BILL ANALYSIS SENATE COMMITTEE ON EDUCATION Gloria Romero, Chair 2009-2010 Regular Session BILL NO: AB 1022 AUTHOR: Nava AMENDED: April 29, 2009 FISCAL COMM: Yes HEARING DATE: June 25, 2009 URGENCY: No CONSULTANT:Kathleen Chavira SUBJECT : Ventura Unified School District: surplus property proceeds. SUMMARY This bill authorizes the Ventura Unified School District to deposit $10 million of the proceeds from the sale of surplus real property purchased entirely with local funds and sold prior to January 1, 2005, into the general fund of the school district to be used for any one-time general fund purpose. BACKGROUND Current law requires school districts to use the funds derived from the sale of surplus property for capital outlay or maintenance of school district property. Current law authorizes the deposit of proceeds from the sale or lease with option to purchase into the district's general fund if: 1) the school district governing board and the State Allocation Board 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 2) the district has no major deferred maintenance requirements. Current law, established by SB 1415 (Scott, Chapter 810, Statutes of 2006), requires that the proceeds from the sale or lease with option to purchase of school district property be used only for one-time expenditures, and prohibits the use of these funds for ongoing expenditures including, but not limited to, salaries and other general operating expenses. In exchange for this consideration, districts are unable to participate in the School Facility Program (SFP) for a period of ten years. AB 1022 Page 2 Current law also provides for an exception to the 10-year exclusion from the SFP if two conditions are met. First, five years must have elapsed since the date upon which the sale or lease with option to purchase was executed and second, the State Allocation Board must make a determination that the district has demonstrated enrollment growth or a need for additional sites or building construction that the district could not have easily anticipated at the time the board made its original determination, that the district had no need for additional sites or building construction for the ten-years following the sale or lease with option to purchase of surplus property. ANALYSIS This bill : 1) Authorizes the Ventura Unified School District (District) to deposit $10 million dollars of the proceeds from the sale of surplus real property purchased entirely with local funds and sold prior to January 1, 2005, into the general fund of the school district to be used for any one-time general fund purpose. 2) Specifies that if the purchase of the surplus property was made using the proceeds of a general obligation bond act or revenue derived from developer fees, the amount of the proceeds of the transaction that may be deposited into the general fund of the school district cannot exceed the percentage computed by the difference between the purchase price of the property and the proceeds from the transaction, divided by the proceeds of the transaction, as defined. 3) Defines "proceeds of the transaction" for purposes of the bill as follows: a) For a cash sale, the amount from the sale of the property less reasonable related expenses. b) For a sale that did not result in a lump-sum cash payment, the amount from the sale AB 1022 Page 3 of the property that is the sum of all cash received and the net present value of the future cashflow generated by the transaction, less reasonable related expenses. 4) Requires the State Allocation Board (SAB), if the district exercises the authority granted by the bill, to reduce an apportionment of hardship assistance awarded to the District by an amount equal to the amount of the proceeds of the sale used for general fund purposes. 5) Specifies that if the school district exercises the authority granted by the bill it is ineligible for hardship funding from the State School Deferred Maintenance Fund for five years after the enactment of the bill. 6) Specifies that the deposit of proceeds into the District's general fund pursuant to the bill's provisions does not disqualify the school district from eligibility for state funding for any school facilities program authorized by the state. 7) Requires the governing board of the District, before it exercises the authority granted by the bill to: a) Certify specified information to the State Allocation Board. b) Present a plan for expenditure of the one-time resources at a regularly scheduled board meeting, as specified. 8) Sunsets these provisions on January 1, 2010, and repeals them unless deleted or extended by a later enacted statute. 9) Declares that the unique circumstances make a general statute inapplicable and that the bills provisions are necessarily applicable only to the Ventura Unified School District. STAFF COMMENTS 1) More information . According to the author, the AB 1022 Page 4 Ventura Unified School District (District) is increasing class size, reducing teachers, support staff and administrators, eliminating programs, eliminating summer school, reducing academic and social interventions, yet they have approximately $30 million in proceeds from the sale of surplus property. This is the year that flexibility has been given in areas that have never been considered before and, the author contends, it is perplexing that the District cannot access its proceeds from the sale of surplus property when they are able to access funding previously limited for specified programs. 2) What does current law allow ? Under current law, and with State Allocation Board (SAB) approval, the District could deposit funds from the sale of surplus property into the general fund for one-time expenditures, but is prohibited from using these funds for ongoing or general operating expenses. The District would also be prohibited from requesting state funds for school facility modernization or new construction for at least five and at most ten years. The District could be eligible for state facilities funding after five years if the SAB determines that there is enrollment growth or a need for additional sites or building construction that the district could not have easily anticipated when it sold the surplus property. This bill would authorize the deposit of proceeds from the sale of surplus property that occurred prior to 2005 into the general fund for one-time expenditures until October 31, 2013. The District would maintain the ability to request state funds for school facility modernization or new construction during that time. 3) Consistency . This bill authorizes the use of proceeds for the sale of surplus real property for any one-time general fund purpose. Current law defines "one-time expenditures" for purposes of the School Facility program. In order to ensure consistency with the definition of one-time expenditures, staff recommends the bill be amended on page 2 line 9 to insert "consistent with Section 17462 and the regulations adopted by the State Allocation Board pursuant to subdivision (c) of that section relating to the AB 1022 Page 5 appropriate use of one-time expenditures" after "purpose" and before the period. 4) Is this a unique circumstance ? Staff notes that the Governor recently proposed several flexibility options in order to help local districts meet their budget shortfalls. Among these was the flexibility to deposit proceeds from the sale of surplus property into the general fund for any one-time general fund purpose and trailer bill language which parallels this bill's provisions. This bill would grant this authority for a single district, the Ventura Unified School District and declare a "unique circumstance that makes a general statute inapplicable." Districts throughout the state are experiencing budget shortfalls as a result of the current fiscal climate. Should the flexibility granted by this bill be limited to one district only? If the Governor's flexibility proposal is adopted by the Budget Conference Committee, is this bill necessary? 5) Prior legislation . The Legislature and Governor have enacted several legislative proposals to authorize the use of proceeds from the sale of surplus property for general fund purposes. Staff notes that in each case, the use of these funds was restricted to one-time general fund purposes. 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 to stay out of receivership. AB 1895 (Coto, Chapter 269, Statutes of 2006) authorized the Oak Grove Elementary School District, until January 1, 2010, to sell certain surplus real and personal property and to use the proceeds from that transaction for any one-time general fund purpose. SB 177 (Hollingsworth, Chapter 839, Statutes of 2004) authorized the Santee Elementary School District and the Capistrano Unified School District to sell AB 1022 Page 6 surplus real property and related personal property, and deposit the net proceeds into the general fund for any one-time general fund purpose. Specified conditions for such authority included potential reductions in apportionments for hardship assistance, and ineligibility for hardship funding from the State School Deferred Maintenance Fund. SB 1906 (Sher, Chapter 838, Statutes of 2004) authorized the Santa Clara Unified School District, with specified conditions, to sell surplus real property and related personal property, and deposit the net proceeds into the general fund to use for any one-time general fund purpose. AB 264 (Mullin Chapter 891, Statutes of 2003) authorized school districts with fewer than 11,000 pupils to deposit up to 25% of the proceeds of the sale or lease of surplus school real property into the school district general fund for use for any one-time expenditure of the school district, except for salaries and benefits, if prescribed conditions were met. The authority granted by this bill was repealed on January 1, 2005. SUPPORT California Association of School Business Officials (CASBO) California School Boards Association (CSBA) OPPOSITION None received.