BILL ANALYSIS AB 1022 Page 1 Date of Hearing: April 22, 2009 ASSEMBLY COMMITTEE ON EDUCATION Julia Brownley, Chair AB 1022 (Nava) - As Amended: April 14, 2009 SUBJECT : School Facilities: Surplus School Property SUMMARY : Authorizes the Ventura Unified School District (VUSD) to deposit the proceeds from the sale of surplus real property, together with any personal property located on that property, purchased entirely with local funds and sold before January 1, 2005, into the general fund of the school district and use the proceeds from the sale for any general fund purpose. Specifically, this bill : 1)Specifies that if the purchase of property was made using the proceeds of a local general obligation bond act or revenue derived from developer fees, the amount of the proceeds of that sale that may be deposited into the general fund of the school district shall not exceed the percentage computed by the absolute difference between the purchase price of the property and the proceeds from the transaction, divided by the proceeds of the transaction. For the purposes of this section, "proceeds of the transaction" means either of the following, as appropriate: a) For a case sale, the amount realized from the sale of property after reasonable expenses related to the sale; or, b) For a sale that did not result in a lump-sum cash payment, the amount realized from the sale of the property after reasonable expenses that is the sum of all cash received and the net present value of the future cashflow generated by the transaction. 2)Requires the State Allocation Board (SAB) to reduce the amount of hardship assistance awarded to the Ventura Unified School District, if the district exercises the authority granted by this bill, by the proceeds of the sale of surplus real property used for general fund purposes. 3)Specifies that if the Ventura Unified School District exercises the authority granted pursuant to this bill, the district is ineligible for hardship funding from the State AB 1022 Page 2 School Deferred Maintenance Fund for five years after enactment of this bill. 4)Provides that the deposit of proceeds in the school district general fund pursuant to this bill does not disqualify the school district from eligibility for state funding for any school facilities program authorized by the state. 5)Specifies that before the district exercises the authority granted pursuant to this bill, the governing board of the school district shall first submit to the SAB documents certifying all of the following: a) The school district has no major deferred maintenance requirements not covered by existing capital outlay resources; b) The sale of real property does not violate any provisions of a local bond act; and c) The real property is not suitable to meet any projected school construction need for the next 10 years. 1)Requires that before the district exercises the authority granted pursuant to this bill, the governing board of the school district shall, at a regularly scheduled public meeting, present a plan for expending the proceeds. Requires the plan to identify the source and use of the funds. 2)Provides that the provisions of this bill shall remain in effect only until October 31, 2013, and shall be repealed as of January 1, 2014, unless a later enacted statute deletes or extends that date. 3)Provides that the Legislature finds and declares that a special law is necessary due to the unique circumstances concerning the Ventura Unified School District. EXISTING LAW : 1)Requires funds from the sale of surplus property to be used for capital outlay or for costs of maintenance of school district property that the local governing board determines will not recur within a five-year period. AB 1022 Page 3 2)Authorizes proceeds from the lease of a school district property with an option to purchase to be deposited into a restricted fund for the routine repair of district facilities for up to five-years. 3)Provides that proceeds from the sale or lease with the option to purchase may be deposited in the general fund if the school district governing board and the SAB have determined that the district has no anticipated need for additional sites or building construction for the ten-year period following the sale or lease with option to purchase, and the district has no major deferred maintenance requirements. Authorizes proceeds from the sale or lease with option to purchase of school district property to be used for one-time expenditures, and may not be used for ongoing expenditures including, but not limited to, salaries and other general operating expenses. 4)Requires the SAB to reduce an apportionment of hardship assistance awarded to a school district by an amount equal to the amount of any proceeds from the sale of surplus property used for a one-time expenditure of the school district for five years following the expenditure. FISCAL EFFECT : The Assembly Appropriations Committee estimates potential state and local bond cost pressure in the hundreds of thousands in prior similar bills. COMMENTS : Background . Existing law requires districts to establish routine facilities accounts and deferred maintenance accounts, and requires proceeds from the sale of surplus property to stay in capital facilities or maintenance funds to ensure that districts protect and maintain their facilities. SB 1415 (Scott), Chapter 810, Statutes of 2006, authorizes the proceeds from the sale of surplus property to be deposited into the general fund for one-time expenditures and prohibits the use for ongoing expenditures. As a condition for using funds for one-time general fund purposes, a district must show that it has no need for additional sites or building construction for a ten-year period following the sale of the property and may not apply for state bond funds during the ten-year period. The district may apply for funds after five years if the SAB determines that the district demonstrates enrollment growth or a need for additional sites it could not have anticipated. Existing law authorizes, on a district by district basis, the AB 1022 Page 4 authority to sell surplus property purchased with local funds to be used for one-time purposes that does not result in a ban from applying for state bond funds. Such authorities are limited to specified time periods and conditions. Two districts, Oakland Unified School District and Vallejo City Unified School District, are given the authority to sell surplus property so that they can repay emergency loans from the state. All of the authorizations were given prior to the enactment of SB 1415. This bill authorizes VUSD to use the proceeds from property sold prior to January 1, 2005 for any general fund purposes. The VUSD states that through expertise and business acumen, the district bought and sold property to maximize its return, resulting in $30 million in proceeds from the sale of property that are separate from local and state bond funds. The