N.Y. Comp. Codes R. & Regs. tit. 8 § 126.8

Current through Register Vol. 46, No. 45, November 2, 2024

Section 126.8 - Financial Viability and Reporting

All schools shall meet and maintain the standards of financial viability and reporting set forth in this section as a requirement and condition of licensure or certification. For the purposes of this section, school shall mean school as it is defined in subdivision (p) of section 126.1 of this Title and shall additionally include Certified English as a second language schools as defined in subdivision (x) of section 126.1.

(a) General standards of financial viability.

(1) The commissioner shall consider a school to be financially viable if the commissioner determines that:

(i) the school's equity, primary reserve, and net income ratios yield a composite score of at least 1.5, using the methodology set forth in federal regulation 34 CFR section 668.172. The composite score shall be calculated at the highest level of ownership; and

(ii) the school is able to meet all of its financial obligations and provide the administrative resources necessary to comply with all licensure or certification requirements. A school is deemed unable to meet its financial or administrative obligations pursuant to this paragraph if:

(a) the school does not have sufficient operating cash flow and liquidity, as determined by the commissioner; or

(b) the school is subject to any of the triggering events set forth in subdivision (b) of this section and the commissioner determines such triggering event is likely to have a material adverse effect on the financial condition of the school or indicates a distressed financial condition.

(2) No school shall be considered financially viable pursuant to this subdivision where a school owner:

(i) owes an outstanding liability to the department for the school or any other licensed or certified school, previously licensed or certified school, or unlicensed school for which the owner has or previously had an ownership interest and fails to demonstrate that such liability is being paid in accordance with law, regulation, order, settlement, or other written agreement with the department; or

(ii) owes a liability to the department for any violation of Article 101 of the Education Law or this Part and fails to demonstrate that such liability is being paid in accordance with law, regulation, order, settlement, or other written agreement with the department.

(b) Triggering events.

(1) The commissioner may determine that a school is not able to meet its financial or administrative obligations upon occurrence of any of the following triggering events and a subsequent determination by the commissioner that such event is likely to have a material adverse effect on the financial condition of the school or indicate a distressed financial condition:

(i) the school's financial statement, regardless of the school's composite score, contains any adverse, qualified, or disclaimed opinions, or any disclosure in the notes to the financial statement that there is substantial doubt about the school's ability to continue as a going concern in accordance with United States generally accepted accounting principles;

(ii) failure to timely and completely pay any assessments that may be due pursuant to sections 5001 (9), 5007 (10)(d), and 5007 (10)(e) of the Education Law, and section 126.10(j)(11) of this Part;

(iii) failure to timely and completely submit any financial statements that may be due pursuant to section 5001 (4) of the Education Law and section 126.10(j)(11) of this Part;

(iv) failure to timely pay a student refund where a school is required to pay such refund pursuant to Article 101 of the Education Law and this Part, or under any other law, regulation, or accreditation standard, or any failure to timely pay such refund;

(v) the school has an unacceptable level of annual student dropout/withdrawal rates, as determined by the commissioner;

(vi) the school demonstrates a precipitous decline in student enrollment or gross tuition income, as determined by the commissioner;

(vii) violation of a provision or requirement in a security or loan agreement with a creditor;

(viii) failure to make a timely lease, rent or other debt service payment; or any notice of eviction, order to vacate, or any other event or action that may impact a school's ability to operate at its licensed location;

(ix) issuance of a notice or order by a school's accrediting agency, such as an order to show cause or similar action, that, if not satisfied, could result in the withdrawal, revocation or suspension of institutional accreditation for failing to meet one or more of the agency's standards;

(x) if the school is publicly traded, any material adverse action taken against the school by the United States Securities and Exchange Commission, including but not limited to revocation of registration, delisting, or sanction for untimely or incomplete filing of required reports;

(xi) any notice, order, or action taken by the United States government or an agent or instrumentality thereof that could result in the withdrawal, revocation, or suspension of a school's federal Student Exchange Visitor Program certification; or

(xii) any substantial withdrawal of owner equity from the school by any means that results in, or that the commissioner determines will likely result in, the school's composite score falling below 1.0.

(2) Schools must notify the department in writing, within five days of the occurrence of any action or event identified in subparagraphs (vii) through (xii) of paragraph (1) of this subdivision. Upon receiving such notice, the commissioner may require the school to provide additional information and reports, and may require the school to notify students and provide students with information and guidance regarding the potential implications of the action or event on student enrollment status, continued instruction, tuition funds and refunds, as well as all transfer options.

(c) Alternative standards of financial viability. The commissioner may permit a school that is not financially viable under the general standards set forth in subdivision (a) of this section, to be licensed or certified or continue its licensed or certified operation by meeting one of the alternate standards set forth in this subdivision.

(1) Zone alternative. A school that does not meet the general standards of financial viability solely because the commissioner determines that the composite score for its most recent fiscal year falls below 1.5 may nevertheless be found financially viable if:

(1) the commissioner approves a plan, submitted by the school, which adequately details the actions the school is taking to improve its financial viability and to mitigate any risk to the interruption or cessation of instruction and to student tuition funds; and

(2) maintains a composite score of between 1.0 and 1.4 or higher for each of its two subsequent fiscal years.

(i) The commissioner shall notify any such school in writing that it is eligible for the zone alternative.

(ii) The plan shall be received no later than sixty days from the date of the commissioner's notice to the school of its eligibility for the zone alternative.

(iii) A school may qualify for this alternative for no more than three consecutive years.

