the lender or any of its subsidiaries, parents, affiliates, or related companies; and
      (ii) additional documents as requested by the TEA division responsible for legal services during its review under this subsection;
    (B) the documents filed under subparagraph (A) of this paragraph shall establish that, upon approval by the TEA division responsible for legal services, the management company will not be the lender of any funds, but will merely act as the guarantor or co-signer on loans totaling an amount equal to or less than the indebtedness owed by the charter holder to the management company prior to September 1, 2001;
    (C) the documents filed under subparagraph (A) of this paragraph shall establish that the management company may not take any action in its capacity as guarantor or co-signer to prevent, deter, or discourage the charter holder from taking any action respecting the management company under its contract for management services;
    (D) the documents filed under subparagraph (A) of this paragraph shall establish that the term of the contract for management services between the management company and the charter holder may not extend beyond the term of the current contract for charter between the charter holder and the State Board of Education, and that the contract for management services is renewable beyond the current term of the open-enrollment charter only through negotiation and execution of a new contract for management services;
    (E) the documents filed under subparagraph (A) of this paragraph shall establish that the management company may not take any action in its capacity as guarantor or co-signer to coerce, influence, or encourage the charter holder to negotiate or execute another contract for management services under subparagraph (D) of this paragraph; and
    (F) the TEA division responsible for legal services finds, in writing, that the documents filed under subparagraph (A) of this paragraph meet the criteria specified in paragraph (2) of this subsection, and finds that any compliance problems concerning the governance and the financial or other management of the charter holder do not prevent the approval of the arrangements reflected in the documents.

Source Note: The provisions of this §100.1157 adopted to be effective April 18, 2002, 27 TexReg 3110