Surplus School District Property and the Budget Crisis: New and Proposed Legal Requirements and Opportunities

June 2020
Number 47

The COVID-19 pandemic has created a looming fiscal crisis across California. As local agencies prepare to adopt their fiscal year 2020-21 budgets, some are eyeing the option of selling or leasing surplus property in order to generate funds to ease potential shortfalls. There is a great deal happening in Sacramento currently that may impact that option for better or worse.

School districts must follow specific procedures prior to selling or leasing real property. These procedures and related issues are summarized in Lozano Smith’s Surplus Property Checklist. The latest version of the checklist addresses a new legal requirement effective January 1, 2020, regarding declaring property as “exempt surplus land” in order to avoid certain procedural steps that would otherwise be required. (Gov. Code § 54221(b)(1).) The 2020 update to our user friendly checklist is now available here:

http://www.lozanosmith.com/docs/resources/flipbook/Surplus_Checklist/

Limitations on the Expenditure of Proceeds from Sale of Property

The use of proceeds from the sale of property, or a lease with option to purchase, is limited, while lease proceeds with no option to purchase are not subject to expenditure limitations. In the past, this fact, coupled with the desire to preserve property for future use if needed, has often led school districts to lease their surplus property rather than selling. Today, pending legislative efforts growing out of the COVID-19 crisis may give school districts reason to revisit that thinking.

Education Code Section 17462 requires that the proceeds of the sale of surplus property generally must be used for capital outlay or maintenance costs that will not recur within a five-year period. Proceeds from a lease with an option to purchase may be deposited in a restricted fund for routine repairs for up to a five-year period, where they must be used for one-time expenditures. They may not be used for ongoing expenditures, such as salaries and other general operating expenses.

If the district governing board and the State Allocation Board (SAB) have determined that the district will have no anticipated need for additional sites or construction in the next ten years, the proceeds from the sale or lease with option to purchase may be placed into a general fund for one-time expenditures for that ten year period.

Education Code Section 17463 adds another option for the use of funds by school districts with an average daily attendance of less than 10,001 in any fiscal year. Such school districts may deposit interest earned on the proceeds from a sale in that fiscal year of surplus property into the general fund to be expended for any school district purpose, while surrendering State facilities funding for ten years.

Another pitfall to be wary of is that under Section 17462.3 and under SAB regulations, the SAB may require a school district to return State school facilities funding to the State if the school district sells surplus property that was purchased modernized, or improved with that funding, and the following conditions exist:

  • The property is not sold to a charter school, another school district, a county office of education, or any agency that will use the property exclusively for the delivery of child care and development services;
  • The proceeds from the sale will not be used for capital outlay; and
  • The property was purchased, or the improvements were constructed or modernized on the property, within 10 years before the property is sold.

Again, because of these various restrictions on the expenditures from the proceeds of a sale, school districts sometimes lean toward leasing the property. Proceeds from a lease are unrestricted and can be used for general fund purposes and ongoing expenses.

Legislative Efforts to Relax Expenditure Limitations

Former Education Code Section 17463.7, which was initially enacted as a response to the 2008 financial crisis in an effort to help school districts meet their fiscal challenges, allowed school districts to deposit the proceeds from the sale or lease of surplus property purchased with local funds into their general funds. The proceeds could then be used for any one-time general fund purposes. By its own terms, Section 17463.7 expired on January 1, 2016, and is no longer in effect.

Due to the financial impacts stemming from the COVID-19 pandemic, the Governor’s May Revision to the proposed 2020-21 State Budget indicated that flexibility would be provided regarding the expenditure of surplus property sale proceeds. Initial legislative efforts to address the Governor’s budget message appear to be centered on reviving Section 17463.7. Assuming that section is revived in whole, in order to take advantage of the increased flexibility, a school district would need to submit documents to the SAB certifying that their sale of real property does not violate the provisions of a local bond act and that the real property is not suitable to meet projected school construction needs for the next 10 years. The school district must also present a plan for expending the proceeds, identifying the source, use of funds, and why the expenditure will not result in ongoing fiscal obligations for the school district. Upon SAB approval, a school district can use the proceeds for the one-time expenditures identified in its spending plan. Section 1700 of Title 2 of the California Code of Regulation defines “one-time expenditures” as “costs paid by the general funds of a school district that are nonrecurring in nature and do not commit the school district to incur costs in the future, and are exclusive of Ongoing Expenditures.” Under this regulation, these allowed one-time expenditures can include unfunded retirement benefits, within certain limitations.

The Pandemic’s Impact on the Ability to Collect Rent Payments

At the same time that the Legislature is considering ways to loosen restrictions on the use of sale proceeds, school districts are experiencing challenges in collecting rents for existing leases. Many California businesses are experiencing loss of income due to the COVID-19 pandemic shutdown. This not only impacts commercial tenants and their ability to pay rent, but owners who depend on rent payments from their tenants. While school districts that lease property are not required to renegotiate with their tenants, doing so may be a viable option in order to receive some rent payments, rather than none at all.

In response to the struggles being experienced by tenants, the Governor issued two executive orders protecting residential and commercial tenants from eviction for non-payment of rent due to COVID-19. The first order, N-28-20 (March 16, 2020), authorizes local agencies to suspend evictions for both commercial and residential tenants. The second order, N‑37-20 (March 27, 2020), requires the suspension of evictions for residential tenants through May 31, 2020. There is no requirement for suspension or reduction of rent payments.

Local governments are also implementing renter protection. As one example, Santa Clara County has passed and extended ordinances (NS-9.287 and NS-9.288) imposing a temporary moratorium on evictions for non-payment of rent by residential and commercial tenants. Other counties have implemented ordinances that protect only residential tenants.

Recently proposed Senate Bill (SB) 939 would prohibit commercial landlords from evicting their tenants for non-payment of rent due to COVID-19 for a full year. While SB 939 is still being revised, as initially proposed it would eliminate any renter late fees for 12 months after the end of the Governor’s declared state of emergency. Any unpaid rent would be due at the end of the month following the date 12 months after the end of the state of emergency, unless the tenant has reached an agreement with the landlord to pay off the balance at a later time. This bill would not reduce or eliminate rent payments.

In order to qualify for the protection of SB 939 as it was initially proposed, commercial tenants would have to meet the requirements of an “eligible COVID-19 impacted commercial tenant” at the time the eviction notice was served. An eligible COVID-19 impacted commercial tenant would mean a commercial tenant that operates primarily in California, that operates commercial real property pursuant to a lease, and that meets one of the following criteria:

  • It is a commercial tenant that has experienced a decline of 20 percent or more in average monthly revenue over the two most recent calendar months when compared to one or both of the following
    • Its average monthly revenue for the two calendar months before a state or local government shelter-in-place order took effect;
    • Its average monthly revenue for the same calendar months in 2019;
  • It is a commercial tenant that was prevented from opening or required to delay opening its business because of the state of emergency; or,
  • It is a commercial tenant that has suffered a decline of 15 percent or more in capacity due to compliance with an official public health order or occupational health and safety guideline for preventing the spread of coronavirus.

If passed, this legislation could not only impact the ability of school districts to collect timely rents under leases, but it could also impact property values and property tax collection, which would decrease funding for public schools, community colleges and local government.

At this time, other pending bills regarding tenant protections appear to revolve around protecting residential tenants, as opposed to commercial. We will continue to keep our clients informed of new legislation impacting surplus property.

Takeaways

The COVID-19 emergency, the Governor’s orders, the Legislature’s activities, and the current rental environment, all arguably tend to tip the scales toward selling, rather than leasing, surplus property. The sale of surplus property could provide the opportunity for school districts to reap proceeds from the sale, rather than wait on tenants for reduced or late rent payments, or no rent payments altogether. The current fiscal crisis may provide an opportunity for lobbying for even greater flexibility in use of sale proceeds. For the time being, school districts with tenants can expect renegotiation efforts and demands regarding leases and rent.

Lozano Smith is a statewide leader on the topic of surplus property. For more information on how your agency can sell or lease surplus property, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn, or download our mobile app.

Coming Soon

Watch for Lozano Smith’s upcoming webcast on current surplus property issues, featuring an interview with the authors of this Client News Brief.

Written by:

Harold M. Freiman

Partner

Kelly M. Rem

Partner

Emma J. Sol

Law Clerk

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bond Election Countdown: Many Things Have Changed, but Election Deadlines Remain the Same

May 2020
Number 43

In response to the coronavirus pandemic, the Governor has issued a series of executive orders, each addressing impacts of the pandemic. While striving to make sense of and comply with these orders and the countless local, state, and national public health orders and recommendations, it is easy for public agencies to lose sight of looming deadlines, especially when so many administrative timelines have been suspended or extended.

Despite the pandemic-and maybe even as a result of the pandemic as public agency leadership begins to contemplate a future need for a physical environment that can accommodate potential future social distancing guidelines-facilities needs are still pressing for many public agencies. Some public agencies are incurring substantial costs related to preparedness and public health issues, while at the same time seeing decreases in tax revenue. For many public agencies, these factors may exacerbate the need for facilities funding, by both decreasing other available funds and increasing the need for facilities.
Those public agencies still considering a bond or parcel tax measure for the Presidential Election on November 3, 2020, should be aware that the process and deadlines to place a bond or parcel tax measure on the ballot remain unchanged. In order to place a bond measure on the ballot this November, county elections officials must receive an agency’s call and order of election by August 7, 2020.

On May 8, 2020, the Governor issued Executive Order N-64-20, requiring that every Californian who is eligible to vote in the November 3, 2020 election receive a vote-by-mail ballot. The Executive order did not, however, make any changes to the election calendar, or the deadlines or process for placing a local measure on the ballot. Because upcoming election deadlines are fast approaching, it is critical to have your financing team and consultants in place. If you have any questions or need assistance regarding your measures, compliance with laws, or about navigating a future bond campaign, please contact a member of our Public Finance Practice Group.

Lozano Smith’s Public Finance Practice Group

Lozano Smith’s Public Finance Practice Group is comprised of attorneys who are recognized experts in municipal finance and who regularly assist California public entities, including cities, counties, school districts, and special districts, with the issuance of municipal debt vehicles. If you have any questions about the issuance of municipal securities, or any matter related to public finance generally, please contact one of our eight offices located statewide and ask to speak to a member of our Public Finance Practice Group.

Lozano Smith provides bond counsel, disclosure counsel, and special financing counsel services and advice to California public agencies. Lozano Smith conducts bond workshops across the state, covering topics that include:

  • Elections: Timelines and Requirements
  • Bonds: Types, Validity and Tax Treatment
  • Roles and Responsibilities: Committees, Consultants and Counsel
  • Disclosure and Record-Keeping: Regulations and Legal Considerations
  • Statewide Bonds: Matching and Impact

Related Resources

The legal and practical realities of the current crisis are ever-changing. In our continued effort to equip public agencies with useful insights, we have compiled a suite of links to several resource and guidance documents and webpages available from the federal and state governments regarding COVID-19. You can access them here: http://www.lozanosmith.com/covid19.php.

Written by:

Jennifer Grant Bradlee

Partner

Derek Ulmer

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Industrial Disability Retirement May Still Be Considered a Constructive Discharge

May 2020
Number 34

On January 28, 2020, the California Court of Appeal for the First Appellate District revived a former California Highway Patrol (CHP) officer’s claims that he was forced to quit because he is openly gay. In Brome v. California Highway Patrol, the Court of Appeal held that a workers’ compensation claim could extend the statute of limitations for filing a complaint of discrimination and that an industrial disability retirement could still be considered a constructive discharge in violation of California anti-discrimination laws.

Background

Throughout his nearly 20-year tenure with the CHP, Officer Brome complained that he suffered discrimination and harassment from fellow officers based on his sexual orientation. From 2008 through 2014, Brome complained to his superiors that he was frequently subjected to derogatory comments and that other officers routinely refused to provide Brome with backup assistance during enforcement stops. Brome’s superiors investigated his complaints and disciplined at least one officer related to the failure to provide backup assistance. Despite the actions of the employer, Brome alleged that the harassment and discrimination continued, causing him extreme stress and anxiety.

In January 2015, Brome went on medical leave and filed a workers’ compensation claim due to his work-related stress. After his workers’ compensation claim was resolved in his favor in October 2015, he applied for and received an industrial disability retirement effective February 2016.

In September 2016 – over a year after he first went on medical leave – Brome filed a complaint with the Department of Fair Employment and Housing (FEH), and a lawsuit alleging sexual orientation discrimination and harassment, failure to prevent harassment, and retaliation. The trial court dismissed the case on statute of limitations grounds because it was not filed within one year of the challenged actions, as required by the Department of Fair Employment and Housing Act’s (FEHA) provisions in effect at that time. The trial court also rejected Brome’s constructive discharge theory, finding that Brome failed to establish that the working conditions were sufficiently intolerable to cause him to quit.

As of January 1, 2020, the one year statute of limitation to file with the Department of Fair Employment and Housing was extended to three years. See Complainants Now Have 3 Years to File Charge of Employment Discrimination, Lozano Smith Client News Brief Number 79 for December, 2019, available at http://www.lozanosmith.com/news-clientnewsbriefdetail.php?news_id=2952

The Court of Appeal reversed the trial court’s decision on three grounds. First the court reversed the trial court’s finding regarding the statute of limitations. The court found that Brome’s discrimination/harassment claims could be tolled while his workers’ compensation claim was pending. This finding hinged in part on whether a jury could reasonably conclude that the worker’s compensation claim constituted notice to the CHP that Brome also had potential discrimination claims. The court held that it was reasonable to conclude CHP received such notice, because the CHP necessarily considered the cause of Brome’s work-related stress in order to investigate his worker’s compensation claim.

Second, the Court of Appeal also found that Brome’s claims may include allegations of wrongful conduct occurring before the statute of limitations period under the continuing violation doctrine. The continuing violation doctrine allows claims regarding conduct alleged to have occurred prior to the limitations period to move forward if a jury could find:

  • discriminatory/harassing conduct that occurred before the limitation period are “sufficiently similar in kind” to those occurring during the limitation period,
  • the acts occurred with reasonable frequency, and
  • the problems had not “gained permanence” before the limitations period – i.e., that the CHP’s actions did not make it clear that further efforts at informal resolution without litigation would be futile.

Finally, the Court of Appeal disagreed with the trial court’s conclusions that Brome could not prove that his February 2016 disability retirement was a constructive discharge (i.e., forced quitting). A constructive discharge claim requires an employee to show that the “working conditions were so intolerable or aggravated that a reasonable employee would be forced to resign and that the employer either created or knowingly permitted those conditions.” The appellate court found, “the accumulation of discriminatory treatment over time can amount to intolerable working conditions.” Furthermore, the court determined Brome presented sufficient evidence to conclude that the CHP knowingly permitted the intolerable conditions and, due to his workers’ compensation claim, should have known that a reasonable employee in Brome’s position would resign.

The Court of Appeal returned the case to the trial court in order to make a final determination as to CHP’s liability.

Takeaways

The ruling in Brome highlights recent legislation that extends the statute of limitations on Fair Employment and Housing Act claims from one to three years. Further, employers should be aware that a workers’ compensation claim – particularly a stress-related claim – could signal the presence of discriminatory conduct. Receipt of such a claim can constitute notice of discrimination or a hostile working environment. This ruling also highlights the importance for employers to consider and address any subsequent discrimination/harassment claims that may be raised even after the initial claims have been resolved and disciplinary action taken.

If you have any questions about FEHA claims or workplace harassment/discrimination claims in general in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Jenell Van Bindsbergen

Partner

Lindsey F. Zwicker

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Federal Reserve Launches Municipal Liquidity Facility for Short Term Lending to Eligible States, Cities & Counties

April 2020
Number 30

The coronavirus global pandemic and the related shutdowns are causing far-reaching impacts on just about everyone and everything. As the economic toll continues to mount, state and local governments are seeing their tax revenue materially decline, due to decreases in both taxable sales transactions and taxable income. These declines are being compounded by delays, as many states, including California, have postponed their state tax filing deadlines, similar to the IRS’ postponement of the federal income tax filing deadlines. At the same time, state and local governments are incurring substantial costs related to preparedness and public health issues. The federal government recently passed an economic stimulus bill known as the CARES Act (see 2020 Client News Brief Number 24), which included up to $500 million “to provide liquidity to eligible businesses, states, and municipalities related to losses incurred as a result of coronavirus.”

This liquidity assistance will be implemented by the Federal Reserve System (the Fed), through an initiative called the Municipal Liquidity Facility (MLF), authorized and established by the Fed’s Board of Governors on April 8, 2020. Under the MLF the Fed, via a special purpose vehicle, will begin purchasing short term municipal debt instruments directly from state governments, counties with populations of at least two million, and cities with populations of at least one million in order to assist eligible state and local governments in managing cash flow impacts related to the pandemic. The types of debt instruments authorized for purchase include Tax and Revenue Anticipation Notes (TRANs), Bond Anticipation Notes (BANs), and other similar short-term notes. Eligible securities must be purchased before September 30, 2020, and must have a maturity date within two years of issuance.

California cities and counties that are facing or anticipating a revenue deficit and/or delay due to the coronavirus pandemic, and are considering accessing the MLF program, should seek the advice of both financial advisors and bond counsel.

Lozano Smith’s Public Finance Practice Group

Lozano Smith’s Public Finance Practice Group is comprised of attorneys who are recognized experts in municipal finance and who regularly assist California public entities, including cities, counties, school districts, and special districts, with the issuance of municipal debt vehicles. If you have any questions about the issuance of municipal securities or would like to discuss the Fed’s note-purchasing program, please contact one of our eight offices located statewide and ask to speak to a member of our Public Finance Practice Group.

Related Resources

The legal and practical realities of the current crisis are ever-changing. In our continued effort to equip public agencies with useful insights, we have compiled a suite of links to several resource and guidance documents and webpages available from the federal and state governments regarding COVID-19. You can access them here: http://www.lozanosmith.com/covid19.php.

Written by:

Daniel Maruccia

Partner

Jennifer Grant Bradlee

Associate

Kip Pinette

Paralegal

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

CARES Act – Federal Funding for COVID-19 Prevention

April 2020
Number 24

In the midst of the emergency surrounding the novel coronavirus and its associated respiratory disease (COVID-19), the federal government passed a two trillion dollar spending bill. The bill, known as the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, includes funding assistance in the form of direct tax rebate payments to individuals and couples, increased unemployment benefits, loans for small businesses, student loan payment deferral, and the expansion of numerous federal programs and federally-supported programs administered by state and local governments. Local governments and school districts may be on the receiving end of some of these expenditures. Below are some potential areas of funding for cities, counties, and school districts under the CARES Act.

Coronavirus Relief Funds – Payments to State and Local Governments

The CARES Act appropriates $150 billion to state, local, territorial, and tribal governments for necessary COVID-19 expenditures incurred between March 1, 2020 and December 31, 2020 that were not budgeted by the public entity. Most of this money is allocated to the states based on population, but direct payments can be made to “unit[s] of local government” which meet certain criteria. A “unit of local government” includes a county or municipality with a population of more than 500,000. Most local public entities, save for a handful of large California cities and counties, will not be eligible for direct payments. For California local agencies with a population of less than 500,000, it will be up to the State of California to determine how the money is distributed.

It is unclear whether state appropriation is intended to be a pass-through payment or used only by the direct recipient. There do not appear to be any express bars against disbursement down to the local level, but there is also no directive or process for states to distribute these funds. Therefore, cities, counties, and school districts may be eligible for disbursements from California’s proportionate share, but it remains to be seen what that will look like. A separate bill, the Coronavirus Community Relief Act (H.R. 6467), was recently introduced to provide $250 billion in funding to all local governments with fewer than 500,000 residents. It is pending in the House of Representatives.

Financial Liquidity, Loans, and Bond Purchasing

Under a portion of the CARES act called the Coronavirus Economic Stabilization Act of 2020, up to half a trillion dollars will be available for loans, loan guarantees, and other investments “to provide liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of coronavirus.” A “municipality” is a political subdivision of a state and appears to include cities, counties, school districts, and other special districts in California. There does not appear to be a designated amount set aside for municipalities, which means cities, counties, and school districts may be competing with private businesses and with states for the available funds.

Direct loans and loan guarantees are available to municipalities under the appropriation. There are few details in the bill as to what the loans would entail for public entities who take advantage. The Treasury Secretary is authorized to make the loans on whatever terms and conditions he determines to be appropriate. Rules establishing procedures and minimum requirements are forthcoming.

