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Facilities Update

School Facilities Legislation

Attached is a list of school facilities bills pending in the legislature, including a separate list of Public Contract/Prevailing Wage legislation.  The legislature returns next week after a month-long summer break.  To meet deadlines to be enacted this year, legislation must have already passed through its house of origin as well as policy committees in the second house.  The Appropriations committees of both houses will meet over the next two weeks and will complete their deliberations by August 28th.  In the final two weeks of session, the legislature will debate bills on the Senate and Assembly Floors, and send legislation to the Governor for his consideration.  As this is the first year of a two-year session, some bills that fail to make it to the Governor by the end of session may be considered again next year.

During this last month we will be closely monitoring these bills for amendments, Legislative actions, and Governor’s actions.  This is the time when “gut and amends” occur so we will be watching daily for any effort to insert controversial language.  We will keep you posted on these key measures and deadlines in the coming months.

November 2016 State School Facilities Bond

Signature gathering is now complete for the $9 billion November 2016 school facilities voter bond initiative.  Signatures are now being verified at the county level, and the next step is submittal of the signatures to the Secretary of State.  We anticipate discussions for a compromise among stakeholders, the Governor and the Legislature to occur in January, but barring a compromise, the initiative will go forward on the November 2016 ballot as drafted.

The provisions of the $9 billion initiative are:

  • $2 billion for Community Colleges
  • $7 billion for K-12
    • $3 billion New Construction
    • $3 billion Modernization
    • $500 million CTE
    • $500 million Charters

The school facilities bond language continues the current School Facilities Program (SFP), as in place January 1, 2015.

Davis v. Fresno USD lawsuit

School districts have been using the Lease-leaseback (LLB) design/build projects as a way to deliver school facilities on time, within budget, and with a reduced level of public agency risks.  Education Code Section 17406 authorizes school districts to lease property currently owned by a school district to an entity for a minimum of $1 per year and requires this entity to construct a building on the property.  The title to the property reverts to the school district at the expiration of the lease.  Lease payments (progress payments) are to be made during the term of the lease.

The LLB process has been a controversial issue between school districts and construction unions, and provisions of the process have recently been challenged in the Davis v. Fresno lawsuit. On June 1, 2015, the Fifth District Court of Appeal issued an opinion in Davis v. Fresno Unified School District, ruling that a taxpayer had adequately alleged that the Education Code provisions permitting LLB arrangements did not apply to situations where:

(1) the agreement was not a genuine lease but simply a traditional construction agreement;
(2) the agreement did not include a financing component for the construction of the project; and
(3) the arrangement did not provide for the district’s use of the new facilities "during the term of the lease."

The court also ruled that the taxpayer had adequately alleged that the contractor's preconstruction services for the district may be a conflict of interest under the Government Code because the contractor was arguably a district "employee" with a financial interest in the LLB contract.

The next step:

The school district and a number of organizations, including CSBA and CASH, have asked the Supreme Court to review the Court of Appeal decision.  There is no specific timeline for the Supreme Court to grant or deny a petition to review, but it is likely that they will make that decision relatively soon.

Susan Stuart, Partner
Capitol Advisors Group, LLC.