(2) Probation. A school that does not meet the general standards of financial viability and does not qualify for the zone alternative may be placed on probation, in the discretion of the commissioner, for a period of no more than one year. Such probation may include additional monitoring, inspections, limitations on enrollment, teaching out some or all of a school's present students, or temporary cessation of instruction.

(i) A school placed on probation shall submit reports on its financial condition as directed by the commissioner. Such report shall be on a form and shall include content prescribed by the commissioner and shall be reviewed by the commissioner to determine the school's financial viability. The commissioner may require that this report be completed by an independent auditor.

(ii) During the probationary period, the school and the department shall make efforts to resolve the problems at the school, through the school's demonstration of alternative methods of financial viability acceptable to the commissioner. Alternative methods of demonstrating financial viability may include:

(a) the school securing a performance bond payable to the department, in a form and manner determined by the commissioner, and in an amount appropriate to eliminate any liability to the tuition reimbursement account should the school cease operation;

(b) the school limiting its collection of tuition funds until each student completes their program of study;

(c) establishing a trust account for the sole and exclusive benefit of students, pursuant to section 5008 of the Education Law; or,

(d) any other means acceptable to the commissioner.

(iii) By the conclusion of the probationary period, the school must satisfactorily demonstrate to the commissioner that it is financially viable by meeting one or more alternative methods of demonstrating financial viability set forth in this subdivision, or the general standards set forth in subdivision (a) of this section. If the school cannot demonstrate to the commissioner that it is financially viable by one or more methods set forth in this subparagraph, and if the commissioner determines that the school's financial condition continues to threaten its ability to educate students and/or jeopardize student tuition funds, the commissioner shall schedule a hearing pursuant to subdivisions (2) and (3) of section 5003 of the Education law, to consider suspension or revocation the school's license.

(3) The commissioner may require applicants for initial licensure or certification that are newly formed and that have not completed any fiscal years from which to determine a composite score to establish a performance bond, trust account, or other means acceptable to the commissioner as an alternative to the requirement set forth in paragraph (a)(1) of this section, provided that the applicant meets the standards set forth in paragraphs (a)(2) and (a)(3) of this section.

(d) Administrative actions. The commissioner may deny, suspend, revoke or decline to renew any license or certification if the commissioner determines that a school's financial condition may result in the interruption or cessation of instruction or jeopardize student tuition funds pursuant to section 5001 (5)(c)(3) of the Education Law.

(e) Financial Reporting.

(1) Applicants for initial licensure or certification shall provide the following financial reports, as applicable, to the commissioner:

(i) a balance sheet of the corporate entity or partnership with a certification of accuracy signed by the individual shareholders of the corporation or partners, and dated not more than 30 days prior to the date of the license application;

(ii) a certificate of incorporation for a corporate entity, or a partnership agreement for a partnership;

(iii) a statement indicating the location and type of all bank accounts held by the corporate owners or partners in their official capacities;

(iv) audited financial statements for the previous two fiscal years.

(v) a projected operating budget, including all projected expenses, revenues, profits and losses, by month, for two consecutive 12-month periods (the first two projected years) for initial licensure; and

(vi) such other information as the commissioner may require regarding the adequacy of the applicant's resources beyond all indebtedness available for educational purposes and to ensure the capability of the prospective school to meet its financial obligations.

(2) Applicants for renewal of licensure or certification shall submit audited financial statements in accordance with section 5001 (4)(a) of the Education Law. The annual financial statements submitted pursuant to paragraph (3) of this subdivision shall satisfy this submission requirement, provided that for schools described in subparagraph (ii) of paragraph (3) of this subdivision, the annual financial statement submitted immediately prior to the due date of the renewal application is an audited financial statement.

(3) All schools shall submit annual financial statements in accordance with the following provisions:

(i) Any school that received five hundred thousand dollars or more in gross tuition in a school fiscal year shall be required to submit to the commissioner an annual audited financial statement prepared in accordance with generally accepted accounting principles for that fiscal year. In addition, any school that has a gross tuition of less than five hundred thousand dollars in a school fiscal year but whose combined state and federal student financial aid in such year equals one hundred thousand dollars or more shall also submit an annual audited financial statement to the commissioner for that fiscal year.

(ii) Schools whose gross tuition is less than five hundred thousand dollars in a School fiscal year and which receive less than one hundred thousand dollars in state and federal student financial aid in a school fiscal year shall file with the commissioner an unaudited financial statement in a format prescribed by the commissioner, provided, however, that any such school shall file an audited financial statement the fiscal year after a reviewed financial statement is submitted. For such schools, audited financial statements are required every two years, at minimum, with reviewed financial statements allowed during the alternate year. Upon a determination by the commissioner that a school has submitted false or inaccurate statements or that a significant, unsubstantiated decline in gross tuition has occurred, the commissioner may require any such school to file an audited financial statement pursuant to this paragraph even during alternate years when reviewed statements would ordinarily be allowed.

(iii) annual financial statements shall be due no later than 120 days from the end of the school's fiscal year. The commissioner may extend this deadline for up to 60 days for good cause shown, as determined by the commissioner.

(iv) annual financial statements shall include the following data, disaggregated by each licensed location:

(a) the gross tuition income for all approved occupational curricula and non-occupational courses; and

(b) an itemized account of tuition refunds due and owing to past or presently enrolled students, separated out for each licensed or certified location.

N.Y. Comp. Codes R. & Regs. Tit. 8 § 126.8

Amended New York State Register September 29, 2021/Volume XLIII, Issue 39, eff. 9/29/2021