In addition to loans, the United States Department of the Treasury can use the money for “purchasing obligations or other interests” directly from issuers or in the secondary market. Municipal bonds and school bonds likely qualify as obligations that could be purchased under the program. Currently, there are no details that would suggest how this program will be implemented and operated. It is unknown at this time whether any special conditions will be required for federal purchasing of municipal bonds, or whether the federal government will simply act as a normal purchaser in the municipal bond market.

Education Stabilization Fund – Grant Money for Schools

The CAREs act establishes the Education Stabilization Fund, which consists of several grant programs and pass-through funding totaling more than $30 billion. Of the appropriations, $3 billion is for states to distribute as grants to educational entities “most significantly impacted by coronavirus” to be able to continue to provide educational services to their students. State governors have discretion in how and how much of these funds will be allocated to local educational agencies. More than $13 billion is allocated directly to local educational agencies, including charter schools, as subgrants to maintain operation and continuity of services. Such grants will be allocated in a similar manner as under the existing federal Elementary and Secondary Education Act. Finally, almost $14 billion will be distributed directly to institutions of higher education for costs associated with changes in instruction due to COVID-19. At least half of the funds must be used for emergency financial aid grants for students.

Recipients of Education Stabilization Fund grants are required, to the greatest extent practicable, to continue to pay their employees and contractors during any disruptions or school closures. This is similar to a California mandate to continue to pay employees and contractors during the COVID-19 emergency. In general, funds not used or distributed by the states must be returned to the U.S. Department of Education.

COVID-19 Pandemic Education Relief Act of 2020 – Various AuthorizationsThe COVID-19 Pandemic Education Relief Act of 2020 is another section of the CARES Act. This section includes an assortment of goodies, mostly for institutions of higher education and students. Among the types of provisions included in this part of the bill are: waivers of matching-fund requirements; transferability or reservation of existing funds; continuation of payments to federal work-study participants; temporary student loan relief and Pell Grant changes; and more.

The bill also permits the United States Secretary of Education to waive certain statutory or regulatory provisions if the waiver is necessary or appropriate due to the COVID-19 emergency. Access to this part is not limited to higher education institutions. State education agencies may request waivers related to assessments, accountability, and reporting requirements related to assessments and accountability. Local educational agencies, including public charter schools, can request waivers of certain provisions of the ESEA. The requests must describe how the COVID-19 emergency prevents or restricts the local educational agency’s ability to comply with the legal requirement and provide assurance that the local educational agency will work to mitigate the negative effects of the waiver.

Unemployment Reimbursement for Local Governments

States will receive an unspecified amount of money equal to one-half of the unemployment benefits paid to employees of governmental entities in order to reimburse the governmental entities for amounts paid into the state unemployment fund in lieu of contributions. “Governmental entities” is not defined and presumably includes all public entities below the state level, such as cities, counties, school districts, and special districts.

Additional Appropriations for Existing Programs

Numerous appropriations are made to existing programs under the label “Emergency Appropriations for Coronavirus Health Response and Agency Operations.” These are generally appropriations to federal programs and agencies. To the extent local public entities and school districts will benefit from these expenditures, it will most likely be through normal operation of the federal program. Here are some notable expenditures under this part:

  • $25 million for broadband to support distance learning services in rural areas.
  • $3.5 billion in payments to states for the Child Care and Development Block Grant for child care assistance for low-income families.
  • Almost $1.9 billion for Children and Families Services Programs. This includes $750 million for programs under the Head Start Act, from which $500 million is available for operating supplemental summer programs.
  • $5 billion for the Community Development Fund, including an additional $2 billion to existing grantees under the current distribution formula and $1 billion directly to states and insular areas, as defined.

There are also appropriations for the Child Nutrition and Supplemental Nutrition Assistance Programs; law enforcement and firefighter grants; funding for operations of public transit; and healthcare programs in response to the COVID-19 emergency.

In general, these are additional appropriations specifically intended to fight COVID-19, but many do not include any more specific instructions for how the funds must be spent beyond “to prevent, prepare for, and respond to coronavirus.” Some appropriations specify that the money should be used for administration, salaries, supplies, equipment, or some other specific expenditure needed to continue program operations or adapt the operations in light of the COVID-19 emergency. In many cases, there is additional money available for distribution under existing grant or award mechanisms to which public entities may be eligible recipients.

Related Resources

The legal and practical realities of the current crisis are ever-changing. In our continued effort to equip public agencies with useful insights, we have compiled a suite of links to several resource and guidance documents and webpages available from the federal and state governments regarding COVID-19. You can access them here: http://www.lozanosmith.com/covid19.php.

If you have any questions about the CARES Act or other Coronavirus relief funding, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Jenell Van Bindsbergen

Partner

Wesley L. Carlson

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Governor Newsom Signs Two Bills Aimed to Assist Local Educational Agencies During COVID-19 Crisis

March 2020
Number 19

On March 17, 2020, Governor Gavin Newsom signed two bills, Senate Bill (SB) 117 and SB 89, into law which provide for emergency funding to help fight the novel coronavirus (COVID-19) pandemic and help to clarify the law as it relates to school districts. The bills address several issues confronting school districts, county offices of education, and charter schools. SB 117 provides necessary funding, ensuring that local educational agencies (LEAs) may continue to operate, and waives various requirements and deadlines otherwise required by law. SB 89 provides for significant funding to be used to assist individuals, nonprofit organizations, and small businesses experiencing economic hardships due to the impacts of COVID-19. Both bills took effect immediately. Below are highlights of each bill.

Senate Bill 117

School Funding.

For purposes of Average Daily Attendance (“ADA”) reporting to determine funding, LEAs need only report their ADA from July 1, 2019 to February 29, 2020, rather than July 1, 2019 to April 15, 2020. This has the effect of providing full state funding for closed schools, as described and required by Executive Order N-26-20, with the stated intent to ensure that employees and contractors are compensated and paid during the time that a school is closed due to the COVID-19 pandemic. Because the legislation did not include details related to this compensation piece, some districts are grappling with how best to implement this provision.

Similarly, the bill provides that for After-School Education and Safety programs, LEAs will receive funding based on the ADA they would have reported but for the school closure.

The bill also appropriates $100 million from the state’s general fund to be provided to certain LEAs for purposes of purchasing personal protective equipment, or paying for supplies and labor related to cleaning school sites, or both.

Instructional Time.

Schools that are closed are excused from the instructional time requirement. The requirement will be deemed to have been met upon written certification that the school was closed due to COVID-19 on a form unique to the current situation, rather than by following the typical waiver procedure.

Assessments.

SB 117 provides a 45-day extension for LEAs to administer English Learner proficiency assessments (normally required upon a pupil’s initial enrollment and at least annually during a four-month period after January 1).

SB 117 provides for an extension of the testing window to perform such English Learner assessments (English Language Proficiency Assessments of California or “ELPAC”), equal to “the length of time a school is closed due to COVID-19, or until the end of the testing window, whichever comes first.” The same extension applies to the testing window for the California Assessment of Student Performance and Progress (CAASPP), and the physical performance test.

On March 18, 2020, a day after SB 117 was signed into law, the California Department of Education announced that it had suspended all CAASPP testing and ELPAC testing for the 2019-2020 school year, and had placed the physical fitness test on hold until students returned to school.

Moreover, while not covered under SB 117, on March 20, 2020, Secretary of Education Betsy DeVos announced the United States Department of Education will grant a waiver to any state that is unable to assess its students due to the ongoing national emergency, providing relief from federally mandated testing requirements for this school year. Any state that receives this waiver may also receive a waiver from the requirement that this testing data be used in the statewide accountability system due to the national emergency. On March 26, 2020, California’s waiver application was submitted and the U.S. Department of Education issued its preliminary approval. The public comment period for all stakeholders and LEAs is open through April 15, 2020.

Special Education & Student Records.

SB 117 extends the 15-day timeline a district has to propose an assessment plan to determine if a student requires an Individualized Education Plan (IEP) by the number of days the school is closed-in effect, the 15-day period is paused during the time the school is closed and begins running once the school reopens and the regular school session reconvenes.

Under existing law, parents of special education students have the right to examine and receive copies of the student’s records within five business days, before any IEP meeting, and before any hearing or resolution session. The bill excuses LEAs that have closed from meeting these timelines, up until the school reopens and the regular school session reconvenes. However, the bill explicitly encourages LEAs to respond as expeditiously as possible to requests from parents or guardians received during the period of time a school is closed due to COVID-19. Because of what appears to be a Legislative oversight, some parents might assert that LEAs must respond to student records requests (within five business days), including the transfer of records to a student’s new school district (within ten schooldays), according to normal timelines. LEAs should assume that the rules applicable to records requests under SB 117 apply to all student records requests, resulting in the waiver of timelines until COVID-19 school closures end. Still, LEAs should respond to parent requests during this time period “as expeditiously as possible.” With this in mind, if an LEA knows that, due to COVID-19 school closures, it is unable to comply with a request for records within the normal five business day timeline or the timeline to transfer records to a student’s new school, the LEA is best served to provide notice of this in writing to parents who request records during this time period. Note that timelines under the IDEA and FERPA still apply. For advice on guidance on how to respond to records requests during closures, please see our CNB.

Charter Schools.

A charter school that does not have an independent study program or distance learning program in its currently approved charter petition does not need to submit a request to alter its charter petition to offer independent study or distance learning programs during the period of time the charter school is closed due to COVID-19.

State-Subsidized Childcare and Development Programs.

Such programs are exempt from attendance and reporting requirements, subject to guidance from the State Superintendent of Public Instruction to ensure the continuity of payments. Pursuant to guidance and direction from the Superintendent, childcare and development programs shall be reimbursed using the most recent certified record or invoice available.

Uniform Complaint Procedure.

Timelines included in the uniform complaint procedure are extended by the length of the school’s closure due to COVID-19.

Senate Bill 89

SB 89 appropriates $500 million from the General Fund-and up to $1 billion over time-to be used to provide assistance related to the impacts of COVID-19. The intent is to assist individuals, nonprofit organizations, and small businesses experiencing economic hardships due to the impacts of COVID-19.

Related Resources

The legal and practical realities of the current crisis are ever-changing. In our continued effort to equip public agencies with useful insights, we have compiled a suite of links to several resource and guidance documents and webpages available from the federal and state governments regarding COVID-19. You can access them here: http://www.lozanosmith.com/covid19.php.

For more information on issues arising from COVID-19, please contact one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Aimee Perry

Partner

Angela J. Okamura

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Creditable Compensation for Paid Administrative Leave Under Review by CalSTRS

February 2020
Number 10

On January 23, 2020, the California State Teachers’ Retirement System (“CalSTRS”) issued an Employer Information Circular taking a restrictive position regarding what leaves count for the purpose of calculating creditable compensation under the Teachers’ Retirement Law. The CalSTRS Employer Circular is located here.

Creditable compensation is a term set forth in the Education Code that represents all compensation reportable to CalSTRS for an employee’s performance of creditable service. Compensation paid for the use of sick leave, vacation, or an employer-approved leave, is included in the statutory definition of creditable compensation.

Effective January 1, 2016, a definition for “leave of absence” was incorporated into the Teacher’s Retirement Law, in Education Code section 22144.3, limiting the definition to only those leaves included in specific sections of the Education Code.

CalSTRS’ January 23, 2020 Circular expressed a narrow interpretation of section 22144.3, stating that only those paid leaves expressly stated in those Education Code sections listed in section 22144.3 count as creditable compensation. The Circular specifically noted that leaves legally granted through a governing board’s general authority to grant paid administrative leave under Education Code sections 44963 (K-12 school districts) or 87764 (community colleges) are not expressly authorized for purposes of the Teachers’ Retirement Law.

CalSTRS’ position effectively eliminated certain discretionary leaves commonly utilized by school districts for various reasons, such as paid administrative leave while an employee is under investigation, from the definition of a “leave of absence” under the CalSTRS system. CalSTRS’ interpretation, if it stands, will mean that teachers do not earn any service credit for time spent on such leaves.

There has been significant concern over the position taken in the CalSTRS Circular. CalSTRS has recently indicated that it will be withdrawing the January 23, 2020 Circular and will be taking this issue under review. CalSTRS may pursue legislative or regulatory changes to address how paid administrative leave and other leaves granted under a governing board’s general authority will be treated in the CalSTRS system. School districts and community colleges will need to monitor this issue carefully as the outcome of this issue may impact the retirement benefits of their employees and could have audit ramifications if the compensation is not reported correctly.

For questions regarding CalSTRS’ guidance related to leaves of absence or the potential impacts this guidance may have on its current practices, or to discuss any other labor and employment issues, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Thomas R. Manniello

Partner

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State Allocation Board Adopts Developer Fee Increases For 2020

January 2020
Number 9

The State Allocation Board (SAB) has increased the amount of “Level 1” developer fees that school districts are authorized to collect to $4.08 per square foot of residential development and $0.66 per square foot of commercial development. The increase takes effect immediately, and may now be implemented by school districts through local action.

The new rates, which the SAB approved on January 22, 2020, represent a 7.64 percent increase over the maximum amounts authorized as of February 2018. The SAB based its increase on the RS Means cost index for Class B construction.

Government Code section 65995 authorizes the SAB to increase the amount of Level 1 developer fees that school districts are authorized to collect at the SAB’s January meeting in every even-numbered year. The SAB increase does not affect “Level 2” developer fees, which a school district must adopt annually based on its own school facilities needs analysis. The change also does not affect “Level 3” fees, which school districts may only collect when the SAB certifies that state funds for new school facility construction are no longer available.

Assembly Bill (AB) 48, adopted last year, includes provisions that would result in reduction of certain developer fees for school districts. AB 48 is entirely conditioned on voter approval of Proposition 13, a statewide school bond measure on the March 2020 ballot. Thus, passage of Proposition 13 may change the above fee amounts for multifamily housing development. Lozano Smith’s Client News Brief on Assembly Bill 48 can be found here.

Based on this and other legal developments, Lozano Smith is preparing an update for the firm’s publication, Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California and current subscribers can purchase these updates for a nominal fee. The handbook is intended to help school districts reduce their legal costs by providing comprehensive information regarding California law and process for school impact fees. The handbook contains procedures, timelines, checklists, and forms to be used when adopting and implementing fees and/or increases.

Lozano Smith is making the handbook available at a cost of $100 to public school districts that are also clients of Lozano Smith. The handbook will be available to non-client public school districts at a cost of $200. Non-public agencies can purchase the handbook at the full price of $300. Districts wanting a second or replacement copy may request one for $75. School districts may order the handbook here. For more information on the Developer Fee Handbook, or to order a copy, you may also contact our Client Services department at clientservices@lozanosmith.com or call (800) 445-9430.

If you have any questions regarding the adoption or implementation of fee increases or any other developer fee issue, please contact an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Harold M. Freiman

Partner

Kelly M. Rem

Partner

Peter Y. Sumulong

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court Rules that Second Contract with the Same Vendor Did Not Create a Conflict of Interest

January 2020
Number 6

A recent California Appellate Court ruling has determined that a public entity’s award of a second contract to a construction firm did not create a conflict of interest even though it related to an earlier contract between the parties. InCalifornia Taxpayers Action Network v. Taber Construction, Inc. (2019) A145078, the First Appellate District held that the contractor’s second contract with a school district did not create a conflict of interest because both contracts were part of one initial transaction which had been structured as two contracts because applicable law at the time did not permit the transaction to be structured as a single contract. This is the latest chapter in a series of cases about potential conflicts of interest in lease-leaseback construction contracts for school districts, but the ruling has implications for many different types of contracts made by all local public agencies.

Background

Prior to January 2017, when the Education Code’s lease-leaseback statutes were revised, school districts were prohibited from awarding lease-leaseback construction contracts until plans and specifications for the underlying project were approved by the Division of the State Architect (“DSA”). [Link to CNB re LLB changes in Jan. 2017 – CNB No. 63, 2016] Until those changes took effect, school districts wishing to procure preconstruction services from the contractor who would ultimately perform their lease-leaseback projects commonly entered into a separate contract for such preconstruction services. Mount Diablo Unified School District (“District”) selected Taber Construction (“Taber”) to perform a modernization project through a request for proposal process and first awarded a preconstruction contract to Taber. After completion of the preconstruction services and approval of the plans and specifications by DSA, the District awarded a lease-leaseback construction contract to Taber.

A taxpayer organization challenged this dual contract structure by alleging a conflict of interest based on the contractor’s ability to inappropriately influence the District in the creation of the second contract. In May 2017, an appellate court ruled that the plaintiff’s allegations were sufficient to let that issue proceed to trial. [See CNB No. 23, 2017] That decision agreed with appellate decisions in 2015 and 2016 on similar issues, in which other courts agreed that the preconstruction services contract/lease-leaseback contract structure could lead to violation of Government Code section 1090, which prohibits conflicts of interest in public contracts, because of the contractor’s ability to shape the scope of the second contract through their work under the first contract. Based on this reasoning, a conflict of interest could potentially arise whenever a local public agency entered into two successive contracts with the same contractor, if the work performed under the first contract had an impact on the scope of work under the second contract.

The Appellate Court’s Decision

Following trial on these issues, an appeal once again reached the appellate court, which has now held that when Taber performed the preconstruction services, it was not transacting “on behalf of” the District in violation of Government Code section 1090. The court reasoned that Taber was not hired under the first contract to find a firm to complete the project – rather, the District hired Taber to perform preconstruction services for the District “in anticipation of Taber itself completing” the project. The court reasoned that it was standard practice at the time to award two separate contracts due to the existing lease-leaseback law, and that the District purposefully selected Taber with the initial intent that it would award both contracts to Taber.

The court distinguished an appellate court decision, Stigall v. City of Taft (1962) 58 Cal.2d 565, that the plaintiff relied upon which held that a conflict of interest existed under Section 1090. In that case, which arose outside of the lease-leaseback context, there was evidence that a representative of the selected contractor was involved in the selection process. However, the court found no evidence indicating that during performance of the preconstruction services, Taber influenced the District to select Taber for the second contract.

Takeaways

As noted above, due to revisions that went into effect in January 2017, the lease-leaseback statute (Ed. Code § 17406) now expressly permits a school district to award a single contract that includes preconstruction services and lease-leaseback construction. Therefore, the fact pattern of this case is not likely to recur.

However, similar fact patterns could arise in other contexts, such as architectural contracts for master planning services where the architect may wish to also receive award of a subsequent contract for design of an individual project. Another example might be a vendor who enters a consulting contract with an agency to determine the agency’s technology needs, and then is subsequently awarded a contract to supply technology to the agency. In these situations, this case provides guidance as to when a conflict of interest might exist under Section 1090. While initially selecting one firm for both contracts might reduce the chances of a conflict of interest when the second contract is eventually awarded, risk remains if the firm is involved in the shaping the scope of the second contract. If appropriate for the situation, it may be beneficial simply to award a single contract for all of a contractor’s or consultant’s work, rather than two contracts.

For more information about this ruling and conflict of interest issues, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Arne B. Sandberg

Partner

Gayle L. Ketchie

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Government Code 1090 Challenges by Third Parties Clarified and Limited by California Supreme Court

January 2020
Number 5

The California Supreme Court has ruled that third parties (private citizens, taxpayers, watchdog groups, etc.) do not have legal standing to sue public agencies to invalidate contracts allegedly made in violation of Government Code section 1090.

Background

Government Code section 1090 is a “good government” law prohibiting public officials and public employees from participating in any way in the “making” or awarding of a contract in which they hold a financial interest. The penalties for violating Section 1090 are potentially severe, ranging from imposition of a fine to imprisonment.

Government Code section 1092 allows any contract made in violation of Section 1090 to be voided “at the instance of any party except the officer interested therein.” Previous case law had left open to interpretation the meaning of “party” in this provision. Thus, it was not clear whether Section 1092 created a private right of action to enforce Section 1090, or if that right was limited only to the actual parties to the contract.

San Diegans for Open Government v. Public Facilities Financing Authority of the City of San Diego et al. (2019) __ Cal.5th __ (“San Diegans for Open Government“)

In 2015, a citizens’ taxpayer organization sued to invalidate bonds issued by the City of San Diego to refinance the baseball stadium at Petco Park, alleging that financing participants had a financial interest in the sale of the bonds in violation of Section 1090. The trial court determined that the taxpayer group lacked standing to sue on Section 1090 grounds, and dismissed the complaint. On appeal, the Court of Appeal reversed, finding in favor of the taxpayer group on the issue of standing, reasoning that public policy supports a third party plaintiff having the right to seek relief under Section 1092, and ruling that the phrase “any party” as used in Section 1092 conferred standing upon “any litigant with an interest in the subject contract[.]”