district is seeking authority to use $10 million of the funds over three years time for any general fund purpose. The VUSD, states, "Existing law does not provide us the flexibility to utilize this source of funds as our students suffer from the recent devastating cutbacks to our budget? The 27 school sites in VUSD have been maintained and will continue to be with existing resources. The VUSD district office is located in the former corporate business campus of Kinkos and is one of the most professional district offices in the State. While VUSD understands the importance of building and maintaining excellent facilities in which to teach our children, this must not be at the expense of our primary mission. Our primary mission being student achievement through programs and the allocation of resources that actually increase student achievement such as the resources in our classrooms, low class size, academic and social intervention, technology, summer school, music programs, extra-curricular programs, transportation, and our recently hired innovative teachers in our classrooms. In short, our programmatic needs are far greater and more critical to our students than our facility needs." This bill differs from prior bills seeking authority to use proceeds from the sale of property for non-facility purposes. Prior bills and current law limit the use of funds to one-time general fund purposes (e.g., purchasing equipment or furniture). This bill seeks authority to use the proceeds for any purpose, including ongoing expenditures, such as salaries. It is not sound policy to use one-time funds for ongoing, continuous AB 1022 Page 5 purposes. Staff recommends specifying that the proceeds can only be used for one-time general fund expenditures, consistent with authorizations for other districts. The bill's provision to allow the use proceeds derived from property sold before January 1, 2005 funds is too open-ended. Should the bill limit the authorization to $10 million, which represents the amount the district is seeking to use for non-capital purposes? Technical amendment . On page 2, line 18, replace "case" with "cash". Arguments in Support . The Ventura Unified School District Parent Advisory Committee states, "While we understand the State's rationale for limiting the use of these funds, our programs and services are a much greater need right now. Our facilities department has done an excellent job maintaining all our sites; furthermore, the PAC organization gets a regular update on maintenance completed and projected, and we are encouraged to discuss site needs. We are confident in this proposal to use approximately 10 million dollars over a few years, and that our facilities will not suffer." Arguments in Opposition . The Coalition of Adequate School Housing opposes the bill because the bill eliminates the traditional firewall between capital and operational funding and expenditures. Related Prior Legislation . AB 1908 (Wolk), Chapter 634, Statutes of 2008, authorizes the Dixon Unified School District to sell specified surplus property and to deposit the proceeds into the general fund of the school district in order to reestablish a 3% reserve. AB 1934 (Ma), introduced in 2008, authorizes the San Francisco Unified School District to use proceeds from the sale of surplus property for any one-time general fund purposes. The author held the bill in the Senate Education Committee. AB 1948 (Evans), Chapter 636, Statutes of 2008, which, among other provisions, extends, until July 1, 2010, the authority of the Vallejo City Unified School District to sell surplus property and use the proceeds to reduce or retire an emergency loan from the state. AB 1022 Page 6 SB 1447 (Yee), vetoed by the Governor in 2008, authorizes the San Bruno Park School District to expend up to $1.4 million of the proceeds from the sale of the Carl Sandburg Elementary School for any one-time general fund purpose and requires the district to repay the capital outlay account within 10 years, with interest calculated at the rate received by the Pooled Money Investment Account. SB 1415 (Scott), Chapter 810, Statutes of 2006, prohibits the use of proceeds from the sale or lease with option to purchase of school district property for ongoing expenditures, including, but not limited to, salaries and other general operating expenses, and increases from five to ten years the time period for which the district must demonstrate that it has no anticipated need for additional sites or building construction. AB 1895 (Coto), Chapter 269, Statutes of 2006, authorizes the Oak Grove Elementary School District, until January 1, 2010, to deposit proceeds from the sale of surplus real property and any personal property located thereon, purchased entirely with local funds, into the general fund of the school district or county office of education (COE) and to use the proceeds for any one-time general fund purpose. SB 1488 (Hollingsworth), Chapter 661, Statutes of 2006, extends for three years, the authority of the Santee Elementary School District, the Valley Center-Pauma Unified School District, and the Capistrano Unified School District to sell surplus real property and related personal property and deposit the net proceeds into the local general fund to use for any one-time general fund purpose. SB 177 (Hollingsworth), Chapter 839, Statutes of 2004, authorized the Santee School District and the Capistrano Unified School District, until January 1, 2007, to sell surplus school and personal property, and deposit the net proceeds into the local general fund to use for any one-time general fund purpose. SB 1906 (Sher), Chapter 838, Statutes of 2004 authorized the same for the Santa Clara Unified School District for two years. SB 1129 (Johnson), introduced in 2004, authorized a school district to sell, lease or leaseback certain surplus properties and to deposit the proceeds into the general fund of the school AB 1022 Page 7 district and to use the proceeds for any one-time general fund purpose. The author dropped the bill in the Assembly. AB 264 (Mullin), Chapter 891, Statutes of 2003, allows certain school districts to deposit up to 25% of the proceeds of the sale of surplus school real property, excluding any interest earned thereon, that occurred between July 1, 1997 and June 30, 2000, into the school district general fund for one-time expenses, except for salaries and benefits. The provisions of this bill repealed on January 1, 2005. REGISTERED SUPPORT / OPPOSITION : Support Ventura Classified Employees Association Ventura County Superintendent of Schools Ventura Education Partnership Ventura Unified Education Association Ventura Unified School District Board of Education Ventura Unified School District Parent Advisory Council Ventura Unified School District Personnel Commission One individual Opposition Coalition for Adequate School Housing Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087