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Edited on November 13, 2008 at 3:24 p.m.
November 13, 2008
Naylor Provisions and Exceptions to the Uses of Proceeds from Sale or Lease Of School District Surplus Property
As noted in last week’s edition of Education’s Bottom Line the financial constraints of school districts in recent years have caused districts to seek to convert property assets into cash as capital funds have been depleted and as general fund revenues have diminished. The process to surplus school district property is not simple and the Legislature found the need to weigh in to the policy debate, further limiting the authority of governing boards to sell property in order to resolve a general fund deficiency.
After appointing and having one or more public meetings of an advisory committee (EC 17389), the governing board and school district may, by action of a majority of the members, declare property to be surplus. The district is thereafter required to formally notice all other public agencies of the availability of the property, including all local, state and federal entities. The Code requires that any public agency interested in the property provide a written response within 60 days to the district. The rationale here is apparently that all interested public parties be on record with the district notwithstanding that the Government Code and the Education Code provide a statutory hierarchy favoring certain needs and wants of certain governmental agencies over the needs and wants of other agencies. In that state statute often appears to conflict with other statute, and sometimes actually do, the two codes do not agree as to priority.
Education Code 17485-17500, referred to as the Naylor Act, clearly identify that the apex of the hierarchy of need or want is outdoor recreation and the Code finds further that such can be met through the preservation of school property and keeping it available for “playground and playing field or other outdoor recreational and open-space purposes.” The priorities listed in order in EC 17489 are:
- Any city within which the land is situated;
- Any park or recreation district within which the land is situated;
- Any regional park authority having jurisdiction within the area in which the land is situated; and,
- Any county within which the land may be situated.
Government Code 54220 presents a different listing of priorities identified below:
- Housing and in particular low and moderate income housing;
- Park and recreation purposes; and,
- The clustering of residential and commercial development around transit stations.
The following section of the Code, GC 54221, declares that government property is not considered exempt surplus property if it is within the coastal zone, proximate to a historical unit of the state park system, proximate to property that has been or may be declared eligible for inclusion on the National Register of Historic Places or certain lands within the Lake Tahoe region.
The very next section, GC 54222, identifies which agencies must be notified if property is declared surplus. It is important to note that the language used does not include the word “notify” but rather the words “shall, prior to disposing of that property, send a written offer to sell or lease the property.” In that both Codes require that other public agencies be made aware of the availability of surplus property, we advise school districts to send a notice to all public entities including other school districts (GC 54222 includes the words “land suitable for school facilities construction.”)
Education Code 17489 unmistakably in express language takes precedence over GC 54222 and establishes the priorities listed above. This Education Code section too, like the Government Code above, uses the term “offer to sell or lease.” The California Supreme Court’s decision in Moorpark v. Moorpark was clear; the Court stated that the District’s letter announcing the availability of the surplus property was not an offer but rather a notice. We advise that in the language declaring the property to be surplus that the governing board resolution plainly state the intent of the board is to notify the availability of property and further advise that superintendents use the term “notice” in the letter sent from the superintendent’s office to the other public agencies and to note that a 60-day window to receive letters of interest commenced the date of the mailing.
The Naylor Provisions have long troubled school district superintendents and governing boards. In the experience of the writer there has been a common belief that districts must comply with these provisions if property is declared surplus and therefore give up portions of a valuable asset for meager consideration. Such is not the case and Naylor is not absolute.
Assuming a hostile intent, such as existed in the Moorpark matter, there are a number of defenses that may be marshaled that are embedded in the Naylor provisions themselves that must be carefully scrutinized. The first and strongest is the exception provided for in EC 17497 that allows for the exempting of “not more than two surplus school sites … for each planned schoolsite acquisition.” The section includes the exception if the district is seeking expansion of classroom capacity at an existing school site by 50 percent or more. The wisdom of the statute provides that growing or overcrowded districts need to protect their property assets to be part of a financial arsenal in winning the ever-present battle for adequate new, modernized and well-maintained facilities in “good repair.”
Other means of defending the district’s property assets are to be found in the Naylor Provisions and all should be considered; however, the one found in EC 17498(c) is reminiscent of the mantra of Green Bay Packer legendary coach Vince Lombardi: The best defense is a good offense. The intent of this section is unmistakable; a city or county as the authority for rezoning may agree to provide development rights for the portion of the school property retained by the district in exchange for the discounted Naylor price or other price.
There are other means within existing statute that may be used to increase district capital revenue from surplus property that will be explored in this series.
In the last Education’s Bottom Line article it was noted that there have been legislative efforts to allow for districts to place capital funds from surplus property sales into their general fund. Below are four pieces of legislation which were successful with caveats noted for granting the exceptions.
Signed Law for Exceptions to Use of Surplus Property
SB 177 (Chapter 839, Statutes of 2004) – amended in 2006 with SB 1488 to extend sunset to 01/01/2010
- Santee School District
- Valley Center-Pauma USD
- Capistrano USD
Each district is ineligible for Deferred Maintenance Critical Hardship funding and if any of the three districts qualify for Financial Hardship under the School Facilities Program the state will reduce the financial hardship apportionment by an amount equal to the total of funds placed into the general fund from the surplus proceeds.
AB 1895 (Chapter 269, Statutes of 2006)
- Oak Grove Elementary School District
The District is ineligible for Deferred Maintenance Critical Hardship funding and if the District qualifies for Financial Hardship under the School Facilities Program the state will reduce the financial hardship apportionment by an amount equal to the total of funds placed into the general fund from the surplus proceeds. This bill will also become inoperative as of 01/01/2010.
AB 1908 (Chapter 634, Statutes of 2008)
The property in question is farmland, had never been used as a school site and was given to the District by the federal government. The afore noted facts were key to allowing this bill to move forward in recognition that the District would become insolvent and go into receivership without the exception to place the proceeds from the surplus property sale into the general fund.
AB 1981 (Chapter 663, Statutes of 2008)
This is not the typical exception bill. The legislation is an authorization to sell land to the city with a requirement to reimburse the SAB a portion of the funds received with a prohibition from receiving state funds for any project involving the property transferred.
Tom Duffy
tduffy@m-w-h.com
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