The Supreme Court reversed the appellate decision, holding that Section 1092’s language providing that “any party” may sue to avoid a contract involving a prohibited conflict of interest, only confers standing to sue upon the actual parties to the contract at issue. In this case, the court’s ruling meant that the plaintiff taxpayer organization did not have standing to bring suit or seek relief under Section 1092. In other words, the court determined a private right of action does not exist under Section 1092.

In reversing the lower appellate opinion, the Supreme Court applied basic rules of statutory interpretation in determining that the Legislature had not clearly indicated an intent to create a private right of action under Section 1092. The court found no compelling reason to infer such intent because sufficient enforcement mechanisms already exist to ensure compliance with Section 1090. The court acknowledged cases cited by the taxpayer group suggesting taxpayers have standing to sue to set aside a contract for a Section 1090 violation, but dismissed those authorities as either distinguishable or dicta.

The Supreme Court noted that its decision in San Diegans for Open Government does not reduce the available avenues for enforcement of Section 1090 violations or lessen the severity of the penalties for such violations. While Section 1092 was not deemed an appropriate avenue for taxpayer enforcement of Section 1090, the Supreme Court remanded the case back to the appellate court to determine the plaintiffs’ ability to use alternative statutory provisions as an enforcement mechanism. Specifically, the Court of Appeal will expressly determine what type of relief plaintiffs are seeking, and whether such relief is available under Civil Code section 526a (Section 526a). Section 526a allows taxpayers to challenge government contracts where public funds will be spent illegally. However, Section 526a prohibits injunctive relief where the contract is a debt instrument, such as the bond purchase agreement at issue in this case. At oral argument in front of the Supreme Court, plaintiffs argued they were not seeking injunctive relief, and only sought the conflicted officers to be disgorged of profits from the contract. The Court of Appeal will have to sort out the availability of a remedy for plaintiffs under Section 526a on remand.

Regardless of how the courts ultimately rule on these other causes of action, the Supreme Court’s prohibition on the use of Section 1092 by a taxpayer group remains significant, since Section 1092 calls for the contract to be voided, and allows a challenge to be brought for up to four years. The Civil Code bases for suit that the appellate court will now consider generally have much shorter statutes of limitation and do not provide for voiding the contract as a remedy.

This case highlights the importance of clearly identifying the parties to a public contract, and considering express exclusion of “third party beneficiaries” when drafting public contracts, in order to limit those who may sue.

For more information on issues arising from Government Code Sections 1090 or 1092, please contact one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Harold M. Freiman

Partner

William P. Curley III

Partner

Kate S. Holding

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Data Breach Notification Law Gets Updates With Important Implications

January 2020
Number 2

Data breaches are all but inevitable and occur in all types of organizations. Public entities are no exception, with cyber criminals increasingly targeting the wide-range of sensitive information they maintain (e.g., student data, resident data, confidential government infrastructure data, etc.). Against the backdrop of and in response to this looming threat of cyber-attacks, Governor Newsom recently signed into law Assembly Bill (AB) 1130, which makes small but significant changes to the state’s existing data breach notification laws.

Current Law

Under Civil Code section 1798.29, any agency (including a local government or school district) that owns or licenses computerized data that includes personal information has an obligation to provide notice to any California resident whose unencrypted personal information is or is reasonably believed to have been acquired without authorization. Notification to affected individuals must be made in the format and include the information specified in the law. Importantly, notification obligations are triggered when the acquired information includes personal information as defined under the law, unless the information was encrypted and the security credentials or encryption key that would permit access to the information was not also acquired. As defined under the law, personal information includes an individual’s first name or first initial, and last name, in combination with certain other types of information including social security number, driver’s license number, and medical information. For a more detailed discussion, including the specific information required to be included in a breach notice, see Lozano Smith’s 2017 TIPJar Article.

New Law

Effective January 1, 2020, AB 1130 amends the definition of personal information under Civil Code section 1798.29 with the purpose of addressing perceived gaps in the categories of sensitive information protected under the law. Under these amendments, personal information will now include an individual’s first name or first initial, and last name, in combination with either of the following (in addition to the data elements previously included in the definition):

  • Driver’s license number, California identification card, tax identification number, passport number, military identification number, or other unique identification number issued on a government document commonly used to verify the identity of a specific individual.
  • Unique biographic data generated from measurements or technical analysis of human body characteristics, such as fingerprint, retina, or iris image, used to authenticate a specific individual (not including a physical or digital photograph, unless used or stored for facial recognition purposes).

These changes have the potential to significantly impact public entities in terms of data breach notification obligations. Because biometric data is less commonly found in public entity databases, the largest impact from the new law will likely be the expansion of the types of government identification numbers that, if disclosed, may create a reportable event. By including within this definition “other unique identification numbers issued on a government document,” the law now potentially encompasses many additional types of information used by public entities to identify individuals within their databases and which they would not normally associate with or guard as personal information, one of example of which would be student identification numbers.

Takeaways

The best response to the threat of a cyber-attack is being prepared for it. Public entities should act now to review their data security and breach incident policies and procedures to ensure those documents define a reportable incident in compliance with the changes made by AB 1130. Personnel responsible for the organization’s data security should be placed on notice of these changes and instructed to make updates to all relevant policies, procedures, and data security training, as appropriate. Finally, those organizations without such policies or procedures should strongly consider adopting them to ensure they are prepared to comply with the California’s breach notification requirements, when, not if, an information security incident occurs.

If you have any questions about AB 1130 or data security breach notification obligations of public entities in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Devon B. Lincoln

Partner

James N. McCann

Associate

©2020 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Refuses To Enforce An Indemnity Provision Included In Consultant Agreement It Considers To Be Unfair To Consultant Plaintiffs

December 2019
Number 85

On December 9, 2019, the Appellate Court filed its decisions inLong Beach Unified School District v. Margaret Williams LLC, holding that an indemnity provision included in a consultant agreement between the parties was unfair and therefore inapplicable to claims brought by the consultant, Margaret Williams, or her consultant company, Margaret Williams LLC, against the District.

Background

In 2006, Long Beach Unified School District prepared and entered into its standard form consultant agreement with Margaret Williams LLC to perform full-time consultant work related to construction management and environment compliance on District projects.

In October 2013, a general contractor illegally brought contaminated material on one of the District’s construction sites. Based on this incident, a dispute arose between Ms. Williams and the District representatives assigned to the construction site as to how the contamination would be addressed, and Ms. Williams contracted arsenic poisoning. The District terminated the consultant agreement over its dispute with Ms. Williams.

Ms. Williams and her company brought an action against the District based on claims of retaliation and numerous causes of action for breach of contract and Ms. Williams’ wrongfully caused arsenic poisoning. The District filed a cross-complaint alleging the company was required to indemnify the District against the company’s and Ms. Williams’ claims, according to the terms of the consultant agreement. The consultant agreement required the company “at its own expense, cost, and risk, [to] defend any and all claims, actions, suits, or other proceedings . . . that may be brought or instituted against the DISTRICT, its officers, agents or employees . . . and shall pay or satisfy any judgment that may be rendered against the DISTRICT, its officers, agents or employees in any action, suit or other proceedings as a result thereof.” Thus, according to the District, the company was required to indemnify the District even against claims brought by the company and Ms. Williams, and even if the District was at fault.

Ms. Williams and her company asked that the trial court strike the District’s cross-complaint in its entirety. That motion was granted by the trial court, and the trial court’s decision was then appealed by the District.

The Court’s Unconscionability Test

The appellate court’s opinion focused on Williams’ argument that the District could not force the company to indemnify the District because the indemnity provision included in the consultant agreement was unconscionable. The court was required to determine if the indemnification provision was so one-sided in favor of the District that it should not be enforced, and it did so by analyzing multiple factors to consider both the provision’s procedural unconscionability (the allegedly unfair fashion in which the contract was imposed) and its substantive unconscionability (the alleged unfairness of the contract’s terms).

  • Procedural Unconscionability: The consultant agreement was presented to the company in a standard form, on a take-it or leave-it basis, with no negotiation. Based on these facts, the District was found to have the superior bargaining power and, according to the court, the company faced economic pressures to accept the contract as drafted. In addition, the court stated that, based on the terms of the agreement, the company was unfairly surprised to learn it would be required to pay for the District’s defense and indemnity, since the agreement also included a requirement that each party pay their own costs and attorney’s fees in any litigation arising from the agreement. For these reasons, the court found procedural unconscionability.
  • Substantive Unconscionability: The court also considered the fairness of the consultant agreement’s terms, and found a high degree of substantive unconscionability. The indemnity provision as drafted by the District, if enforced, would limit the company’s opportunity to obtain meaningful recovery in numerous valid actions against the District. Further, because Ms. Williams was not herself a party to the consultant agreement, the company would, under the language of the agreement, be required to pay the cost of defending against her claims as well as the cost of any ultimate judgment awarded to Ms. Williams against the District. For these reasons, the court found the clause to be substantively unfair.

Based on the court’s finding of both procedural and substantive unconscionability, it determined the provision could not be enforced because it would result in the unfair scenario of the company being required to pay for the entire lawsuit- required to defend its own lawsuit and indemnify any damages they may be due.

Takeaways

The court’s decision inLong Beach Unified School District v. Margaret Williams LLC, reinforces the legal concept that if a provision of a contract is considered by a court to be unfair, the court has discretion to limit the provision’s application to avoid an unfair result. Therefore, this decision acts as a caution against overly broad indemnification clauses. We recommend reviewing such clauses with legal counsel to determine their enforceability.

If you have any questions about indemnity provisions or contracting issues in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Devon B. Lincoln

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bill Intended To Establish E-Mail Retention Requirement For Public Agencies Vetoed By Governor Newsom

December 2019
Number 82

California lawmakers recently proposed Assembly Bill (AB) 1184, which would have required public agencies to retain business related e-mails for at least two years. While the Governor did not sign the bill, this legislative effort again shows the significant interest in preserving e-mails as part of a public agency’s public record.

AB 1184: Public Records E-Mail Retention

The California Public Records Act establishes that every person has a right to inspect public records. Public records include any e-mail containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any public agency.

Existing law authorizes cities, counties, and special districts to destroy or to dispose of duplicate records when they are no longer required by the city, county, or special district. However, the law does not address the requirements for the retention of e-mails. AB 1184 intended to add section 6253.32 to the Government Code to require all public agencies to retain and preserve every public record that is transmitted by electronic mail for at least two years.

Governor Newsom returned AB 1184 without his signature, stating it did “not strike the appropriate balance between the benefits of greater transparency through the public’s access to public records, and the burdens of a dramatic increase in records-retention requirements, including associated personnel and data-management costs to taxpayer[s].”

Had AB 1184 been signed into law, any other statute or regulation that required a longer retention period, or any rule established by the Secretary of State that provided for a longer retention period, would have remained in place.

With or without this legislation, school districts remain subject to specific California Code of Regulations requirement governing the retention and destruction of school district records in California. The contents of a particular record will determine how long a school district must maintain that record and all records must be classified prior to destruction. (See 2017 Client News Brief No. 2). Community college districts are also subject to retention regulations under the California Code of Regulations, although those retention requirements differ from the rules regarding school districts’ records.

Takeaways

Governor Newsom suggests that legislation must find a balance between the benefits of greater transparency through the public’s access to public records and the burdens of a dramatic increase in records-retention requirements. Though AB 1184 was unsuccessful, local agencies should be aware that the question of preservation of e-mails will remain of interest to the Legislature and to advocates for greater transparency.

For public agencies who may wish to establish or update their own record retention policies to address existing retention requirements, Lozano Smith provides policy options for addressing the complexities raised by the retention of e-mails. For a copy of the retention policy documents, contact Client Services. For more information on AB 1184 or guidance on e-mail retention, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Continues Availability Of Design-Build Construction Delivery Method To Community College District But Also Imposes Additional Labor Requirements

December 2019
Number 81

While a new law ensures that community college districts may continue to utilize the design-build construction delivery method for another ten years, it also imposes additional labor requirements on all design-build projects.

Design-build is a construction delivery method by which an owner retains a single entity to provide architectural, engineering, and construction services under a single contract. Design-build also allows owners to award projects on a “best value” basis, meaning the project owner can consider factors other than price. These features are intended to expedite project completion, reduce design and construction costs, and avoid project disputes. In 2007, community college districts were given statutory authority to award design-build contracts. This authority initially expired in 2014, but was subsequently extended to January 1, 2020. Assembly Bill (AB) 695 extends this statutory authority to January 1, 2030.

While community college districts can take advantage of the design-build method for at least another ten years, AB 695 also imposes a significant new restriction on design-build projects. Specifically, any contractor seeking to be prequalified or shortlisted for a design-build project must provide an enforceable commitment to the district that the entity and its subcontractors at every tier will use a “skilled and trained workforce” to perform all work for the project. These “skilled and trained workforce” requirements mandate that all workers performing work in a designated apprenticeable occupation have certain levels of on-the-job experience and that certain percentages of the workforce be graduates from an apprenticeable program for the applicable occupation. The contractor is also required to provide monthly reports to the project owner that demonstrate compliance with these requirements. The only exception to these skilled and trained workforce requirements is if the district or entity enters a project labor agreement covering the project.

While the addition of the “skilled and trained workforce” requirement creates some new complexities, it is not necessarily a surprise. The legislature has already extended these same requirements to design-build projects for K-12 school districts and all lease-leaseback projects (see 2015 Client News Brief No. 8;2015 Client News Brief No. 71; and 2016 Client News Brief No. 63). On a positive note, recent legislation has also has shifted much of the burden for compliance with these requirements to subcontractors and shifted the risk for noncompliance away from the project owner (see 2019 Client News Brief No. 2).

If you have questions regarding the design-build construction delivery method or the new labor requirements, or if you have any planned or anticipated construction project and would like to discuss delivery methods, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedInor download our mobile app.

Written by:

Devon B. Lincoln

Partner

Travis E. Cochran

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Agencies Can Be Liable For Attorney’s Fees In Reverse-CPRA Actions

December 2019
Number 80

The risks involved in asking a court to halt the disclosure of documents sought under a California Public Records Act (CPRA) request were just expanded to public agencies. About a year ago, we reported that a pair of court decisions held that private parties who lose in a lawsuit, to prevent government agencies from disclosing personal information, may be required to pay the requester’s attorney’s fees (see 2018 Client News Brief Number 35). In the recent case of City of Los Angeles v. Metropolitan Water District of Southern California (November 19, 2019, B272169) __Cal.App.5th__, this rule has now been extended to third-party public agencies seeking to prevent the disclosure of governmental records.

Background

During a time of severe drought in California, the Metropolitan Water District (Metropolitan) implemented a rebate program for customers who replaced their grass with drought tolerant landscaping. The City of Los Angeles Department of Water and Power (DWP) is a member agency of Metropolitan, and has customers who received rebates through Metropolitan’s program.

On May 19, 2019, a reporter from the San Diego Union Tribune (Tribune) wanted to research allegations that the rebate program was favoring affluent communities. The reporter made a CPRA request to Metropolitan for information about the rebate recipients, seeking information including recipients’ names, addresses, and rebate amounts. Before responding to the request, Metropolitan provided DWP with a copy of the request. Metropolitan and DWP agreed to limit the response to only generalized block numbers, and Metropolitan’s share of the rebate amount (member agencies had the option of supplementing customer rebates). Tribune objected to the withholding of information, and DWP filed a “reverse-CPRA” lawsuit, seeking to broadly prevent Metropolitan from releasing customer information about anyone who participated in the rebate program. At trial, the court ruled in Tribune’s favor, determining that the records in dispute must be disclosed. The trial court required Metropolitan to pay about $25,000 to Tribune for attorney’s fees under the CPRA. The court further awarded Tribune about $136,700 in attorney’s fees under California’s Private Attorneys General Act (PAGA) (Code Civ. Proc., § 1021.5), to be paid by DWP and other intervening utilities. PAGA allows a court to grant attorney’s fees in favor of a party who seeks to enforce an important public right, such as the disclosure of records concerning public expenditures.

On appeal, the court affirmed for the first time that governmental agencies risk liability for attorney’s fees under PAGA if the agency loses a lawsuit challenging the agency’s decision to withhold public records. Here, DWP lost its appeal to withhold its customer’s information, and the trial court affirmed the initial attorney’s fees and added an additional $12,350 to the award.

Takeaways

City of Los Angeles should serve as a cautionary tale for public agencies considering intervening in CPRA disputes, to prevent disclosure of public records. The financial risks involved in such intervention have now significantly increased for public agencies, and the court has reaffirmed the general stance favoring the broad disclosure of information. When a public agency is at risk of having its information disclosed in another agency’s response to a CPRA request, seek legal assistance in conducting a careful analysis of how to proceed.

If you have any questions about the City of Los Angeles case, the CPRA or PAGA in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Manuel F. Martinez

Partner

Sophia V. Cohn

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

AB 101 And SB 330: The Juggernauts Of The 2019 Housing Laws

December 2019
Number 76

According to the California Department of Education Office of Financial Accountability and Information Services, pursuant to Public Contract Code section 20111(a), the bid threshold for K-12 school districts’ purchases of equipment, materials, supplies and services (except construction services)
has been adjusted to $95,200, effective January 1, 2020. The notice may be viewedhere.

The California Community Colleges Chancellor’s Office is expected to announce a similar adjustment to the bid threshold for community college districts’ purchases of equipment, materials, supplies and services (except construction services), pursuant to Public Contracts Code section 20651(a), sometime in the near future. Once released, that information will be available here.

The bid limit for construction projects remains at $15,000.

The bid thresholds for cities, counties and special districts are not affected by the bid limits discussed above.

For those school districts and other public entities that have adopted the California Uniform Public Construction Cost Accounting Act (CUPCCAA), as of January 1, 2019 the force account limit is $60,000, the informal bid limit is $200,000 and the limit for awarding informal bids is up to $212,500, provided that the cost estimate was determined to be reasonable. (CNB 2018 #47).

For more information on the new bid limits or bidding in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Ruth E. Mendyk

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Finds That Solar Energy Project Was Not Exempt From City’s Zoning Ordinance

November 2019
Number 75

A recent California appellate court ruling has clarified the requirements for a local agency’s compliance with city or county zoning ordinances. In City of Hesperia v. Lake Arrowhead Community Services District, the Fourth Appellate District held that a community services district did not qualify for zoning compliance exemptions as provided in sections 53091(e) and 53096(a) of the Government Code, after the district had adopted a resolution finding the exemptions applicable in preparation for constructing a solar energy facility.

Background

In City of Hesperia, the Lake Arrowhead Community Services District (District), sought to overturn a trial court’s decision that construction of a solar energy facility did not qualify for exemption from the City of Hesperia’s (City) zoning ordinances. The solar energy facility (Project) was to be constructed on property owned by the District within City limits. The property, which was already in use as a water reclamation facility, was zoned “Rural Residential.” The City’s municipal code provided that “solar farms” were only allowed on nonresidential and nonagricultural property with a conditional use permit and could not be located within 660 feet of agricultural or residential property. Over the City’s objections, the District passed a resolution finding that the City’s zoning ordinances did not apply to the Project, as it was both absolutely exempt and qualifiedly exempt under Government Code provisions specific to energy projects. The City filed suit and prevailed at the trial court level, and the District appealed.

Analysis

Government Code section 53091(a) provides generally that a local agency must comply with “all applicable building ordinances and zoning ordinances of the county or city in which the territory of the local agency is situated.” This case considers two exemptions from this general rule.

Government Code section 53091(e) provides an absolute exemption from local zoning ordinances for the “the location or construction of facilities… for the production or generation of electrical energy” unless the facilities are used for storage or transmission of electrical energy. While the Project was designed to produce energy, that energy was intended to be transmitted to the local utility’s electrical grid. The court concluded that because section 53091(e) does not exempt “transmission” of electrical energy from local zoning ordinances, the Project was not exempt from those ordinances under section 53091(e).

Government Code section 53096(a) provides a qualified exemption to local zoning regulations for a local agency that holds a public hearing and adopts a resolution determining that “there is no feasible alternative to its proposal.” In order to use this exemption, the local agency must properly determine through substantial evidence that no feasible alternatives exist for the location of the proposed facility. The court concluded that the District’s determination that there was no feasible alternative location for the Project was not supported by substantial evidence, and that the District had failed to provide evidence that it had considered “economic, environmental, social, or technological factors associated with an alternative location.” Thus, the Project was not exempt under section 53096(a).

Since the Project did not did not meet the requirements for exemption from the City’s zoning ordinances under either section 53091(e) or section 53096(a), the court ruled that it was not exempt from the City’s zoning ordinances.

