Key Changes to Keep in Mind When Considering School District Surplus Property: A Summary of Recent Changes to the Disposition of Surplus Property Process and Expenditure of Proceeds

The COVID-19 pandemic has brought countless changes to the way Californians conduct business, complete daily tasks, and engage socially while remaining safe. Schools specifically have seen a number of changes in their operations, legal requirements, and financial responsibilities. The process for declaring property as surplus, selling or leasing surplus property, and expending proceeds from the disposal of surplus property is one area that has seen numerous changes recently.

When evaluating whether to dispose of surplus school district property, it is important to keep two specific pieces of recent legislation in mind. Senate Bill 98 (SB 98) is an education trailer bill that was passed with other budget related bills in June 2020. SB 98 addresses the expenditure of proceeds from the sale or lease surplus property. Senate Bill 820 (SB 820) was passed in September 2020. SB 820 added to and clarified aspects of SB 98, and also relates to the process for declaring property surplus, making statutory offers on a surplus property, and the process for depositing surplus property funds in a school district’s general fund.

The key takeaways from both bills are described below for quick reference when considering surplus property actions (see Education Code section 17463.7).

– Proceeds from a sale or lease of surplus property can be used for a one-time General Fund purpose.

– If local bond proceeds or developer fee revenues were used to purchase the surplus property, the amount of proceeds that may be deposited into the General Fund cannot exceed the percentage computed by the difference between the purchase price of the property and the proceeds from the transaction, divided by the amount of the proceeds from the transaction.

– SB 820 authorizes property that was purchased with “nonstate funds” (i.e. federal funds are permitted) to qualify for this one-time exception.

– Documents must be submitted to the State Allocation Board to verify that the sale does not violate a local bond act and the property is not suitable to meet school facility construction needs in the next ten years. The document list can be found here.

– Apportionments made by the State Allocation Board for financial hardships will be reduced by the amount of any one-time General Fund expenditure from the sale or lease of surplus property. However, no reduction in hardship assistance will be applied if the financial hardship was caused by excessive construction costs due to unusual circumstances beyond a school district’s control.

– The school district’s governing board must adopt a plan for expending the proceeds from the disposition of surplus property that identifies the source and intended use of such proceeds and describes the reasons why the expenditure will not result in ongoing fiscal obligations for the school district. The plan for use of the funds must be adopted at a public meeting, instead of at the previously required usual “regularly scheduled meeting.”

– A 7-11 review committee is not needed if the surplus property was never used or constructed to be used as an early education center or K-12 school.

– Offers by the school district to public agencies, as identified in the Education and Government Codes, of the surplus property can be made simultaneously.

– School districts that sell or lease surplus property before June 30, 2024 (SB 820 inoperative date) can expend proceeds as set forth in SB 820 even if the funds are received after June 30, 2024.

If your school district is considering the sale or lease of a surplus property, the changes set forth in SB 98 and SB 820, as described above, could simplify the disposition process or provide a (one-time) much needed source of revenue for school districts faced with budget challenges due to COVID-19.

Parker & Covert has extensive experience in advising school districts on the sale or lease or surplus school district property. Should you have any questions or need assistance with surplus property matters, please do not hesitate to contact us via email or phone.

 

This update is provided for informational purposes only. It is not intended as legal advice, nor does it create an attorney-client relationship between Parker & Covert LLP and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances.

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