BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 503 (Wieckowski) - State surplus property: Agnews
Developmental Center.
Amended: June 19, 2013 Policy Vote: GO 7-3
Urgency: No Mandate: No
Hearing Date: August 12, 2013
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 503 would authorize the Department of General
Services (DGS) to transfer surplus state property to a local
agency at a price that is less than fair market value if the
property will be used solely for public school purposes. The
bill would also authorize DGS to negotiate with the Santa Clara
Unified School District (SCUSD) and the City of San Jose to
transfer title of the former Agnews Developmental Center for
public school purposes, at less than fair market value.
Fiscal Impact:
Unknown future revenue losses, potentially tens of millions
in a given fiscal year, by providing general authority to
sell state surplus property to local agencies for school
purposes at less than fair market value (Deficit Recovery
Bond Retirement Sinking Fund, General Fund).
One-time revenue losses of at least $7 million, and up to
$24 million, related to the sale of state surplus property
at the former Agnews Developmental Center for public school
purposes at less than fair market value (Deficit Recovery
Bond Retirement Sinking Fund). See staff comments below for
full discussion of potential fiscal impacts related to the
former Agnews Developmental Center site.
Potential loss of property tax revenues, to the extent that
this bill results in more state surplus property being sold
to local agencies for school purposes, rather than to
private parties. If the former Agnews Developmental Center
site is sold to public agencies, rather than to private
entities at the appraised value of $100 million, this bill
would result in annual property tax losses of approximately
$1 million, about half of which represents an impact on the
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General Fund. See staff comments.
Background: Existing law authorizes DGS to dispose of state real
property declared surplus by the Legislature by sale, lease,
exchange, or any other manner, and upon terms deemed to be in
the state's best interests. If surplus property is not needed
by any other state agency, existing law requires DGS to place
the property on the list of surplus property it maintains on its
website, and provide local agencies with electronic notification
of updates to the list.
Surplus state property must first be offered to local agencies,
then to nonprofit affordable housing sponsors, prior to being
offered for sale to private entities or individuals. In order
to be considered a potential buyer, a local agency or affordable
housing sponsor must notify DGS of its interest within 90 days
of the posting of the property on its website, and demonstrate
that it will be used for open space, public parks, affordable
housing projects, or local government-owned facilities.
Existing law requires first priority be given to the local
agency that intends to use the property for affordable housing
developments, and if no agreement is executed, second priority
is given to the local agency that intends to use if for open
space, public parks, or local government-owned facilities. The
sales agreement must be executed within 60 days of DGS
determining that a local agency or affordable housing sponsor is
to receive the property. If the sale is not completed within
these timeframes, existing law requires DGS to proceed with the
process for disposal to other private entities or individuals.
Existing law authorizes DGS to sell surplus state property to a
local agency or nonprofit affordable housing sponsor for less
than fair market value if the discount will enable the provision
of housing for persons and families of low or moderate income.
Such a sale is conditioned on the property being used for that
purpose for at least 40 years enforced through a recorded
regulatory agreement, as specified. Existing law also
authorizes DGS to transfer surplus state property to a local
agency for less than fair market value for parks or open-space
purposes. The deed or other transfer instrument must specify
that the property would revert to the state if the property is
used for other purposes during the period of 25 years after the
transfer date. Surplus state property sold to private entities
or individuals must be at fair market value, as established by
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an appraiser and economic evaluation, and conducted through a
competitive bidding process, as specified.
Pursuant to the provisions of Proposition 60A, the proceeds of
state surplus property sales are deposited into the Deficit
Recovery Bond Retirement Sinking Fund and used to pay off the
state's deficit reduction bonds, which were authorized by
Proposition 57 in March 2004. Once these bonds are retired, all
proceeds go to the General Fund. These provisions do not apply
to properties purchased with transportation monies or other
special funds.
Proposed Law: AB 503 would authorize DGS to transfer surplus
state property to a local agency at a price that is less than
fair market value if the property will be used solely for public
school purposes. The bill would also authorize DGS to enter
into negotiations with the SCUSD, the City of San Jose, or both,
to transfer title of all or a part of the former Agnews
Developmental Center to the district, the city, or both, for
public school purposes.
Related Legislation: SB 136 (Huff), Chap 166/2009, authorized
DGS to sell all or any portion of approximately 85 acres located
at the East Campus of the Agnews Developmental Center in Santa
Clara County.
Staff Comments: The 424 acres of land that makes up the East
Campus of the Agnews State Hospital was purchased by the state
in 1926, and is located in the highly coveted "golden triangle"
area in Silicon Valley. The facility has been closed down in
stages, and approximately 340 acres of the original East Campus
has been sold or transferred. Most significant among the
earlier transfers was the sale of 140 acres to Cisco Systems in
the 1990s. The 85-acre site comprised of the Agnews
Developmental Center was authorized for sale as surplus state
property by the Legislature in 2009.
According to the DGS surplus property listing, the SCUSD
notified the state in 2009 of its interest in 59 acres of the
property and proceeded to prepare and certify an Environmental
Impact Report for a K-12 school site. The SCUSD notified DGS in
August of 2012 that it did not have the necessary funds to
purchase the property at fair market value, in accordance with
existing law. DGS indicates that the appraised value for the
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proposed school site had increased from $63 million to $71
million in the time period between the initial notification of
interest by SCUSD and 2012, and the district indicated it only
had $64 million available. Early this year, the SCUSD and the
City of San Jose offered to jointly purchase the entire 81 acre
site that is available for a school and park, with a best and
final offer of $76 million, which is $24 million below the
appraised value of approximately $100 million. Presumably, the
joint offer was intended to allow the sale to proceed because
property sold to local agencies for park purchases may be sold
at less than fair market value. DGS deemed that the offer was
not in the best interests of the state and declined the offer.
In June of this year, DGS posted the property on its website as
available for sale and requested offers from private entities
and individuals, which will be accepted until October 3, 2013.
The property is ideally suited for a major corporate user and
DGS will favor offers by large employers.
AB 503 would authorize DGS to enter into negotiations with the
SCUSD and the City of San Jose to transfer title of all or a
portion of the property for school purposes at a price that is
less than fair market value. Taking the original proposal for
the 59-acre school site, this bill would likely result in a loss
of at least $7 million (the difference between the $71 million
in appraised value and the $64 million that the district has
available). If one considers the entire site, the bill would
likely result in a loss of up to $24 million (the difference
between the $100 million appraisal and the $76 million best and
final offer from the city and district).
The broader fiscal impacts related to the permanent
authorization for DGS to sell surplus state property for public
school purposes are unknown, but could be in the millions
annually, depending on the property available and its
suitability for use as a school site.
To the extent that this bill results in more state surplus
property being sold to local agencies for school purposes,
rather than to private parties, there could also be a
significant loss of property tax revenues. If state property is
sold to a public agency, it is generally exempt from property
tax, but properties sold to private entities would be subject to
taxation. Any property tax revenues that are allocated to
schools generally offset General Fund expenditures pursuant to
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minimum funding guarantees in Proposition 98. As such, this
bill could have a General Fund impact to the extent it keeps
more properties in local agency ownership.
This bill would authorize DGS to sell surplus state property to
a local agency for less than fair market value if the property
is used for public school purposes. If multiple local agencies
are interested in purchasing a particular site, however, it is
unclear whether a purchase for school purposes would be
considered a lower priority use than affordable housing and
parks or open-space purposes since the bill is silent on that
point.