Takeaways

The court in City of Hesperia took a narrow view of a local agency’s ability to exempt itself from local zoning ordinances in order to proceed with energy projects. In particular, this ruling makes clear that a local agency’s finding that “there is no feasible alternative to its proposal” must be supported by substantial evidence that the agency had carefully considered alternative locations for its project.

If you have any questions about the City of Hesperia v. Lake Arrowhead Community Services District decision or building and zoning issues in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Claudia P. Weaver

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Significant New Developer Fee Cases

October 2019
Number 44

As part of an uptick of cases in recent years regarding school impact fees, two recent cases argued by Lozano Smith on behalf of school districts have been decided by the California Sixth District Court of Appeal, with mixed results. The court ruled in relation to an “adults only” agricultural worker housing project that, when imposing prospective developer fees on development projects, school districts need not establish a reasonable relationship between the fee and the specific project in question. Instead, districts are merely required to establish a nexus between the fee and the general type of project that is at issue (e.g. residential, commercial, industrial). This favorable outcome came after the same appellate court, straying from prior precedent that supported deference to local agencies, issued a published decision invalidating a school district’s developer fee justification study. The court held that the study in question was invalid because it did not provide sufficient analysis to demonstrate that the school district would have to house new students generated from development in new facilities. Both cases are part of a trend toward greater judicial scrutiny of school districts’ imposition of developer fees.

School districts in California are authorized by law to impose fees on development projects, referred to as “developer fees” or “school impact fees.” There are three separate levels of fees that can be charged, each of which are subject to different legal requirements. The first case below addresses whether a school district must analyze the potential residential population of a particular development, as projected by the developer, before imposing fees on that particular development. The second case addresses the legal requirements for preparing a Level I fee justification study.

The Tanimura Case

Tanimura & Antle Fresh Foods v. Salinas Union High School District, 34 Cal.App.5th 775, addressed a dispute regarding Level 2 developer fees. The Salinas Union High School District (Salinas) had imposed a developer fee on a 100-unit agricultural employee housing complex commissioned by Tanimura & Antle Fresh Foods, Inc. (Tanimura) within Salinas. The complex, per the terms of its development permit issued by the Monterey County Board of Supervisors, was designed to house only agricultural workers, without dependents.

In recent years, many school districts have contended with developers who argue that fees should not be imposed on their projects because the developers expect that few or no potential school age students will live in the finished project. These arguments have been made, for instance, regarding housing intended for agricultural workers, college students, or young professionals. This case affirms that a school district need not consider the developer’s intended residents for a particular project, and can instead analyze the impact of residential housing projects across the district when imposing developer fees on residential projects.

In relation to its agricultural worker housing project, Tanimura sued for a refund of its fees, alleging that the developer fees imposed by Salinas were not reasonably related to a need for school facilities, as required by statute. Tanimura cited the project’s prohibition on dependents, arguing that, as no children would reside in the complex, its construction would not generate an increased burden on the district’s facilities. The Government Code requires a public agency, before imposing prospective developer fees, to establish the purpose of the fee, the agency’s use for the funds, a reasonable relationship between the fee’s use and the type of development project on which it will be imposed, and a reasonable relationship between the need for public facilities and the type of development project on which the fee is imposed. The trial court held in favor of Tanimura, reasoning that “case law-and common sense-preclude the application of an overbroad label in a fee study that does not account for a project’s actual impact.” The court opined that Salinas was required to account for the fact that no children would be permitted to live at the complex, and in failing to do so had not met the nexus requirement of the Government Code.

In a victory for school districts, and following argument by Lozano Smith (acting as co-counsel in this matter), the Court of Appeal reversed. The court held that, when establishing a nexus between developer fees and a development project, a public agency need not consider the specific project in question; its calculus is limited to the general type of project at issue (e.g., residential, commercial, or industrial). As applied here, Salinas was not required to consider the complex’s prohibition on dependents in its fee analysis. The district’s treatment of the complex as a generic, residential development was lawful.

The court asserted that its interpretation was the only “commonsense” reading of the statute that avoided practical absurdities. To adopt Tanimura’s position, the court held, “would have the practical effect of requiring a school district to expand its needs analysis to address the projected impact on school facilities of undefined, variant subtypes of residential construction not contemplated in the statute.” The court found such an effect to be contrary with the purpose of the statutes. Further, the law contains exceptions from developer fees for certain types of developments, including government-financed agricultural migrant worker housing. However, the Legislature has created no such exception for privately-financed farmworker housing. This indicates that the Legislature did not intend for projects such as the complex to be exempted from developer fees.

The Summerhill Case

In Summerhill Winchester, LLC, v. Campbell Union School District 30 Cal.App.5th 545, the Appellate Court invalidated the Level 1 developer fees adopted by Campbell Union School District (Campbell). In doing so, the court applied the rule laid out in a prior case, Shapell Industries, Inc. v. Governing Board of the Milpitas Unified School District (1991) 1 Cal.App.4th 218, that a Level 1 fee study must include an analysis of the following three factors: (1) the projection of the total amount of housing to be constructed within the school district; (2) estimation of the number of new students that are expected to result from the new development; and (3) estimation of what it will cost to provide the necessary school facilities for that approximate number of new students.

Regarding the first Shapell element, Campbell’s fee study stated that there were “in excess of 133” residential units that could be constructed over the next five years. The court took issue with the fact that these projections were not based on data from all of the planning departments within Campbell’s boundaries. The court also held that the study’s projection was too vague to support the imposition of fees. According to the court, a projection based on consultation with only some of the local jurisdictions within Campbell’s boundaries and using a phrase such as “in excess of” is “little better than saying that ‘some’ development is anticipated.” This was found to be inadequate because the study did not provide sufficient guidance for Campbell’s Board to determine whether or not new school facilities would be needed due to anticipated development. The court found it irrelevant that the district was already over capacity at all of its schools, and essentially rejected Campbell’s argument that new facilities would be needed to house students generated from development, regardless of the number of such students.

The court also found that the fee study was invalid because it did not provide sufficient evidence for the district’s Board to determine what type of school facilities would be needed to accommodate students generated by development, if any. The court based its decision on a narrow reading of the applicable statutes.

Developers may argue that the court’s decision means that a fee study must now establish what “type” of facilities a school district will construct to house students generated by development. However, prior case law, includingGarrick Development Co. v. Hayward Unified School District (1992) 3 Cal.App.4th 320, held that specific improvement plans or building proposals were not necessary. The court acknowledged that, underGarrick, “the Board did not have to identify specific facilities that would be built or make concrete construction plans.” At the same time, however, the court concluded that “the key missing element in the fee study was what new facilities would be necessary for the new students generated by new development.” These two statements are difficult to reconcile, and create a challenge when school districts decide how specifically their fee studies must describe student housing needs. However, it remains clear that specific school construction projects need not be identified.

The court’s opinion is likely to cause confusion and possibly to disrupt established law. As a result, school districts may wish to review the adequacy of their fee justification studies.

Lozano Smith represented the school district in the litigation and appeal, and requested, on behalf of the district, that the California Supreme Court depublish the case. The request for depublication was supported by CASBO, CASH, and CSBA, and not opposed, but the request was nevertheless denied by the Supreme Court.

Takeaways

Tanimura clarifies that public agencies, when imposing prospective developer fees, need not consider the specific development project, but only the type of development project at issue. The case should also help school districts resist the claims of developers who assert that they should be relieved of fees because few or no students will allegedly be generated by a specific project.

While some may argue for a broader application, the Summerhill decision can be viewed as the court’s application of the three-factorShapell test to a particular fee study. In this regard, the case simply calls for a fact-specific analysis based on already-established precedent. The following are some best practices following the Summerhill case:

  • Avoid use of imprecise language like “at least” when describing projected development.
  • If at all possible, consult with all planning departments within the school district’s jurisdiction.
  • If at all possible, identify the general types of school facility projects that may be constructed to accommodate students (e.g., new school construction, portable additions, a mix of both, etc.). We note that such identification in the fee study is not necessarily binding on the school district when it later implements its facilities plans.

If you have any questions about the Tanimura orSummerhill cases or about developer fees in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. Copies of Lozano Smith’s Developer Fee Handbook are available for purchase from Lozano Smith’s Client Services Department; you can submit your request to clientservices@lozanosmith.com. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Harold M. Freiman

Partner

Devon B. Lincoln

Partner

Kelly M. Rem

Partner

Benjamin Brown

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

AB 48 Increases Bonding Capacity, Provides Facilities Funding At Multiple Levels, Prioritizes Small School Districts, And Reduces Available Developer Fees For School Districts … But Only Applies If Voters Approve A School Facilities Bond In March

October 2019
Number 62

The California Legislature recently passed, and on October 7 Governor Newsom signed, Assembly Bill (AB) 48, known as the “Public Preschool, K-12, and College Health and Safety Bond Act of 2020.”

AB 48 places a $15 billion statewide K-12 school and college facilities general obligation bond on the March 3, 2020 ballot.

Contingent on voter approval of the statewide bond measure at the Presidential Primary election on March 3, 2020, AB 48 would introduce a slew of significant changes, relative to the funding of school facilities including:

  1. Increasing the bonding capacity of school and community college districts as follows:
    1. For elementary and high school districts – from 1.25% to 2.0% of assessed value of the taxable property within the district.
    2. For unified school districts and community college districts – from 2.5% to 4.0% of assessed value of the taxable property within the district.
  2. Establishing a 2020 School Facilities Fund for the apportionment and disbursement of money, including AB 48 bond proceeds, pursuant to the Leroy F. Greene School Facilities Act of 1998, commonly known as the School Facility Program;
  3. Imposing requirements to submit a five-year school facilities master plan or updated five-year school facilities master plan as a condition for participating in the School Facility Program;
  4. Prioritizing the order in which modernization and new construction applications for participation in the School Facility Program will be processed as follows: to projects that are determined to pose a health of life safety hazard; to projects by school districts requesting financial hardship status; for modernization applications only, to applications requesting a grant for the testing and/or remediation of lead levels in water at school sites; to projects that were submitted but not reviewed in the two immediately preceding quarters; to projects designed to eliminate existing severe overcrowding; and to applications based upon a computation of points as set forth in the Education Code;
  5. Introducing new programs to lessen the burden on rural and lower-income school districts when applying for state funds, including a small school district assistance program to provide advanced funding for design, reserve funds so districts will have the time needed to develop their projects, technical assistance and an increased bonding capacity to allow more small school districts to receive financing assistance, and increasing the threshold total bonding capacity for the financial hardship eligibility so more districts can qualify for projects without having to raise the full local contribution
  6. Authorizing
    1. funding for health and safety projects;
    2. grants for lead testing and remediation;
    3. grants for new construction and modernization projects for seismic mitigation, control, management or abatement of lead, the demolishment and construction of buildings on existing school sites in specified situations and to establish school site-based infrastructure to provide broadband internet access;
  7. Authorizing the use of new construction and modernization grants for the purchase of portable electronic devices with a useful life of more than three years;
  8. Specifying procedures by which small schools can obtain project and construction management, new construction grants, and modernization grants;
  9. Providing districts affected by a disaster with immediate assistance;
  10. Requiring annual notification by school districts to the State Allocation Board of sites that have been acquired for school purposes but remain unused;
  11. Prioritizing health and safety projects at the higher education level, and requiring the University of California (“UC”) and California State University (“CSU”) to adopt five-year affordable student housing plans as conditions for funding; and
  12. Imposing accountability and transparency obligations, such as public hearing and audit requirements, posting project and audit information requirements, on school districts, county offices of education, charter schools, community colleges, the CSU and the UC.

Impact on Developer Fees

In addition to the numerous substantial changes addressed above, AB 48 places new limitations on school districts’ ability to obtain the full school impact fees to which they had previously been entitled, retreating on a compromise between developers and school districts that was reached over two decades ago.

In 1997, following years without a new statewide school bond measure, the Legislature reached a compromise that led to Senate Bill (SB) 50, which placed a successful statewide bond on the ballot in 1998 and new restrictions on developer fees. SB 50 limited the ability of a school district to challenge new development on the basis of inadequate school fees, and introduced the three levels of developer fees that remain in effect to this day. School districts may assess residential developer fees authorized by Education Code sections 17620, et seq. (“Level 1” fees), or a higher “Level 2” or “Level 3” rate authorized by Government Code sections 65995.5 et seq., if the district meets certain criteria. The highest level of fees, Level 3, was intended to go into effect when state facility funding was no longer available. To date, school districts have had only fleeting moments to collect Level 3 fees, which have been variously suspended by the Legislature and challenged in court by the California Building Industry Association.

Under AB 48, if the statewide bond measure in 2020 is successful, school impact fees will be eliminated altogether for multifamily housing developments that are located within one-half mile of a major transit stop, which is defined in the legislation as “a site containing an existing rail transit station, a ferry terminal served by either a bus or rail transit service, or the intersection of two or more major bus routes with a frequency of service interval of 15 minutes or less during the morning and afternoon peak commute periods.” For all other multifamily housing, AB 48 reduces the amount of Level 1 and Level 2 fees that can be charged by 20%. These changes are presumably to support more affordable housing, though that goal rests, at least in part, on a potentially faulty assumption that developers will pass the savings on to home buyers. These reductions in fees would remain in effect until January 1, 2026.

Additionally, increasing the local bonding capacity for school districts could potentially reduce school impact fees by making it more difficult for a district to qualify for Level 2 fees. This is because qualification for Level 2 fees is dependent, in part, on a school district’s bonding capacity. In relevant part, to qualify for Level 2 fees, a district must (1) be eligible for state facility funding, and (2) meet two of four criteria – one of which is directly tied to the district’s local bonding capacity (the issuance of debt or incurring obligations for capital outlay in an amount equal to 30 percent of the district’s local bonding capacity). (Gov. Code § 65995.5, subd.(b)(3)(C).) By raising school districts’ bonding capacity, AB 48 would make it more difficult to meet this particular criteria, potentially causing school districts to fall out of Level 2 status in the future.

Finally, if they go into effect, certain of AB 48’s provisions could once again suspend the ability of a school district to impose Level 3 fees even if state facilities funding runs out. This suspension of Level 3 fees would be in place until January 1, 2028.

If the voters approve AB 48 in March, the bill’s treatment of developer fees will retreat from the compromise arrangement of SB 50 in each of the foregoing ways. Developers will keep the benefits of that compromise (limits on ability to challenge development based on insufficient school facilities) while school districts give up the full benefits of Level 2 and Level 3 fees.

Takeaway

Importantly, the many changes proposed by AB 48 will not take effect until and unless the voters approve the Public Preschool, K-12, and College Health and Safety Bond Act of 2020 (the Act) on March 3, 2020. If the Act is not approved by voters on March 3, none of the above will apply.

With respect to the effect of some of the changes that will go into effect only if voters approve the Act: AB 48 will provide facilities funding at multiple levels; the state match for funding will be more aligned with LCFF factors, and will also include a “hold harmless” provision to avoid harm caused by the shifting formula; priorities for funds will be based on need rather than a first-in-line-model; specific focus will be paid to small school districts, potentially adversely impacting suburban and larger districts; and some school districts may be adversely impacted by the limitation on the collection of multi-family residential developer fees.

Lozano Smith will soon be releasing an episode of the Lozano Smith Podcast focusing on AB 48 and its potential impacts on school facilities funding in California. Go to Lozanosmith.com/podcast to access all of Lozano Smith’s podcasts.

If you have any questions about AB 48, public finance or developer fees in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app. Information regarding Lozano Smith’s Developer Fee Handbook for School Facilities can be found Here.

Written by:

Harold M. Freiman

Partner

Daniel Maruccia

Partner

Deepika S. Thompson

Senior Counsel

James N. McCann

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Legislature Postpones Sunset Of Civic Center Act Fee Provisions

October 2019
Number 55

Assembly Bill (AB) 1303, which was recently signed by the Governor, will postpone the sunset of central fee provisions within the Civic Center Act (Act).

The Act generally requires school districts to permit the use of their facilities and grounds for particular purposes. The Act further authorizes, and in some cases requires, school districts to charge users for their use of school facilities. The Legislature originally provided that these provisions would be repealed as of January 1, 2020; however, AB 1303 extends this date to January 1, 2025.

Background

The Act mandates that school districts “authorize the use of school facilities or grounds under [their] control by . . . nonprofit organization[s], or by . . . club[s] or . . . association[s] organized to promote youth and school activities.” “School facilities” are defined as nonclassroom space and “school grounds,” and include, but are not limited to: playing fields, athletic fields, track and field venues, tennis courts, and outdoor basketball courts.

The Act also provides that school districts may, and in certain circumstances must, charge for such use. In particular, school districts may generally charge “an amount not to exceed direct costs” for use of their grounds or facilities. “Direct costs” are defined as the user’s proportional share of supplies, utilities, janitorial services, work performed by school district employees, maintenance, repair, restoration, and refurbishment in connection with the operation and maintenance of the school facilities or grounds. This proportion of costs is based on the extent and nature of the entity’s use.

There are a few notable exceptions to this general rule. If a school district permits the use of school facilities for religious services, the district must charge the user an amount at least equal to the school district’s direct costs. Further, school districts must charge fair rental value for users who utilize school facilities for entertainment purposes or to hold meetings where admission is charged or contributions are solicited and the net receipts are not expended for the welfare of the pupils of the school district or for charity. The Act defines “fair rental value” as the direct costs to the school district plus the amortized costs of the school facilities or grounds used for the duration of the activity.

The Act originally provided that the above provisions would be repealed as of January 1, 2020. However, AB 1303 postpones such repeal until January 1, 2025. The Senate Rules Committee (Committee) observed that this fee provision was originally enacted in 2012 to help school districts remain fiscally viable during the national economic downturn. Now, though the economic climate has improved, the Committee determined that such fees are still necessary to enable districts to ensure that their schools are properly maintained and to prevent injuries that can result from dilapidated facilities.

Takeaways

School districts should be aware that the Legislature has postponed the sunset of the above-described Civic Center Act fee provisions until January 1, 2025. Consequently, school districts may continue to charge users in proportion to the direct costs associated with their use, except with respect to users who utilize school facilities for religious, entertainment, or profit-generating purposes.

For more information about AB 1303, the Civic Center Act, or facilities use matters in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Claudia P. Weaver

Partner

Benjamin Brown

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

AB 5: New Law Further Limits Employers’ Ability To Classify Workers As Independent Contractors

October 2019
Number 53

Governor Newsom signed Assembly Bill 5 (AB 5) on September 18, 2019, which takes effect on January 1, 2020. AB 5 codifies the California Supreme Court’s decision inDynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex) (see 2018 Client News Brief No. 20), which made it more difficult to classify a worker as an independent contractor. This new legislation also creates additional protections for workers.

In Dynamex, the Court held that, for purposes of Industrial Welfare Commission (IWC) wage orders, a worker is presumed to be an employee unless the hiring entity is able to demonstrate that:

(A) The person is free from their control and direction in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) The person performs work that is outside the usual course of the hiring entity’s business; and

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

AB 5 expands the applicability of this three-part test, commonly referred to as the “ABC test,” to specific sections of the California Labor Code and Unemployment Insurance Code. The bill exempts specific occupations such as licensed architects, lawyers, and private investigators from the ABC test. Instead, those professionals will be governed by the Borello test, which does not contain a rebuttable presumption that a worker is an employee. The Borello test has nine factors and focuses on the amount of “control” the hiring entity has over a worker. Hiring entities are not required to meet all nine factors to show that a worker is an independent contractor. Therefore, it is easier to classify a worker as an independent contractor under Borello. AB 5 provides that, in addition to the specific exemptions, Borello can also be applied when a court determines that the ABC test cannot be applied in a particular circumstance.

AB 5 authorizes the California Attorney General and certain local government officials to seek injunctions against hiring entities on behalf of misclassified workers. Additionally, some of the changes to the Labor Code apply retroactively to existing claims to the extent permitted by law.

Takeaways

AB 5 extends the applicability of Dynamex and the ABC test from IWC wage orders to provisions of the Labor and Unemployment Insurance Codes. The legislation has the potential to increase employer liability because it is partially retroactive to existing claims and creates a new right to seek injunctive relief.

Precisely what impact AB 5 will have on public entities is yet to be determined. First, while most IWC wage orders do not apply in full to public entities, sections of the Labor Code and the Unemployment Insurance Code do apply. Second, AB 5 does not contain an exemption for public entities. Third, adopting the ABC test could lead to greater use of the test by other agencies that have historically relied on the Borello test such as the California Public Employees’ Retirement System (CalPERS). If this occurs, the change may have a significant impact on CalPERS membership rules, including post-retirement work implications for CalPERS retirees attempting to return to work as independent contractors. Therefore, public entity employers with independent contractors should review their classification decisions to ensure workers are correctly classified under the appropriate test.

