BILL ANALYSIS Ó AB 308 Page 1 Date of Hearing: May 15, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 308 (Hagman) - As Amended: May 6, 2013 Policy Committee: Education Vote:7-0 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill authorizes the State Allocation Board (SAB) to establish a program that requires a school district or county office of education (COE) that sells or leases real property purchased with state school facilities program (SFP) funds (i.e., modernization or construction funds) to return to the SAB the moneys received for these purposes, as specified. Specifically, this bill: 1)Requires the money to be returned to SAB if all of the following conditions are met: a) The real property is not sold or leased to a charter school pursuant to existing law that sunsets in July 2013. b) The proceeds from the sale or lease of the real property are not used for capital outlay. c) The real property was purchased, or the improvements were constructed on the real property, within 10 years before the property is sold or leased. 2)Requires a proportionate amount of funds received from the SFP to be returned to the SAB based on the percentage of the property sold or leased, as specified. FISCAL EFFECT Potential one-time SFP savings if the SAB establishes a program pursuant to this measure. As referenced below, not many LEAs have taken advantage of existing surplus property provisions and as such, any SFP funding returned to the state will likely be AB 308 Page 2 minimal. The state no longer has any modernization or new construction funds available for allocation under the SFP. COMMENTS 1)Purpose . SB 50 (Greene), Chapter 407, Statutes of 1998, established the SFP. This program drastically altered how school facilities are constructed and modernized in the state. Specifically, the program provides state school construction bond funds to local education agencies (LEAs) to construct school facilities. Chapter 407 established new per pupil construction and modernization grants meant to provide 50% of the total cost of the facility project; this is considered the state portion. The LEA is required to provide the other 50% of the cost from local revenue. Given the state's lack of state school construction bond funds and the need for billions of dollars in school facilities funding, it is prudent to enact legislation that requires districts who sell facilities constructed or modernized with SFP funds to return a portion of this money to the state. 2)Technical amendment . This bill applies to school districts and COEs; however, COEs are not referenced appropriately throughout the bill. As such, the committee recommends the bill be amended on page 2, line 8, after the word "district," to include COEs. 3)Existing law regarding the use of proceeds from the sale of surplus property . Due to the state's severe budget crisis and its effect on K-12 school funding, the Legislature, with approval from Governor Schwarzenegger, enacted several provisions designed to provide flexibility to school districts to mitigate their loss of funding, including allowing districts to utilize the sale of surplus property for one-time GF purposes. Specifically, AB 2 X4 (Evans), Chapter 2, Fourth Extraordinary Session, Statutes of 2009, authorized school districts to deposit the proceeds from the sale of surplus property (purchased entirely with local funds) into the GF of the district, and authorized the district to use the proceeds for any one-time GF purpose. Chapter 2 established this authorization until January 1, 2012. SB 70 (Committee on Budget and Fiscal Review), Chapter 7, Statutes of 2011, extended this authorization until January 1, 2014. The governor's 2013 proposed budget repeals the sunset date of AB 308 Page 3 these surplus property provisions, thereby allowing districts to permanently use the proceeds of the sale of surplus property (purchased entirely with local funds) for any one-time GF purpose. According to the Office of Public School Construction (OPSC), five school districts have exercised this authority to purchase a variety of things for schools, including instructional materials, IT equipment, school supplies, and staff development. OPSC reports a large portion of districts have used these proceeds for postemployment benefits other than pensions. Prior to the enactment of Chapter 2 in 2009, school districts were restricted in their use of proceeds from the sale of surplus property. Specifically, a district could use the proceeds for one-time GF purposes, but it had to demonstrate it had no need for additional schoolsites or construction for a 10-year period following the sale of the property. In addition, the school district could not apply for state bond funds for at least five years. According to OPSC, six school districts have utilized this provision since its enactment. 4)Existing law regarding surplus property and charter schools . SB 1028 (Committee on Budget and Fiscal Review), Chapter 575, Statutes of 2012, required school districts to offer charter schools the option to purchase or lease surplus property designed for instruction or instructional support prior to offering the property to other agencies or soliciting competitive bids, as specified. Chapter 575 specifies the price of the sale or lease of the property is subject to certain caps and can be significantly below market value. Likewise, under either a sale or lease agreement, the charter school is required to use the property exclusively for instructional activities or support for at least five years. After five years, Chapter 575 provides no further restrictions on the usage or sale of the property. These sale and lease provisions are operative only from July 1, 2012 through June 30, 2013. The governor's 2013 proposed budget extends these surplus property provisions for charter schools until June 30, 2018. 5)Previous legislation . AB 2234 (Block) extended the sunset of AB 308 Page 4 provisions authorizing a school district to deposit the proceeds from the sale of surplus property into its general fund (GF) for any one-time GF purpose from January 1, 2014 to January 1, 2016. This bill was held on this committee's Suspense File in May 2012. Analysis Prepared by : Kimberly Rodriguez / APPR. / (916) 319-2081