For more information about AB 5 or worker classification in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Michelle L. Cannon

Partner

Travis J. Lindsey

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

U.S. Supreme Court Overrules Precedent And Opens the Federal Court Door to Takings Lawsuits Before Exhaustion of State Law Just Compensation Remedies

August 2019
Number 37

The Supreme Court of the United States held in Knick v. Township of Scott that plaintiffs claiming a local government action has interfered with their use of property may bring their constitutional “takings lawsuit” under 42 U.S.C. section 1983 directly in federal court, and before exhausting other related state law remedies. The Supreme Court’s opinion overruled a 34-year old precedent requiring plaintiffs to first seek just compensation under state law in state court. This is a major change in takings law, which alters long-held takings strategies used by local agencies.

The United States Constitution prohibits the “taking” of private property for public use without the payment of just compensation. In Knick, the Township of Scott informed a private landowner that her property, which contained a small graveyard, must be opened to the public during daylight hours, pursuant to a local cemetery ordinance. The landowner brought an action in federal court alleging that the ordinance’s mandatory public access requirement effected a “taking” of her property without the payment of just compensation. Existing, long standing Supreme Court precedent, specifically, the opinion in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, required plaintiffs to first seek just compensation under state law in state court before bringing a federal takings claims. Because landowner had proceeded directly to federal court without first seeking a state court remedy, the U.S. District Court dismissed her action.

The 1985 Williamson County opinion had held that the constitutional prohibition on the taking of private property has not been violated until the government denies payment of just compensation. Williamson County drew from cases dating back to 1890 for the proposition that just compensation does not need to be paid to the private property owner at the time of the taking, provided a “reasonable, certain, and adequate” mechanism exists for obtaining just compensation, such as an inverse condemnation action in state court. On this authority, a plaintiff cannot bring a claim for violation of the takings clause until just compensation has been denied by the state. However, as a perhaps unintended consequence, federal law requires federal courts to give preclusive effect to state court decisions. This means that a plaintiff who loses its inverse condemnation case in state court would often be barred from then bringing a claim in federal court due to the issue preclusion rule.

In Knick, the Supreme Court overruled the Williamson County precedent, holding “[i]f a local government takes private property without paying for it, that government has violated the Fifth Amendment, just as the Takings Clause says, without regard to subsequent state court proceedings. And the property owner may sue the government at the time in federal court for the ‘deprivation’ of a right secured by the Constitution.” The assertion of an uncompensated taking is now enough to obtain immediate standing to sue in federal court on an immediate basis.

The Supreme Court’s Knick opinion decision means that plaintiffs may sue local governments in federal court for alleged “takings” withoutfirst bringing a state court inverse condemnation action.

For further information regarding the Knick opinion, or governmental land use and taking issues in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

William P. Curley III

Partner

Nicholas J. Clair

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Local Governments Maintain Aesthetic Control Over Their Rights Of Way

June 2019
Number 29

A public agency’s right to enforce reasonable aesthetic criteria on telecommunications installations is a valid exercise of power. So says the California Supreme Court in its recent ruling inT-Mobile West LLC v. City and County of San Francisco (T-Mobile) (April 4, 2019, S238001) __ Cal. __. In a long-awaited decision by local governments and wireless carriers alike, the court held that local government ordinances requiring aesthetic guidelines for equipment erected by wireless telephone companies were neither preempted by, nor in violation of, state law. Thus, cities and counties need not fear a loss of community quality and aesthetic beauty as a result of unattractive telecommunications installations.

Background

For decades, local governments have battled over the amount of aesthetic control they hold over wireless telecommunications carriers constructing telecommunication facilities located in public rights of way. This struggle by cities and counties to maintain their local character has presented valid concerns regarding the extent of local government regulatory authority. The T-Mobile case settles this squabble by providing local governments with clear authority to establish aesthetic guidelines for wireless carriers locating equipment in public rights of way.

Analysis

In T-Mobile, plaintiffs, national telecommunications carriers including T-Mobile and Crown Castle contended that defendant, the City and County of San Francisco’s (City) ordinance which established aesthetic guidelines was preempted by California state law. They asserted that California Public Utilities Code (CPUC) section 7901 preempted the local rule and, even if not preempted, the ordinance violated CPUC section 7901.1 by singling out wireless telecommunications carriers for regulation.

Plaintiffs’ preemption argument stemmed from the parties’ disagreement over their interpretation of section 7901 which permits wireless carriers to construct and maintain cell towers and wireless facilities along public roads “in such manner and at such points as not toincommode the public use of the road…” Plaintiffs asserted a narrow interpretation of section 7901 stating that the statute granted them the right to construct and erect equipment along public roads, and local governments could not prevent such construction, so long as Plaintiffs did not “obstruct the path of travel.” The court disagreed with Plaintiffs, holding that the City’s ordinance is not preempted by section 7901, concluding that obstructing the path of travel was just one of multiple ways that public road use could be disturbed or made inconvenient, and that the City retained inherent local police power to regulate the manner and location of telephone line installations of all types. Ruling in favor of the City, the court stated that the statute “leaves room for additional local action” and that there are “significant local interests relating to road use that may vary by jurisdictions.”

Plaintiffs additionally asserted that the City’s ordinance violated CPUC section 7901.1, which provides that local governments may “exercise reasonable control as to the time, place, and manner” in which roads are “accessed,” and that the control must “be applied to all entities in an equivalent manner. Considering the legislative history of section 7901.1, the court held that the statute only applies to temporary access during construction and installation of telephone lines and equipment, and the City’s ordinance did not violate the statute because the City did not discriminate amongst entities when regulating temporary access to public rights of way.

Takeaways

The T-Mobile case is a win for cities and counties seeking to maintain their unique character during a time of increased necessity for cell towers and other wireless facilities. The Court here provided clear guidance on local government authority to regulate aesthetics of telecommunication equipment. This may set the stage for future Federal Communications Commission rule-making to attempt to limit this well-deserved affirmation of local control and community quality of life.

If you have any questions about this case or regulation of public rights of way in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

William P. Curley III

Partner

Lauren Kawano

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Know Your Role, Know Your Risk

June 2019
Number 28

A Civic Center Act provision that allocates liability between a school district and the users of school facilities means what it says, according to a recent decision by the California Court of Appeal. In Grossman v. Santa Monica-Malibu Unified School District, the court found the district was not liable for injuries suffered by a parent-attendee at a carnival held by a booster group at one of the district’s schools. The court also highlighted the statute’s intent that school districts and users of school facilities bear their own costs in insuring against risk and liability resulting from use of those facilities.

Facilities Use and Liability Under the Civic Center Act

Education Code section 38130 et seq., also known as the Civic Center Act, requires school districts to allow community groups to use district-owned facilities under certain conditions and allocates liability between the school district and the user of those facilities. Under Education Code section 38134(i)(1), “an entity using school facilities or grounds . . . is liable for an injury resulting from the negligence of that entity during the use of the school facilities or grounds,” while a school district “is liable for an injury resulting from the negligence of the school district in the ownership and maintenance of the school facilities or grounds.” The same section also requires school districts and users to “each bear the cost of insuring against its respective risks,” as well as the cost of defense for “claims arising from those risks.”

A school district’s liability for “ownership and maintenance” of its facilities and grounds only arises when the district would be liable under Government Code section 835 for “a dangerous condition of public property.” That form of liability arises from (1) negligent acts of a school district employee, or (2) notice of the dangerous condition with time to mitigate the danger.

The Grossman Case

In Grossman, the school district approved a booster group’s plans for a carnival on school grounds, but did not otherwise involve itself in the planning, set up, or oversight of the carnival. At the event, the plaintiff, a carnival attendee, was injured when an inflatable slide collapsed and he fell over 20 feet onto the concrete below. Similar slides were used at prior carnivals without incident.

The plaintiff sued the district, the booster group, and party rental and event companies for negligence. The plaintiff alleged that the slide was improperly set up, and was not secured to the ground with stakes. The plaintiff further alleged that the district did not inspect the slide or make sure that the operators properly assembled the slide.

The court ruled that the negligent set-up and operation of the inflatable slide, rather than any dangerous condition of the district’s property, was the cause of the plaintiff’s injuries. The slide was not a condition of the school grounds because it was a temporary feature that was removed after the event. Moreover, the district did not have notice of any purported dangerous condition because similar slides had been used at the booster group’s carnival in prior years without incident, and no complaints were made about the slide being improperly set up before the incident. Because the plaintiff’s claim was based on negligent set-up and operation of the slide, and not on a dangerous condition of the property, the court held that the district could not be liable for negligence under the Civic Center Act.

In its ruling, the court discussed the legislative history of the Civic Center Act’s liability apportionment statute. In particular, the court noted objections by booster groups and similar organizations to substantial insurance coverage and indemnification obligations required by school districts for use of facilities under the Civic Center Act. The legislation provided that such costs were considered costs of maintenance and management that should be borne by the property owner, rather than the user, however, the legislative history underscored the Legislature’s intent that the Civic Center Act not broaden a school district’s liability beyond that narrow scope. The court emphasizes that the liability apportionment statute requires each party bear its own costs associated with protecting against liability.

Takeaways

The Grossman case serves as a good reminder that liability is apportioned based on a school district or user’s respective role, as are the costs to protect against that liability, and while a school district cannot shift its statutory liability to facility users, it also cannot be held liable for injuries resulting from the user’s negligence, even if the incident occurred on school grounds.

For additional information regarding the Civic Center Act or facilities use and liability, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Claudia P. Weaver

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

“Limited Due Process” Appropriate For Subcontractor Substitution Hearings

June 2019
Number 26

The California Court of Appeal recently outlined an appropriate level of due process required for a subcontractor substitution hearing. In JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District (2018) 30 Cal.App.5th 945, the court found that the hearing process used by the Santa Monica Community College District (College) provided the “limited due process” required for a substitution hearing. The JMS AirConditioning decision provides guidance for school districts, community colleges and cities as to how to conduct these hearings.

Subcontractor Substitution Procedure

The Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) (Subcontracting Act) identifies the reasons why a contractor may substitute one subcontractor for another, and prescribes the process for the substitution, including a detailed notice procedure that states if the subcontractor files written objections, the awarding authority must hold a hearing and give the subcontractor at least five days’ notice of the hearing. However, the Subcontracting Act does not provide any specific procedures or standards for conducting the hearing.JMS Air Conditioning focused on what was required for conducting the substitution hearing and provides useful guidance for a valid hearing.

Limited Due Process

JMS Air Conditioning held that only “limited due process” is required for a substitution hearing. The court reasoned that, because the Subcontracting Act created only limited rights for the subcontractor, a lesser degree of due process protections are needed compared to other proceedings. The formalities of a trial are not required and the substitution hearing is “informal [in] nature, narrow [in] scope.” This can be contrasted with, for example, a public employee dismissal hearing where a higher degree of due process is required to protect the public employee’s fundamental right to employment. In this regard, the court stated that the College “is an educational institution, and the primary purpose of its governing board is thus to educate-not to referee construction disputes.”

The College’s Hearing Process

The characteristics of the College’s substitution hearing included the following:

Neutral Hearing Officer. The hearing was conducted by the College’s facilities manager, who was “generally knowledgeable about the project.” The subcontractor argued that instead the hearing should have been conducted by the college’s governing board. The court found that the Subcontracting Act did not require the governing board to conduct the hearing itself, noting that it would be an inefficient allocation of public resources and that the governing board “does not necessarily have any background in construction.” The subcontractor had the opportunity to present its case to a neutral decision maker, which the court found to be sufficient.

Advanced Notice of Grounds for Substitution. The subcontractor received a detailed description of the reasons for the substitution request prior to the substitution hearing. Written position statements (discussed below) were also submitted before the hearing. This permitted the subcontractor to prepare and respond to the general contractor’s allegations and legal arguments at the hearing.

Presenting Written Evidence and Argument. Both the general contractor and subcontractor were permitted to submit written statements detailing their positions. No page limits were set on these statements and no limits were placed on the number of exhibits or written witness statements the parties could submit. The subcontractor had an unlimited opportunity to present documents, written witness statements and argument. Witness statements were not sworn, but were accepted by the hearing officer.

Examining Witnesses. The subcontractor had the opportunity to present in-person witnesses and oral argument at the hearing. The witnesses were not examined under oath. Cross-examination of witnesses was not permitted, but the court found this did not deprive the subcontractor of due process.

Length of Hearing. The hearing officer limited the length of the hearing to two hours. The parties were advised of this in advance. The court held that “[n]othing in [the Subcontracting Act] requires a hearing of a particular length or the opportunity to cross-examine witnesses.”

Conclusion

The court found these characteristics of the College’s hearing process satisfied the due process requirements of the Subcontracting Act. Fundamentally, due process requires affording the subcontractor an opportunity to “meaningfully defend itself.” The court held that the College’s hearing afforded the subcontractor that opportunity.

Takeaways

The Subcontracting Act requires only “limited due process” for substitution hearings. The College’s hearing in JMS Air Conditioning satisfied that requirement and can be used as an example for other public entity’s substitution hearings. Though not an issue considered by this court, best practices generally also include presenting a hearing officer’s decision to the governing board for approval of the substitution decision. This case was followed by another subcontractor substitution case that also strengthened a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 25.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Ruth E. Mendyk

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Concludes That Public Entities May Initiate Substitution Of A Subcontractor

June 2019
Number 25

In Synergy Project Management, Inc. v. City and County of San Francisco, certified for publication on March 14, 2019, the California Court of Appeal concluded that awarding agencies, like prime contractors, have the power to request substitution of a subcontractor under Public Contract Code section 4107 (hereafter referred to as Section 4107).

Background

The City and County of San Francisco (City) had awarded a contract to Ghilotti Bros., Inc. (Ghilotti) for a major renovation of Haight Street. Ghilotti had listed Synergy Project Management, Inc. (Synergy) as the subcontractor for excavation and utilities work. Unfortunately, during the project, Synergy broke five gas lines and engaged in numerous other unsafe practices. As a result, the City, pursuant to Section 4107 and a specific provision in the construction contract, directed Ghilotti to remove Synergy from the project and substitute a new subcontractor to perform the remaining excavation and utilities work.

Under protest, Ghilotti removed Synergy from the project and proposed two potential replacement contractors. Synergy objected to its replacement and a hearing was held pursuant to Section 4107. At the conclusion of the hearing, the hearing officer determined that Synergy’s unsafe practices rendered its work “substantially unsatisfactory and not in substantial accordance with the plans and specifications,” which established a ground for substitution. Synergy and Ghilotti challenged this determination at the trial court, arguing that the hearing officer’s determination was invalid because Section 4107 does not authorize an owner to remove a subcontractor, except upon a request initiated by the prime contractor. The trial court agreed based on the plain language of Section 4107, and the City filed an appeal.

The Court’s Decision

The Court of Appeal disagreed with the trial court and concluded that while Section 4107 “contemplates that the prime contractor will normally be the party to seek substitution, the procedure followed [in this case] ‘complied in substance with every reasonable objective of the statute. [citation omitted.]'” The court reasoned that the intent of the larger statutory framework encompassing Section 4107, the Subletting and Subcontracting Fair Practices Act (the Act), was intended to prevent “bid shopping” and “bid peddling” after the award of a public contract. The court acknowledged that the Act afforded subcontractors certain rights, such as Section 4107, which ensures the listed subcontractor is permitted to perform the subcontract, unless statutory grounds exist for valid substitution.

However, the court also noted that the Act gives owners the power to investigate and approve any subcontractor whether proposed in the original bid or as a substitute. Here, the court concluded there was no risk of bid shopping or bid peddling because the substitution was related to Synergy’s substandard performance of the work, which serves as a valid ground for substitution. Therefore, the City was within its investigatory power to seek substitution and had not violated the rights of Synergy under the Act.

Takeaways

In light of this decision, public agencies can now consider initiating the substitution process for a subcontractor on a public works project, as long as a valid ground for substitution exists under Section 4107. This is the second subcontractor substitution case in the last few months that strengthens a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 26.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Arne B. Sandberg

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Schools And Public Agencies Face A Rise In Digital Copyright Infringement Claims For Use Of Protected Photos

April 2019
Number 19

Cease and desist letters alleging copyright infringement for the unauthorized use of digital photos-along with demands for settlement payments ranging from hundreds to tens of thousands of dollars-are being sent to public agencies. This trend seems to be on the rise, whether it is a journalism student’s use of a photo for the online student newspaper, or a social media manager’s use of a graphic for the agency’s Facebook feed. Although the initial demands can be quite high, including threats of hundreds of thousands of dollars in statutory damages if the copyright owner has to litigate the claims, sometimes the license fees can be negotiated down depending on the number or nature of infringing uses.

A contributing problem is the ease with which digital photos can be copied online. Additionally, it is increasingly simple to detect unauthorized online use. Advanced algorithms used in today’s Internet search engines make it easy to identify every unauthorized use of a photo online anywhere. Digital photos can also be copied from anywhere on the Internet using a snipping tool or by taking a screenshot and are quite tempting to those who want the perfect photo, but may not have given consideration to the intellectual property rights of the photo’s owner.

A number of law firms seem to be at the forefront of pursuing these claims. These attorneys identify the sites where unauthorized photos appear, the registrants for those sites, and the addresses where the demand letters can be sent. If you receive one of these letters, the first step in addressing the claim is to secure proof of copyright ownership and the lawyer’s authority to act on behalf of the copyright holder.

In addition to assisting public agencies with resolving the pending infringement claims, Lozano Smith is also working with clients to implement “best practices” to avoid future claims of copyright infringement. These best practices include, but are not limited to:

  • Do not use any pictures that are “copied and pasted” from other Internet sites.
  • Consider using only photos that are taken by someone associated with or hired by the agency department responsible for publication of the pictures.
  • If you find that the picture you want to use is “subject to copyright,” contact the copyright holder in advance and get permission or a license to use it.
  • Train staff, or in the case of school districts, students as well, regarding these issues. Focus training particularly on web designers, public information officers and journalism teachers.
  • Use the threat of copyright infringement as a “teaching opportunity” for students and staff to understand what is required to navigate the digital universe.

For more information about the legal requirements for use of copyrighted works or how to implement these and other best practices to avoid such claims, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app

Written by:

Harold M. Freiman

Partner

Lee Burdick

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Records Owned And Held By A Third Party Are Not Public Records Even If A Public Agency Has A Right To Access Such Records

March 2019
Number 16

A recent California appellate court ruling has clarified the reach of the California Public Records Act (CPRA). InAnderson-Barker v. City of Los Angeles, the Second District Court of Appeal held that records in the possession of a third party contractor under a contract with the City of Los Angeles were not subject to the CPRA where the city had access to but did not actually possess or control the records.

Background

In Anderson-Barker, the plaintiff sought to compel the city to disclose electronically stored data relating to vehicles that private towing companies had impounded as directed by Los Angeles Police Department per a contractual agreement. The city had access to this information but did not control the data stored, nor did it control the databases on which it was stored. The city argued that the requested data did not qualify as “public records” under the CPRA because the city did not possess or control the data. Recent amendments to the contract with the third party contractors expressly stated that the data was “owned” by the contractors. The trial court ruled in favor of the city, and the Court of Appeal
affirmed that decision.

Analysis

The court focused on the issue of possession to decide whether the data in question must be produced under the CPRA. Prior state and federal cases (the latter addressing the Freedom of Information Act) had held that records are considered in possession or “constructive possession” of a public entity if they have “the right to control the records.” The court, particularly following federal cases, held that constructive possession does not apply when the entity only has access to the data: “[t]o conclude otherwise, would effectively transform any privately-held information that a state or local agency has contracted to access into a disclosable public record.”

The court further explained why this case does not reach the same result as the California Supreme Court’s decision inCity of San Jose v. Superior Court (2017) 2 Cal.5th 608. At issue in City of San Jose was a CPRA request for “all electronic information relating to public business, sent or received by [mayor and council members] using his or her private electronic devices” related to a city-involved real estate matter. The California Supreme Court ruled that such records were subject to the CPRA. (See 2017 Client News Brief No. 11.) The City of San Jose court, focusing on the definition of “public record,” held that a record does not lose its “public record” status simply because of its location on a public employee’s personal account. The Anderson-Barker court focused on a CPRA requirement distinct from the definition of “public record,” that the record must be in the possession or control of the agency, ultimately finding that the City of Los Angeles did not have possession or control of the record because the record was with a third party. The city had only access to the records, and the court concluded that access does not satisfy the requirement of possession or control. However, the court also explained that data actually extracted from the database by the governmental agency and used for a governmental purpose might be disclosable.

Anderson-Barker thus creates a distinction between documents in possession of an employee or official versus documents controlled by a third party contractor. The former will generally be subject to the CPRA, while the latter generally will not.

Takeaways

Under Anderson-Barker, members of the public may not have a right to access records in the possession of a third party contractor. An agency or its employees or officials must control, and not merely have access to records, in order for the records to be subject to mandatory production under the CPRA. Public agencies may wish to address the structure of document control through contractual arrangements with third party contractors, allowing the agency to decide who controls records for purposes of CPRA production.

If you have any questions about theAnderson-Barker v. City of Los Angeles decision or the California Public Records Act in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lay Opinions May Trigger The Need For An Environmental Impact Report

February 2019
Number 12

A California appellate court has ruled that lay public opinions on nontechnical issues concerning a project’s size and general appearance can provide substantial evidence of environmental impact, triggering the need to prepare an environmental impact report (EIR) under the California Environmental Quality Act (CEQA).

The California Environmental Quality Act

CEQA generally requires public agencies to identify potentially significant impacts of projects they carry out or approve, and mitigate those impacts where feasible. Unless a project is exempt from CEQA, the public agency must prepare one of three types of documents. A negative declaration (ND) can be prepared where there is no substantial evidence that the project may have a significant effect on the environment, and a mitigated negative declaration (MND) can be prepared where the project has potentially significant environmental effects, but these effects will be reduced to insignificance by mitigation measures. An EIR, however, is required whenever substantial evidence in the record supports a “fair argument” that the project may produce significant impacts or effects. An EIR generally involves more time and often more cost than an ND or MND.

Georgetown Preservation Society v. County of El Dorado

The Third District Court of Appeal filed its decision inGeorgetown Preservation Society v. County of El Dorado (2018) 30 Cal.App5th 358, on December 17, 2018, affirming the trial court’s writ setting aside El Dorado County’s (County) approval of a project based on an MND. The County had prepared an initial study to analyze the environmental impacts of a proposed Dollar General chain discount store (Project) and found that there was no basis to require an EIR. Local residents acting through plaintiff Georgetown Preservation Society (Society) objected, claiming that the Project would impair the aesthetic character of their town. The Project was located in a historic center and several lay opinions were submitted by the local community, which commented that the Project was
too big and too boxy and would damage the look and feel of the town, and would therefore have significant and negative effects related to aesthetics. The County slightly modified the project and ultimately adopted the MND. In part, it found that the project complied with local zoning because the area was zoned for commercial retail, that the Project’s design, architectural treatments, and associated improvements substantially conform to the County’s Historic Design Guide and, that the Project would not substantially detract from the town’s historic commercial district.

The Society filed a lawsuit seeking to require the County to prepare an EIR. The trial court applied prior case law and found that the Society’s evidence supported a fair argument that the Project may have a significant aesthetic effect on the environment. Accordingly, the trial court issued a writ of mandate compelling the County to prepare an EIR.

On appeal, the County relied on the fact that it had applied its Historical Design Guide principles when it found the project met aesthetic standards. In the County’s view, the ensuing finding of compliance with its Historical Design Guide principles could not be disputed by lay opinion evidence. A key issue addressed by the Court of Appeal was whether non-expert factual evidence or lay opinion evidence proffered by area residents can support a “fair argument” that the Project may have a significant aesthetic impact on the environment. In reaching its decision, the Court of Appeal followed the rationale in Pocket Protectors v. City of Sacramento (2004) 124 Cal.App.4th 903, and held that (1) consistency with local design guidelines could not be used to insulate a project from CEQA review; (2) lay opinions can provide substantial evidence to support a “fair argument” that a project may have a significant aesthetic impact on the environment, triggering the need to prepare an EIR; and (3) since the County made no credibility determinations, it could not categorically disregard the
public’s comments.

Takeaways

Georgetown Preservation Society serves as a reminder of the impact public opinion may have on projects approved or carried out by public agencies, and that lead agencies should not disregard public opinion in non-technical areas like aesthetics. Previous court decisions have also considered lay opinions in other impact areas such as noise, traffic safety, and parking. Therefore, lead agencies should not solely rely on its industry experts when evaluating the environmental impacts of a project. If the community members’ opinions on these issues are not properly taken into consideration, project delays and increases costs can result.

If you have any questions about the appellate court’s decision in Georgetown Preservation Society and its impact on CEQA compliance, or about the CEQA in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Jose Montoya

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bid Thresholds Raised For 2019

January 2019
Number 4

According to the California Department of Education Office of Financial Accountability and Information Services, pursuant to Public Contract Code section 20111(a), the bid threshold for K-12 school districts’ purchases of equipment, materials, supplies and services (except construction services) has been adjusted to $92,600, effective January 1, 2019. The notice may be viewed here.

The California Community Colleges Chancellor’s Office is expected to announce a similar adjustment to the bid threshold for community college districts’ purchases of equipment, materials, supplies and services (except construction services), pursuant to Public Contracts Code section 20651(a), sometime in the next few days. Once released, that information will be available here.

The bid limit for construction projects remains at $15,000.

The bid thresholds for cities, counties and special districts are not affected by the bid limits discussed above.

On a related note, the Legislature increased the bid limits under the California Uniform Public Construction Cost Accounting Act (CUPCCAA), effective January 1, 2019. (See 2018 Client News Brief No. 47) The increase in the bid limits affects school districts, cities, counties and all other public entities that have adopted CUPCCAA.

For more information on the new bid limits or bidding in general, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Ruth E. Mendyk

Partner

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Changes To Skilled And Trained Workforce Requirements For Public Works Projects

January 2019
Number 2

Recent legislation modifies the skilled and trained workforce requirement for certain public works projects, shifting much of the burden for compliance to subcontractors. The new law also authorizes the California Labor Commissioner to investigate suspected violations of the statute and impose civil penalties in specified circumstances.

Background

In recent years, contractors have been required to utilize a “skilled and trained workforce” for “design-build” and “lease-leaseback” public works projects (see 2015 Client News Brief No. 8;2015 Client News Brief No. 71; and 2016 Client News Brief No. 63.) These requirements do not apply to publicly bid projects. Also, the skilled and trained workforce requirements may not apply if the public entity has entered into a project labor agreement covering the project.

These skilled and trained workforce requirements include two elements. First, all of the workers performing work in designated apprenticeable occupations must have “at least as many hours of on-the-job experience as would be required to graduate from an apprenticeship program…;.” Second, a minimum percentage of that workforce must be graduates of an apprenticeable program for the applicable occupation. This minimum threshold was originally set at 30% but is set to increase to 60% by 2020 for some trades. Other trades, including bricklayers, carpenters, drywall installers, plasterers, roofers, and stone masons, will remain at 30%.

Under current law, a contractor is required to provide monthly reports to the project owner that demonstrate compliance with these skilled and trained workforce requirements. In the event the contractor fails to provide the report or the report does not demonstrate compliance with the percentage requirements, the project owner must withhold all further payments until the contractor provides a plan to achieve substantial compliance. As a result, noncompliance by one subcontractor, for even a small portion of work, has had the potential to hold up payment to the contractor for all of the work on the project.

Assembly Bill 3018

Effective January 1, 2019, Assembly Bill (AB) 3018 amends Public Contract Code sections 2601 and 2602, and adds new section 2603, shifting some of the responsibility for skilled and trained workforce compliance to subcontractors. If the general contractor fails to comply with the monthly report requirements as a result of one noncompliant subcontractor, the project owner is required withhold 150% of the value of the monthly billing for that subcontractor only, until that subcontractor demonstrates a plan to achieve substantial compliance, or until the subcontractor is substituted out in accordance with applicable law. The contractor is permitted (but not required) to withhold payment from the subcontractor. However, now the project owner will be permitted to pay the contractor for the other work on the project performed by the contractor or by other subcontractors.

AB 3018 also gives the Labor Commissioner authority to investigate suspected violations of the skilled and trained workforce requirements and impose a separate civil penalty up to $5,000 per month on non-compliant contractors. In situations where the Labor Commissioner finds that violations of the skilled and trained workforce requirements are willful, the contractor or subcontractor may be temporarily disqualified from bidding on public works projects.

Takeaways

These changes to the skilled and trained workforce requirements shift the consequence of noncompliance to the responsible party. As a result, AB 3018 may make design-build and lease-leaseback projects more attractive for prospective general contractors. However, the increased burden on subcontractors to demonstrate compliance and the Labor Commissioner’s oversight may deter subcontractors from participating in such projects. Public entities in regions of the state where there are a limited number of graduates from apprenticeship programs should carefully consider these changes before proceeding with a delivery method subject to skilled and trained workforce requirements.

If you have any questions about the skilled and trained workforce requirements, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Claudia P. Weaver

Partner

Shawn A. VanWagenen

Senior Counsel

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Updates Bidding Preferences for Various Public Agencies

November 2018
Number 75

The Legislature has significantly expanded local agencies’ ability to use a small business preferences on a public works projects, and has expanded the use of preferences for small businesses, disabled veterans businesses and social enterprises in some counties. This new law seems to indicate the Legislature is responding to the desire of local agencies to support local businesses.

Assembly Bill (AB) 2762, signed by Governor Jerry Brown, increases the small business preference from five percent to seven percent for all local agencies, including counties, cities, school districts, and other districts. The bill limits the value of a preference to a maximum of $150,000 on any contract, no matter the value of that contract. The small business preference authorizes a local agency, in facilitating contract awards to small businesses, to provide for a small business preference in construction, the procurement of goods, or the delivery of services.

AB 2762 also authorizes local agencies in the counties of Alameda, Contra Costa, Lake, Los Angeles, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, to adopt preferences for disabled veteran businesses and social enterprises, and provides for the preferences to be a maximum of seven percent for an individual preference and up to fifteen percent for a single bid having two or more preferences. In these counties, an agency’s ability to use a small business preference is not different from agencies outside those counties.

This new law defines a social enterprise to include a nonprofit or for-profit business whose primary purpose is to benefit the economic, environmental, or social health of the community and which uses the methods and disciplines of business and the power of the marketplace to advance its social, environmental, and human justice agendas. The business must also have been in operation for at least one year providing transitional or permanent employment to a transitional workforce or providing social, environmental, or human justice services.

Under AB 2762, each local agency within the specified counties that chooses to utilize a disabled veteran business or social enterprise preference is authorized to define a disabled veteran business and social enterprise and to define their eligibility for the purposes of these preferences and goals. The statute granting authority in certain counties to utilize preferences is set to expire in 2024. However, the statute permitting small business preferences by all local agencies in the state has no expiration date.

To help local agencies meet these preferences, the new law permits a prime contractor, with the approval of the local agency, and subject to meeting specified conditions, to substitute one subcontractor for another, if doing so will help meet the preference adopted by the agency. This provision seems to create a scenario where a subcontractor could be substituted solely in the interest of meeting the agency’s adopted preference, but the new law explicitly states that subcontractors are still afforded all the protections of the Subletting and Subcontracting Fair Practices Act.

Takeaways

AB 2762 demonstrates a greater interest by the Legislature in allowing public agencies to adopt preferences for certain types of businesses. Agencies wishing to adopt such preferences should first review their existing policies and bidding practices for any needed updates to comply with the new law.

For more information on AB 2762, or preferences in bidding generally, including for assistance in drafting policies and bid documents to implement preferences, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon B. Lincoln

Partner

Alyse A. Pacheco

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Indefinitely Extends Community College Use of Best Value Process in Bidding

November 2018
Number 74

An expiring law allowing special bidding procedures for community college districts has been amended and extended. Although competitive bidding is the default rule for procurement of personal property and non-construction related services by community college districts and other public agencies, under Public Contract Code section 20651.7, a community college district is allowed to award bids on the basis of “best value,” if the district determines that it can expect “long-term savings through the use of life-cycle cost methodology, the use of more sustainable goods and materials, and reduced administrative costs.” This allows community college districts to use factors other than price to determine the lowest responsible bidder for contracts that are competitively bid.

To utilize this method for awarding contracts, a community college district is required to establish policies and procedures for determining “best value,” and in doing so is required to consider certain factors like pricing and service levels. Community college districts are also permitted to consider a number of additional factors, including the economic benefits to the local community and job creation and retention. This alternative method was set to expire on January 1, 2019. However, Assembly Bill (AB) 3186, signed by Governor Jerry Brown, extends the requirement indefinitely to community college districts, as well as to the University of California. AB 3186 also deletes the requirement that the use of best value procurement be reported by the district to the Legislative Analyst, which then would report to the Legislature.

For more information on this bill or on best value procurement generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon B. Lincoln

Partner

Alyse A. Pacheco

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Mandatory Prequalification on Certain School District Projects is Here to Stay

November 2018
Number 73

California has extended a school district prequalification requirement that was nearing sunset. Prequalification of general contractors and mechanical, electrical, and plumbing engineers on certain school district projects has been mandatory since January 1, 2015. Specifically, under Public Contract Code section 20111.6, prequalification is required on all lease-leaseback projects and on other school district public works projects when all three of the following factors are met:

(1) the project will entail a projected expenditure of $1,000,000 or more;
(2) the school district has an average daily attendance of at least 2,500; and
(3) the school district intends to use state bond funds, either immediately or by potentially seeking reimbursement from state bond funds in the future.

Prequalification requires that a prospective bidder submit a prequalification questionnaire and financial statement, under oath, as part of the bidding process and requires each prospective bidder to submit a bid by completing and executing a standardized proposal form. This requirement was set to expire on January 1, 2019 (see 2015 Client News Brief No. 51). However, AB 2031, signed by Governor Jerry Brown, extends the requirement indefinitely.

For more information on this bill, or for assistance with the prequalification process, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon B. Lincoln

Partner

Alyse A. Pacheco

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Legislature Clarifies CEQA Lead Agency’s Scope of Consideration in Authoring EIR

November 2018
Number 71

The California Legislature has amended the California Environmental Quality Act (CEQA) in an effort to clarify a lead agency’s ability to consider both the broad benefits of a project and the negative impacts of denying the project when evaluating environmental impacts.

Under existing law, CEQA requires state and local agencies to assess the environmental impacts of projects they undertake. Unless an exception applies, the lead agency on the project must prepare one of three types of environmental review documents: a negative declaration, a mitigated negative declaration, or an environmental impact report (EIR). If the project will not have any significant effects on the environment or those effects can be mitigated to an insignificant level, a negative or mitigated negative declaration can be prepared. However, if the lead agency determines the project will have a significant environmental impact that cannot be mitigated, an EIR must be prepared. In preparing an EIR or mitigated negative declaration, the lead agency must identify each expected environmental impact and identify mitigation measures for those impacts. In addition, the lead agency must analyze and provide reasonable alternatives to the project, including the option of cancelling the project (known as the “no project alternative”).

If mitigation is not feasible for a given effect, the project is not necessarily prohibited. The CEQA guidelines provide that mitigation is not necessary if the lead agency determines, with support from substantial evidence in the record, that the “specific economic, legal, social, technological, or other benefits of a proposed project outweigh the unavoidable adverse environmental effects.” This is known as a “statement of overriding consideration.”

Assembly Bill (AB) 2782 adds a section to existing CEQA statutes that permits a lead agency authoring an EIR to:

“consider specific economic, legal, social, technological, or other benefits, including regionwide or statewide environmental benefits, of a proposed project and the negative impacts of denying the project. Any benefits or negative impacts considered pursuant to this section shall be based on substantial evidence in light of the whole record.”

The new language confirms that lead agencies may broadly consider all benefits of a project as well as any negative environmental impacts of denying the project. For example, canceling a bus lane improvement project could represent a missed opportunity to reduce greenhouse gas emissions as commuters drive their cars instead.

Senate and Assembly committee analysis points out that the language of AB 2782 allowing the lead agency to assess the broad benefits of a project is already reflected in the “statement of overriding consideration” section of the current CEQA guidelines. Similarly, the ability to consider the negative impacts of denying the project already exists in the “no project alternative” analysis. Thus, AB 2782 merely re-states and confirms a lead agency’s scope of consideration when preparing an EIR.

If you have questions about AB 2782 or CEQA issues in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

Jordan R. Fong

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Could Reduce Public School Energy Costs

November 2018
Number 69

A new law aims to reduce the high costs public schools pay for energy. Throughout California, K-12 schools are spending a significant portion of their general fund-nearly $700 million-just to keep the lights on. This amount is nearly equal to what public schools dedicate to books and supplies for students. Assembly Bill (AB) 2068 seeks to reduce energy costs in the future by requiring public utilities to evaluate and report the feasibility and economic impacts of establishing discounted utility rates for public K-12 schools.

Electrical and gas corporations (public utilities), in conjunction with the California Public Utilities Commission (CPUC), establish the amount a utility can collect from its customers to cover anticipated costs and reasonable profit. Once this amount is established, the CPUC and utility then create customer “classes” and rates for each class. This division into separate classes and rates reflects a recognition that different general categories of customers place different demands upon the electrical system and therefore it is appropriate to charge users differently. Public schools have generally been placed in a “nonresidential” or “commercial” class rate, despite the fact that public schools have electricity use patterns that differ from the other users placed in their same class. For example, schools typically experience a significant reduction in electricity demand in the mid-afternoon through the next morning and during the summer months, while electricity demand for typical commercial users would not be subject to school day and school year fluctuation patterns.

AB 2068 will require public utilities to evaluate the feasibility and economic impacts of establishing a utility rate class specific to public schools that would reflect a discount from the current rate structure. Public utilities are required to submit their findings to the CPUC by no later than January 1, 2020, which will then be forwarded to the California Legislature.

While AB 2068 does not offer immediate relief to public schools, it at least demonstrates the Legislature’s awareness of the issue and may provide a path to reduced energy costs in the future. In the meantime, schools may still pursue other options for increasing energy efficiency, like taking advantage of remaining Proposition 39 funding or the recently enacted Clean Energy Job Creation Program for energy efficiency projects. (For further discussion of Proposition 39 or the Clean Energy Job Creation Program, see Client News Brief No. 42.)

If you have any questions about AB 2068, or any questions about current options for increasing energy efficiency, please contact the authors of this Client News Brief or attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon B. Lincoln

Partner

Travis E. Cochran

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Laws Promote Student Health and Safety

November 2018
Number 68

California lawmakers demonstrated a concerted effort to promote student health and safety by approving several bills this session. Assembly Bills (AB) 1798, 2435 and 2816 were passed to create or expand requirements or funding for school districts in relation to bus transportation, air quality, and pesticide use.

Assembly Bill 1798 – Passenger Restraint Systems on All School Buses by July 1, 2035

Existing law requires passenger restraint systems on certain classes of school buses manufactured on or after July 1, 2005, and July 1, 2004, depending on capacity and weight. AB 1798 amends section 27316 of the Vehicle Code to require that, on or before July 1, 2035,all school buses in use in California must be equipped with a passenger restraint system, effectively phasing-in the requirement as old buses are retired and new buses are manufactured. While the new law creates a state mandated cost, the bill itself provides that no reimbursement is required because violation of the law is a crime.

Assembly Bill 1840 – Delays Implementation of School Bus Safety Alert Requirements until March 1, 2019

Following a few well-publicized incidents where students with special needs were left on school buses, in 2016 the Legislature enacted Senate Bill 1072, which required local educational agencies (LEAs) to install child safety alert systems in school buses and other specified student transport vehicles by the beginning of the 2018-19 school year. Many LEAs were unable to meet the original deadline due to a variety of factors, including the inability of manufacturers and installers to meet the demand for these devices. In response to these issues, the Legislature included a provision in the Education Budget Trailer Bill, AB 1840, that extends the deadline to install these safety devices until on or before March 1, 2019, with an additional six month extension for LEAs with average daily attendance of less than 4,000, or until September 1, 2019.

Assembly Bill 2453 – Air Quality

AB 2453 amends section 17074.25 of the Education Code and adds section 44391.3 to the California Health and Safety Code to expand the use of certain State aid apportionments to school districts, allowing modernization grant money to be used to update air filtration systems in order to limit student exposure to harmful air pollutants. The bill also authorizes schools and school districts located in communities with a “high cumulative exposure burden” to work with air districts to identify schools sites in need of air quality improvement and to be eligible for grants as part of a community emission reduction program. Improvements may include, but are not limited to, air filter installation or upgrade and vegetation buffer planting.

Assembly Bill 2816 – Report on Pesticide Use

The purpose of AB 2816 is to evaluate certain existing rules related to the use of pesticides at school sites, ostensibly in order for lawmakers and regulators to make improvements. Under the Healthy Schools Act of 2000 (the Act), school districts are required to follow the preferred method of managing pests, keep records of pesticide use for four years, and to notify staff and parents about expected pesticide use at school sites. The Act also requires the Department of Pesticide Regulation to establish a training program that must be annually completed by any person who intends to apply a pesticide at a school site. AB 2816 adds Section 17614.5 to the Education Code, directing the Department of Pesticide Regulation to submit a report to the Legislature on or before January 1, 2021, evaluating the implementation of the Act and providing recommendation for improvement. This new law will become inoperative on July 1, 2021, and be repealed on January 1, 2022.

Takeaways

Districts now have additional time to install child safety alert systems in their school buses and other student transport vehicles. Although these other new laws do not require immediate action on the part of local educational agencies, school districts should be mindful of future compliance with bus seatbelt requirements and opportunities for air quality funding. In connection with pesticide management, school districts should continue careful monitoring and compliance with existing law while awaiting the Department of Pesticide Regulation’s forthcoming report.

If you have any questions about AB 1798, 2453, or 2817 or about laws applicable to local educational agencies in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Ruth E. Mendyk

Partner

Nicholas G. Felahi

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Updates to Food Service and Nutrition Laws Affecting Students

November 2018
Number 67

Numerous California laws surrounding food service funding and nutritional guidelines for school districts, charter schools, and county offices of education are set to change next school year. Assembly Bills (AB) 2271 and 3043 will increase or expand the use of available state funding for food service equipment and other food services, and will modify certain pupil nutrition guidelines.

Existing State Aid Expansion and New State Matching Grant for Equipment

Existing state law requires public schools with students in grades K-12 to provide one nutritionally-adequate meal each school day to each student eligible for a free or reduced-price meal. The school is authorized to use funds available from any federal program, including the federal National School Lunch Program (NSLP), or state program, to comply with these meal requirements.

Starting July 1, 2019, contingent upon appropriation by the Legislature and allocations provided by the federal Consolidated Appropriations Act, AB 2271 will require the California Department of Education (CDE) to provide a state matching grant of up to $100,000 to a school food authority participating in the NSLP that applies for and is awarded a federal Equipment Assistance Grant for School Food Authorities. A “school food authority” is the governing body that is responsible for the administration of one or more schools and that has the legal authority or approval to operate the NSLP at that school or schools, which is usually a school district board or county board of education. The state appropriation will be for a minimum of two years, and the school food authority may use the federal and state grants for up to five individual school sites, or combine the federal and state grants for one purpose, such as creating a centralized industrial kitchen. The state matching grant must be competitively awarded, giving priority to high-need schools where 50 percent or more of the enrolled students are eligible for free or reduced-price meals, and must align with the federal Equipment Assistance Grant requirements.

Expanded use of Cafeteria Funds

Existing law prohibits expenditures from a school district’s cafeteria fund to pay costs associated with cafeteria or kitchen facilities, but starting July 1, 2019, AB 3043 will authorize districts to use cafeteria funds to purchase mobile food trucks, which will expand student access to meals.

Additionally, starting on July 1, 2019, AB 3043 will allow school districts, county offices of education, private nonprofit schools, charter schools, and residential child care institutions (together, educational entities) that participate in the federal School Breakfast Program to provide universal breakfast, meaning for all students, and use the entity’s cafeteria fund to cover the costs. Educational entities that do not currently qualify to provide universal meals must submit

specific documentation to CDE prior to using their cafeteria fund to pay for school breakfast programs, certifying that the entity will provide breakfasts at no charge to all pupils and cover costs of providing those breakfasts above the amount provided in federal reimbursement with nonfederal funds.

Pupil Nutrition Guidelines

Prior to AB 3043, the Education Code required CDE to maintain nutrition guidelines according to the California Daily Food Guide. Beginning July 1, 2019, the nutrition guidelines for breakfast and lunch must instead mirror nutrition guidelines for federal School Breakfast Program, and the NSLP, respectively, which are based on more recent nutrition studies.

If you have any questions about AB 2271 or AB 3043 or about other laws applicable to educational entities, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Kate S. Holding

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bathrooms Are No Longer Acceptable Lactation Accommodations

November 2018
Number 66

Beginning January 1, 2019, employers will have to make reasonable efforts to provide employees with the use of a room or location, other than a bathroom, as a lactation accommodation.

Existing law already requires employers to make reasonable efforts to provide employees the use of a room or location, other than a single toilet stall, in close proximity to the employee’s work area for the purpose of expressing milk in private. Under these requirements, employers could provide space in a bathroom as an accommodation. Assembly Bill (AB) 1976, which was signed into law by Governor Jerry Brown on September 30, 2018, amends existing Labor Code requirements to expressly state that employers will now have to designate space other than a restroom facility for this purpose. Employees may still use the room or location where they normally work, such as a private office.

AB 1976 creates exceptions to the above requirements in limited circumstances. Relevant to districts and public agencies, an employer who can demonstrate the requirements impose an undue hardship relative to the size, nature, or structure of the employer’s business, may remain legally compliant by providing a room or location, other than a single toilet stall, to an employee wishing to express milk in private.

While AB 1976 narrows employers’ ability to create legally compliant permanent lactation accommodations, it also further amends Labor Code section 1031 to allow employers to create temporary lactation locations, so long as the following conditions are met:

  • The employer is unable to provide a permanent lactation location because of operational, financial, or space limitations.
  • The temporary lactation location is private and free from intrusion while an employee expresses milk.
  • The temporary lactation location is used only for lactation purposes while the employee expresses milk.
  • The temporary lactation location otherwise meets the requirements for state law concerning lactation accommodation.

Because the provisions of AB 1976 take effect January 1, 2019, and violations are subject to a civil penalty, public agencies should take steps now to amend their board policies and administrative practices, and update employee handbooks regarding provisions interpreting Labor Code sections 1030 and 1031 to ensure they are compliant.

If you would like to discuss what might constitute an acceptable permanent or temporary lactation accommodation location, the process to be considered for an exception, or any other matters related to employee accommodations, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Dulcinea Grantham

Partner

Michelle N. Sinks

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Legislature Increases Bid Limits under Uniform Public Construction Cost Accounting Act

September 2018
Number 47

Public project bid limits are set to increase for public agencies that have opted into uniform cost accounting under the California Uniform Public Construction Cost Accounting Act (CUPCCAA). Assembly Bill (AB) 2249 has been signed by Governor Jerry Brown and is set to take effect on January 1, 2019.

Lawmakers drafted the bill to address construction cost increases that have occurred since the limits were last increased, in 2011.

Background

California law generally requires public agencies to competitively bid public works contracts for all construction projects subject to certain thresholds: over $4,000 for counties, $5,000 for cities, and $15,000 for school and sanitary districts. CUPCCAA, codified in California Public Contract Code sections 22000 through 22045, was created in 1983 to provide public agencies with an alternative, streamlined process for executing public works projects. In exchange for agreeing to follow the cost accounting procedures prescribed by the California Uniform Construction Code Account Commission (CUCCAC), the Act currently allows a public agency to use its own workforce to perform public projects of $45,000 or less by the agency’s force account, negotiated contract, or purchase order, and allows agencies to let contracts of $175,000 or less without submitting the projects to formal bid. Existing law also allows the informal process to be used even if bids received are as high as $187,500, if it determines that the agency’s cost estimate was reasonable.

AB 2249 will increase the above dollar limits for projects that may be performed without bid pursuant to CUPCCAA as follows:

  • The force account limit will be increased from $45,000 to $60,000.
  • The informal bid limit will be increased from $175,000 to $200,000.
  • Informal bids can be awarded upon a determination that the cost estimate was reasonable up to a total of $212,500 instead of $187,500.

Takeaways

Public agencies, including cities, counties, school districts, and special districts, can voluntarily elect to participate in CUPCCAA by adopting a resolution and filing a copy of the resolution with the State Controller’s Office. Opting into CUPCCAA may provide a public agency with time and cost savings and greater flexibility.

For more information on CUPCCAA and whether it could be a useful tool for your agency, or on bidding in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

Bradley R. Sena

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Assembly Bill 6: A Cure for AB 195, But Too Late?

July 2018
Number 30

As previously reported, effective January 1, 2018, Assembly Bill (AB) 195 requires summary statements for all local ballot measures that impose or raise a tax to include the amount of money the tax will raise annually and the rate and duration of the tax to be levied. (See 2017 Client News Brief No. 82.)

In addition to eating into the 75-word limit for summary statements, the new law poses compliance challenges specific to general obligation bonds, which are subject to market forces that can make both the rate and duration of the resulting tax impossible to predict.

In response to criticism of AB 195, two proposed remedies have been introduced: Senate Bill (SB) 863, and now AB 6. SB 863 would suspend AB 195 requirements for bond measures for two years, but appears to have stalled.

The newcomer, AB 6, would require that, instead of the additional information required by AB 195, bond measures include estimates in the summary statement of (1) the best estimate from official sources of the average annual tax rate that would be required to be levied to fund that bond issue over the entire duration of the bond debt service, based on assessed valuations available at the time of the election or a projection based on experience within the same jurisdiction or other demonstrable factors; and (2) the final fiscal year in which the tax is anticipated to be collected.

The new requirements of AB 6 mirror information already required to be provided to voters in the tax rate statement by section 9401, subdivision (a)(1) of the Elections Code. AB 6, an urgency statute, would take effect immediately. However, the Legislature has adjourned for summer recess and will not convene again until August 6, which is four days before the last day some public agencies may order a general obligation bond measure election, including school districts. The potential for a last-minute or late action by the Legislature is causing uncertainty for county officials, who may have little to no time to prepare conforming changes to ballots for November bond measures already ordered by public agencies. Public agencies will need to work closely with their bond counsel and consultants to address the issues raised by AB 195, AB 6, and any other bill which may affect bond measures headed for the November ballot.

As bond counsel on more than $1 billion in public agency bond issues, Lozano Smith has expertise in public finance matters. Lozano Smith provides bond and special financing counsel services and advice to California public agencies. Lozano Smith is currently conducting bond workshops across the state, covering topics that include:

  • Elections: Timelines and Requirements
  • Bonds: Types, Validity and Tax Treatment
  • Roles and Responsibilities: Committees, Consultants and Counsel
  • Disclosure and Record-Keeping: Regulations and Legal Considerations
  • Statewide Bond: Matching and Impact

If you have any questions regarding the applicability of AB 195 or AB 6 to your measures, compliance with laws, or about navigating a future bond campaign, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Sloan R. Simmons

Partner

Jennifer Grant

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Rules for Use of Federal Funds Effective July 1: Are You Ready?

June 2018
Number 26

New requirements for using federal funds become effective this coming fiscal year. The requirements apply to non-federal entities such as school districts, institutions of higher learning, and state and local governments.

In order to comply with the new rules, non-federal entities seeking federal funds may need to revise their board policies and administrative regulations, contract documents, and other internal procedures by the beginning of their 2018-2019 fiscal year. For school districts, the California School Boards Association has updated its sample Board Policy and Administrative Regulation 3230 to reflect the new rules.

Previously, the requirements for spending federal funds were governed by a series of Office of Management and Budget (OMB) circulars. In 2013, OMB issued new rules in a single, cohesive set of regulations: Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, (Uniform Guidance) published at 2 C.F.R. § 200 et seq. While federal entities were required to comply with the new requirements the following fiscal year, OMB gave non-federal entities a three-year grace period. The grace period expired in December, so non-federal entities’ purchasing procedures must be in compliance for their 2018-2019 fiscal year. For non-federal entities whose fiscal years begin on July 1, that deadline is less than two weeks away.

The Uniform Guidance requirements incorporate many rules from the old OMB circulars that may be familiar to those who have procured federal funds in the past. However, the Uniform Guidance also adds new requirements, most notably those requiring internal controls and documenting purchasing procedures. Some of the most important sections of the Uniform Guidance include:

General Purchasing Standards. This section establishes general rules for non-federal entities forpurchases using federal funds, including:

  • Maintaining written records of purchases that provide the rationale for the method of purchase, selection of contract type, contractor selection or rejection, and the basis for the contract price.
  • Maintaining written conflict of interest standards.
  • Monitoring contractors to ensure they perform to the standards of the contract.
  • Additionally, the entity must choose a contractor that is able to successfully perform under the agreement, with consideration given to the contractor’s integrity, record of past performance, resources and other factors.

Competitive Bidding Standards. Non-federal entities must put their contracts out to bid in a manner that does not stifle competition or give a certain contractor an unfair advantage. The entity must have written procedures for bidding which clearly describe the product or service to be purchased. If the entity has a list of prequalified persons, firms, or products, the list must have enough sources to ensure maximum free and open competition.

Five Methods of Purchasing

In addition to the rules for general purchases, the Uniform Guidance requirements provide five purchasing methods that non-federal entities are limited to when using federal funds. Many of these requirements already existed prior to 2013, but they have been relocated within the federal regulations and consolidated with the Uniform Guidance.

  1. Micro Purchases: A purchase using a simplified procedure, where the aggregate price does not exceed the Micro-Purchase Threshold set by 48 C.F.R. Subpart 2.1 (currently $3,500, though subject to change). The non-federal entity need not solicit competitive quotes if it considers a price quote to be reasonable. To the extent practicable, the entity must spread its micro-purchases equitably among the qualified suppliers.
  2. Small Purchase Procedures: A relatively simple and informal purchase procedure. The purchase price cannot exceed the applicable threshold, which can vary based on the type of agency. To use small purchase procedures, the non-federal entity must consider an adequate number of price or rate quotations.
  3. Sealed Bids: A formal advertising process in which the non-federal entity must publically solicit bids. The entity must open all bids at the same time, and a fixed price contract is awarded to the lowest responsible bidder. This is the preferred method for construction contracts.
  4. Competitive Proposals: A bidding process used when sealed bids are not appropriate.
    • Requests for proposals must be publicized and must identify all evaluation factors and their relative importance.
    • Requests for proposals must solicit an adequate number of qualified sources.
    • The non-federal entity must have a written method for evaluating proposals.
    • The entity must award the contract to the responsible firm whose proposal is most advantageous to the entity, taking all factors into account, including price.
    • For architectural and engineering services, the non-federal entity may select the most qualified competitor, regardless of price.
  5. Noncompetitive Proposals: A purchase when a non-federal entity seeks a proposal from only once source. The entity can only use a noncompetitive proposal when:
    • The item is only available from one source.
    • There is a public emergency that prohibits the delay that would result from a competitive bidding process.
    • Competition is determined inadequate after soliciting multiple sources.
    • The federal awarding or pass-through agency explicitly authorizes it.

The full text of the Uniform Guidance can be read here.

Takeaways

For non-federal entities whose upcoming fiscal year begins on July 1, the deadline to comply with the new Uniform Guidance rules is less than two weeks away. These entities should make it a priority to update their administrative policies if they intend to be eligible for federal funds. For school districts, the California School Boards Association has updated its sample Board Policy and Administrative Regulation 3230 to reflect the new rules. However, the samples are a framework rather than finished regulations, and may require additional language to ensure compliance.

For assistance in compliance with the Uniform Guidance requirements or questions about the Uniform Guidance in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Jordan R. Fong

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Alert: California Public Records Act Requests Regarding Lease-Leaseback Procedures

June 2018
Number 23

Many school districts throughout the state have recently received one or more California Public Records Act (CPRA) requests from the California Taxpayers Action Network (CalTAN) and the Carlin Law Group regarding lease-leaseback (LLB) transactions. CalTAN and the Carlin Law Group filed multiple lawsuits against school districts in the past regarding lease-leaseback practices, and this CPRA request may be a precursor to future litigation.

The first of the recent CPRA requests CalTAN and the Carlin Law Group sent to school districts seeks documents related to board authorization of lease-leaseback transactions and payment records. A second CPRA request sent to school districts that provided documents to CalTAN in response to the first request seeks information related to the use of a “skilled and trained workforce,” which is a relatively new requirement for lease-leaseback projects.

Recent Changes in Lease-Leaseback Procedures for School Districts

Over the past several years, there have been multiple appellate court decisions and legislative changes which have affected the laws regarding lease-leaseback projects. School districts should be familiar with such changes, and if necessary should update their policies, practices and documents accordingly.

Lease-Leaseback Court Decisions

CalTAN is a nonprofit organization that participates in litigation against public entities, including in three major lease-leaseback cases described below. The Carlin Law Group appeared as plaintiff’s counsel in all three cases.

In 2015, the Fifth District Court of Appeal (which has jurisdiction in the Central Valley) held that a lease-leaseback contract must contain provisions that reflect contractor financing and post-construction tenancy by the school district. Davis also held that a lease-leaseback contract with an entity that provided preconstruction services under a separate contract could be subject to legal challenge for a potential conflict of interest under Government Code section 1090. (Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261; see 2015 Client News Brief No. 30.)

In 2016, the Second District Court of Appeal (which has jurisdiction in Los Angeles County and certain parts of the Central Coast) agreed with theDavis court about the potential for a conflict of interest in a lease-leaseback contractor’s performance of preconstruction services under an earlier contract, but expressly disagreed with the Davis court regarding terms required for lease-leaseback contracts, ruling that a lease-leaseback contract need not include provisions about contractor financing and post-construction tenancy. (McGee v. Balfour Beatty Construction (2016) 247 Cal.App.4th 235; see 2016 Client News Brief No. 25.)

Most recently, in California Taxpayers Action Network v. Taber Construction, Inc. et al. (2017) 12 Cal.App.5th 115, the First District Court of Appeal (which has jurisdiction in San Francisco and the Northern coastline of California) agreed with the McGee decision, and declined to follow the lease-leaseback holding of Davis and to read Davis’ “genuine lease” and “financing” requirements into the lease-leaseback statute. (See 2017 Client News Brief No. 32.) All three cases agree on the Government Code section 1090 conflict of interest issue, but a conflict exists in different California appellate courts as to what must be contained in an LLB contract.

Legislative Changes

Effective January 1, 2016, Assembly Bill (AB) 566 requires prequalification of contractors and mechanical, electrical, and plumbing subcontractors for all LLB projects for districts with ADA of 2,500 or more, regardless of funding source and regardless of price. AB 566 also requires use of a skilled and trained workforce on lease-leaseback projects, which relates directly to the information sought by CalTAN and the Carlin Law Group. (See 2015 Client News Brief No. 51.)

The most recent modification to lease-leaseback procedures came through AB 2316, which went into effect on January 1, 2017. AB 2316 requires selection of the lease-leaseback contractor through a “best value” procedure specifically laid out in statute. Proposals submitted in response to a request for proposals (RFP) must be ranked by their best value scores and the board must award to the contractor that submitted the sealed proposal determined by the board to be the best value. The bill expressly permits a school district to award a single lease-leaseback contract that includes preconstruction services, apparently attempting to remove any potential conflict of interest issue under Davis and McGee that could result from the award of a preconstruction services contract to the contractor who will be providing construction services. AB 2316 also permits a school district to award the LLB contract for an agreed-upon lump sum or a fee for performing the services. (See 2016 Client News Brief No. 63.)

Takeaways

Lease-leaseback procedures are complicated, and the law regarding lease-leaseback projects has changed significantly over the past several years. School districts may wish to review their policies and practices regarding lease-leaseback projects and consult with legal counsel to ensure full compliance with the most recent laws and regulations. If your school district has received a CPRA request from CalTAN and the Carlin Group regarding lease-leaseback procedures, you may wish to contact legal counsel to assist with providing a timely and compliant response to the request.

If you have any questions about CalTAN and the Carlin Group’s CPRA requests, or lease-leaseback procedures generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

Kelly M. Rem

Partner

Ellen N. Denham

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Another Court Rules that Consultant Contracts May be Void Due to Conflict of Interest

June 2018
Number 21

A school district consultant’s services agreements may be void under Government Code section 1090, even though the consultant is not an officer or employee of the school district. Section 1090 prohibits conflicts of interest in the making of public contracts. InStrategic Concepts, LLC v. Beverly Hills Unified School District, the court ruled that a consultant’s status as an independent contractor rather than an employee did not exempt her from the law’s reach. The trial court will now consider whether section 1090 was in fact violated.

Background

This case is the latest chapter in the saga involving this school district and consultant. The consultant was originally an employee who became an independent contractor, performing essentially the same work for more pay. She was criminally prosecuted after using her independent contractor-consultant position to obtain millions of dollars in school district contracts for her company. The consultant was criminally convicted of violating section 1090, but in 2013 her conviction was overturned by an appellate court in People v. Christiansen because she was not an employee of the school district when the misconduct took place. A later California Supreme Court case, People v. Superior Court (Sahlolbei), overruled the reasoning for the holding inChristiansen and extended section 1090 criminal liability to independent contractors. (See 2017 Client News Brief No. 40.) However, no further criminal action was taken against the consultant because her conviction was overturned prior to Sahlolbei.

After her conviction was overturned, the consultant sued the school district on behalf of her company, Strategic Concepts, for breach of contract because the district declared the contracts void under section 1090 and refused to honor them. The district countersued to recoup the money that had been paid to Strategic Concepts under the allegedly void contracts. The trial court instructed the jury that section 1090 was not violated and the contracts between the school district and Strategic Concepts were not void. The jury awarded the previously convicted consultant $13,710,509 in damages, and the trial court added interest and attorney’s fees to bring the total judgment against the district to more than $20 million.

In reversing the trial court’s ruling, the appellate court noted that the trial court relied on the Christiansen decision to find that section 1090 did not apply to an independent contractor. However, Sahlolbei expressly overruled Christiansen and the basis for the trial court’s decision. Based on the Supreme Court’s ruling and reasoning, the appellate court reversed the trial court decision and adopted the reasoning of Sahlolbei that section 1090 did not exclude independent contractors for civil cases.

Section 1090 Casts a Wide Net

The scope of section 1090 is extremely broad. Strategic Concepts follows other recent California decisions that apply section 1090 to non-employees who inappropriately influence public entities to enter into contracts in which they have a financial interest. (See 2015 Client News Brief No. 30, 2016 Client News Brief No. 29, and 2017 Client News Brief No. 23.) As the California Supreme Court stated in Sahlolbei, section 1090 was intended to “include outside advisors with responsibilities for public contracting similar to those belonging to formal employees.” The law is now clear that section 1090 can apply to independent contractors, and not just elected officials, officers, and employees, in both criminal and civil contexts.

The Strategic Concepts court relied on the California Supreme Court’s recent ruling that a violation of section 1090 does not require actual dishonesty or fraud or an actual loss to the public agency. The key factor is the financial interest of the official, employee, or independent contractor.

Takeaways

  • Section 1090 applies to employees and non-employees, such as independent contractors, consultants and vendors.
  • Violations of section 1090 can result in a contract being void.
  • A contractor will have to return any money or benefits received under a void contract in the event of a section 1090 violation.
  • Public agencies must be mindful of section 1090 when entering into contracts with an individual or business where the individual or business is serving in a role similar to an agency employee and where the individual or business has influenced the making of the contract, particularly where a prior or ongoing relationship exists between the individual or business and the agency.

If you are interested in more information about the Strategic Concepts ruling or have any questions regarding conflicts of interest and section 1090, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

Wesley L. Carlson

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court Confirms That Calculation of Level 1 Developer Fees for Apartment Buildings Includes Interior Common Areas

April 2018
Number 16

A California court has confirmed that school districts are authorized to assess Level 1 developer fees against interior common areas of apartment buildings, including hallways and walkways.

School districts have received pushback from developers regarding whether “assessable space” includes interior common areas. With its decision in 1901 First Street Owner, LLC v. Tustin Unified School District, the court has provided districts with legal authority for imposing fees on such space. The court expressly concluded that its analysis is specific to Level 1 developer fees, and not Level 2 or 3 developer fees, which receive separate statutory treatment in the Government Code.

Developer Fees in California Law

School districts are authorized to levy developer fees against residential construction within their boundaries to fund school facilities. Level 1 fees are charged per square foot of “assessable space,” including “all of the square footage within the perimeter of a residential structure.” (Gov. Code, § 65995.) The building department of the city or county issuing the building permit for residential construction is required to calculate Level 1 fees.

Background

In 1901 First Street Owner, LLC v. Tustin Unified School District, a developer of a residential apartment building challenged the city’s calculation of Level 1 developer fees to be paid to the Tustin Unified School District. The city excluded interior common areas from its initial fee calculation, but recalculated the fees when the District objected. The developer objected to this later fee calculation and filed suit.

The developer argued that only individual apartment units, and not interior common areas-including hallways, storage rooms, mechanical rooms, fitness centers, and lounges-could constitute “assessable space . . . within the perimeter of a residential structure” within the meaning of Government Code section 65995(b)(1). The developer relied on section 65995’s indication that a city or county should calculate the space within the perimeter of a structure based on the city’s or county’s “standard practice” for calculating perimeters, and claimed that the city was correct in excluding interior common areas in its calculation. Thus, the developer contended that the calculation of Level 1 fees should exclude interior common areas. The district disputed such exclusion, taking the position that that the city’s calculation correctly assessed the interior common areas along with the individual apartment units.

The court agreed with the district and confirmed that “assessable space” includes interior common areas. The court noted that the statute explicitly lists examples of exterior areas and notably excludes interior common areas from the list. Aside from walkways, the exterior areas listed were typically located at or near the periphery of a residential structure. Therefore, a “walkway” under the statute means an internal walkway and not an interior hallway.

Additionally, the court distinguished the meaning of “standard practice” under Government Code section 65995(b)(1) from the developer’s argument that the city’s “standard practice” was to exclude interior common areas from the calculation. The court stated that, under the statute, “standard practice” meant the city’s calculation of square footage “within the perimeter of a residential structure,” including interior common areas.

Takeaways

In an environment where courts have issued several developer-friendly decisions in recent years, this case can be viewed as good news for school districts. The results of 1901 First Street confirm the position taken by many of our school district clients that interior common areas are properly included in the calculation of Level 1 fees.

As of January 24, 2018, school districts may charge up to $3.79 per square foot of residential development. School districts should ensure that cities calculate Level 1 fees based on the square footage of both individual apartment units and interior common areas.

Lozano Smith’s Developer Fee Handbook addresses imposition of developer fees and related procedures. School districts that have not previously ordered the Handbook or need replacement or additional copies can order the Handbook here or by contacting Client Services at clientservices@lozanosmith.comor (800) 445-9430.

If you have any questions about the court’s ruling or about developer fees in general, please contact the authors of this Client News brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Lauren Kawano

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Eases Path to School Employee Housing

February 2018
Number 5

As a result of California’s affordable housing crisis, school districts face challenges in retaining teachers and school district employees, particularly in regions with high housing costs. California lawmakers sought to address the problem by proposing Assembly Bill (AB) 1157 and AB 45 to make it easier for districts to promote housing development for district employees, though Governor Jerry Brown vetoed the latter bill.

AB 1157 was part of a package of 15 housing bills approved by lawmakers that became effective on January 1, 2018. ( See 2017 Client News Brief No. 81.) While most of the bills were not focused specifically on school employee housing issues, they have the potential to substantially impact school districts by creating an influx of new students.

AB 1157: School Surplus Property Use for Teacher Housing

Effective January 1, 2018, AB 1157 exempts school districts from the requirement that they establish a property advisory committee to consider declaring property surplus if the district intends to use the surplus property for employee rental housing. Education Code sections 17388 and 17391 require the governing board of a school district to appoint a school district advisory committee (commonly known as a “7-11 Committee” for the number of positions on the committee) prior to the sale, lease, or rental of surplus real property, with limited exceptions. AB 1157 adds language to Education Code section 17391 to create an exception to this requirement for the sale, lease, or rental of real property that is to be used for teacher or district employee housing.

This new law also provides that school or community college district property used for teacher or district employee rental housing are tax exempt.

AB 1157 also adds language to Education Code section 17456 regarding the financing of school district employee housing projects. That statute exempts certain sale/saleback and lease/leaseback property transactions from the full surplus property process, including notice and offer requirements and either competitive bidding or a waiver of the bidding requirement from the State Board of Education, so long as proceeds from the transaction are used for construction, reconstruction, or renovation of school facilities or to acquire property for use as a school site. The statute now also specifies that “the construction, reconstruction, or renovation of rental housing facilities for school district employees” is a permissible capital outlay expenditure.

The express legislative intent behind AB 1157 was to exempt school district property to be used for teacher or district employee housing from the surplus property process. According to the author of the bill, such housing serves an “educational purpose,” and is therefore not surplus property. It seems that by adding language regarding employee housing projects to a statute that already exempted certain transactions from the surplus property process, the bill’s author intended to exempt employee housing projects from that entire process. It is unclear, however, whether the revised statute as written provides a blanket exemption for all school district employee housing projects regardless of the type of transaction or financing mechanism employed, or if some employee housing projects may be ineligible for the exemption.

AB 45: California School Employee Housing Assistance Grant Program

AB 45 would have created a $25 million fund for school district employee housing development, but the bill was vetoed by Governor Brown. In his veto message, the Governor noted that he recently signed Senate Bill (SB) 2, which made funds available for local government planning purposes. Rather than creating a new housing program with AB 45, the Governor concluded that districts could work with local governments and the California Housing Financing Authority to maximize funding from SB 2. Unfortunately, this makes local school districts more reliant on other local agencies to achieve funding support for employee housing projects, when those other agencies may be competing for the same dollars.

2017 Housing Bill Package: School Districts May Feel Impacts

The package of housing bills approved by lawmakers in 2017 will make it more difficult for local public agencies to say no to housing projects and will streamline review of certain types of housing development, limiting public input in the approval process. Many school districts attempt to address overcrowding concerns during California Environmental Quality Act (CEQA) review of development projects. Now, the time in which to address school capacity concerns or even the opportunity to do so will be curtailed.

School districts should be prepared to engage in further advance planning to address capacity issues and should stay informed about housing development proposals within their boundaries. The earlier an affected district gets involved in the process, the better prepared the district will be to handle capacity issues and to address the impact of development with the city or county and the developer. Additionally, if housing does create a rapid influx of students, districts may have to engage in school facility planning earlier than in the past.

School districts that qualify for Level 2 developer fees may need to be prepared to review and update their School Facility Needs Analysis (SFNA) more than once per year in order to keep pace with the impacts of the expedited housing bills.

Takeaways

While AB 1157 was intended to streamline the process for approval of employee housing projects, a host of challenges await school districts seeking to embark on such projects. Challenges include collective bargaining implications, tax consequences, and local government oversight. In light of the possible ambiguity in the new law and the aforementioned challenges, school districts may wish to consult with their legal counsel before embarking on employee housing. Lozano Smith has an Employee Housing Working Group, and is ready to assist with these complex considerations.

With the Legislature back in session, lawmakers are proposing new housing bills that could further alter the local development landscape. Lozano Smith will be closely watching the progress of these bills in the event that any become law.

For more information on how school districts can prepare for the effects of these new laws, please contact an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

Devon B. Lincoln

Partner

lauren Kawano

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State Allocation Board Adopts Developer Fee Increases

February 2018
Number 3

The State Allocation Board (SAB) has increased the amount of “Level 1” developer fees that school districts are authorized to collect to $3.79 per square foot of residential development and $0.61 per square foot of commercial development. The increase takes effect immediately, and may now be implemented by school districts through local action.

The new rates, which the SAB approved on January 24, 2018, represent an 8.78 percent increase over the maximum amounts authorized as of February 2016. The SAB based its increase on the RS Means cost index for Class B construction.

Government Code section 65995 authorizes the SAB to increase the amount of Level 1 developer fees that school districts are authorized to collect. Such an increase may be adopted in every even-numbered year. The SAB increase does not affect “Level 2” developer fees, which a school district must adopt annually based on its own school facilities needs analysis. The change also does not affect “Level 3” fees, which school districts may only collect when the SAB certifies that state funds for new school facility construction are no longer available.

Based on this and other legal developments, Lozano Smith is preparing an update for the firm’s publication, Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California. The handbook is intended to help school districts reduce their legal costs by providing comprehensive information regarding California law and process for school impact fees. The handbook contains procedures, timelines, checklists, and forms to be used when adopting and implementing fees and/or increases.

Lozano Smith is making the handbook available at a cost of $100 to public school districts that are also clients of Lozano Smith. The handbook will be available to non-client public school districts at a cost of $200. Non-public agencies can purchase the handbook at the full price of $300. Districts wanting a second or replacement copy may request one for $75. School districts may order the handbookhere. For more information on the Developer Fee Handbook, or to order a copy, you may also contact our Client Services department at clientservices@lozanosmith.com or call (800) 445-9430.

If you have any questions regarding the adoption or implementation of fee increases or any other developer fee issue, please contact an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold M. Freiman

Partner

Kelly M. Rem

Partner

Ellen N. Denham

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Tax Bill Eliminates Advance Refunding Opportunities

January 2018
Number 1

On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act of 2017, putting into place the most sweeping tax reform seen in three decades, including significant cuts to corporate and individual tax rates. The new law also effectively eliminates a critical tool local agencies have long used to save taxpayers money.

The tax bill eliminated the tax-exempt status of advance refunding bonds, effectively ending their use by local government agencies. Local agencies may still issue them, but the interest is no longer tax exempt for bondholders. The revocation of this long-standing subsidy eliminates a tool that local government agencies, including school and community college districts, have used to restructure existing debt and provide savings to taxpayers.

An advance refunding occurs when issuers replace outstanding bonds with new bonds with a lower interest rate before payment of the original bonds is fully due. Borrowers advance refund their outstanding debt to take advantage of a favorable interest rate environment. Such an approach results not only in a reduction of borrowing costs, but may also free up resources for new projects.

Since 1986, federal tax law has permitted governmental bonds to be advance refunded once. Under the new tax bill, one of the key advantages to advance refundings-tax exempt status- will no longer exist.

Lozano Smith has expertise in public finance matters, serving as bond counsel on more than $1 billion in school district and community college district bond issues. Lozano Smith will be conducting school bond workshops across the state, covering topics that include:

  • Elections: Timelines and requirements
  • Bonds: Types, validity and tax treatment
  • Roles and Responsibilities: Committees, consultants, and counsel
  • Disclosure and Record Keeping: Regulations and legal considerations
  • Statewide Bond: Matching and impact

If you have any questions regarding the tax bill’s impact on your agency, please contact an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

School District Bid Threshold Raised for 2018

December 2017
Number 85

School districts’ bid threshold for purchases of equipment, materials, supplies and services (except construction services) has been adjusted to $90,200, effective January 1, 2018. This represents an increase of 2.20 percent over the 2017 bid limit. The notice may be viewed here.

Under Public Contract Code section 20111(a), school districts must competitively bid contracts over the bid limit and award to the lowest responsible bidder, unless an exception applies. Contracts for amounts that fall under the bid limit may be awarded without competitive bidding.

The California Community Colleges Chancellor’s Office is expected to announce a similar adjustment to the bid threshold for community college districts’ purchases of equipment, materials, supplies and services except construction services, pursuant to Public Contract Code section 20651(a), sometime in the next few days. Once released, that information will be available here.

The bid limit for construction projects remains at $15,000.

The bid thresholds for cities, counties and special districts are not affected by the bid limits discussed here.

For more information on the new bid limits or bidding in general, please contact an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Ruth E. Mendyk

Partner

Michael Dunne

Paralegal

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Squeezes Local Ballot Measures for Bonds

December 2017
Number 82

A significant new law will require local public agencies to include additional information in summary statements for local ballot measures that raise taxes, including school district general obligation bond measures. Assembly Bill (AB) 195 will amend section 13119 of the Elections Code by requiring summary statements for all local ballot measures that impose or raise a tax to include the amount of money the tax will raise annually and the rate and duration of the tax to be levied. The new law goes into effect on January 1, 2018, and affects measures already approved for an election to be held after that date.

This requirement will apply to all local tax measures, whether submitted to the voters by a local governing body such as a school district governing board or City Council or by citizens through the initiative process. In addition to general obligation bonds, AB 195 also applies to local sales and parcel tax measures.

According to its author, AB 195 was meant to fix a drafting error in an earlier ballot transparency bill, AB 809 (2015), which was intended to apply to all local measures but was found by a court to apply to citizen-backed initiatives only.

As a result of AB 195, the precious real estate of the summary statement, which is limited to 75 words, becomes less available as an opportunity to meaningfully communicate the purposes and works that will be funded by the taxes.

The new law could also pose compliance challenges for local agencies seeking to place bond measures on the ballot. Unlike a parcel tax measure, for which both the rate and duration of the resulting tax are ascertainable on Election Day, bond issues are subject to market forces that can make this information difficult to predict. While it would be possible to estimate tax rate and duration based on an estimated first series of bonds, because of future market conditions, changes in assessed value, construction costs, time of issuance, and size of issuance, efforts to quantify the rate and duration of a tax to fund anything beyond is extremely challenging. Public agencies will need to work closely with their bond counsel and consultants to address these and other issues raised by AB 195.

Lozano Smith has expertise in public finance matters, serving as bond counsel on more than $1 billion in school district and community college district bond issues. Lozano Smith will be conducting School Bond Workshops across the state, covering topics that include:

  • Elections: Timelines and requirements
  • Bonds: Types, validity and tax treatment
  • Roles and Responsibilities: Committees, consultants, and counsel
  • Disclosure and Record-keeping: Regulations and legal considerations
  • Statewide Bond: Matching and impact

If you have any questions regarding the applicability of AB 195 to your measures, compliance with AB 195, or about navigating a future bond campaign, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Daniel Maruccia

Partner

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Laws Enhance Role of Student School Board Members

October 2017
Number 63

On September 25, 2017, Governor Jerry Brown signed two bills aimed at giving a stronger voice to student board members of school district governing boards. Assembly Bill 261 confers voting rights upon all student board members, while Senate Bill 468 enhances a student board member’s access to board materials. Both bills go into effect on January 1, 2018.

Assembly Bill 261: Voting Rights for All Student Governing Board Members

Existing law requires the governing board of a school district with one or more high schools, upon the receipt of a pupil petition for pupil representation, to order the inclusion of at least one student board member. The petitioner may request that the board add either a nonvoting student member or a preferential voting student member. Preferential voting rights give a student board member the right to vote on motions before the other board members vote, but the student’s vote is not considered in determining whether a motion passes. Assembly Bill (AB) 261 amends Education Code section 35012, subdivision (d) to provide all student board members preferential voting rights.

The bill maintains the existing requirement that a student board member’s vote be cast before the official vote of the governing board. Even though the student board member’s vote does not count toward the final numerical outcome of the vote, it must be recorded in the meeting minutes. This procedural order is intended to ensure that student board members’ opinions are taken into account before a board vote.

Senate Bill 468: Students to Receive More Timely Access to Board Materials

Senate Bill (SB) 468 amends Education Code section 35012 to require that school districts provide open meeting materials to student board members at the same time as other school board members. The bill also requires school officials to invite student board members to any staff briefings provided to other board members, or to provide a separate staff briefing to student board members within the same time frame as other board members’ briefings. While the changes will provide student members more timely access to information, the bill’s provisions are limited to open meetings and do not provide student members the right to attend closed sessions or receive information related to closed sessions.

Takeaways

These new bills are intended to enhance the role of student school board members. Any school district that has a student board member will be required to grant him or her preferential voting rights and can no longer have student members who are nonvoting. The student board member’s preferential vote must be cast before the official board vote. Any open meeting materials or briefings that are provided to school district board members must also be provided to the student board member in the same time frame.

For more information on AB 261 or SB 468 or on board governance in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold H. Freiman

Partner

Mark Murray

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Laws Update Nutrition Program Purchasing Rules

October 2017
Number 62

Governor Jerry Brown has signed four bills that update purchasing rules related to school food and nutrition programs and improve access to healthy food. Each of these bills will take effect January 1, 2018.

Senate Bill 544: Bill Offers Clarity on Food Contract Award Rules

Senate Bill (SB) 544 resolves an inconsistency between state and federal law regarding the award of contracts in support of child nutrition programs by clarifying that school districts can consider factors other than price in awarding these contracts. This new law provides school districts with flexibility in purchasing items and services for their child nutrition programs.

Existing state law requires school districts to award any contract involving an expenditure that is over the bid limit (currently $88,300) for the purchase of equipment, materials, supplies or services, other than construction services, to the lowest responsible bidder. As a condition of the receipt of federal funds for child nutrition programs, school districts must also comply with federal regulations that permit the consideration of factors in addition to price. The factors include contractor integrity, compliance with public policy, record of past performance and financial and technical resources. These differences between state and federal requirements have been a source of confusion for many districts.

SB 544 provides some clarity by modifying section 20111, subdivision (c) of the Public Contract Code to expressly allow school districts to follow federal regulations and to consider other factors in addition to price in awarding contracts in support of their federally-funded child nutrition programs. Under the new state law, price must be the primary consideration, but it does not have to be the only determining factor.

Senate Bill 557: Schools Permitted to Donate Uneaten Food

SB 557 will allow local educational agencies to provide “sharing tables” where faculty, staff and students can place prepackaged food items, uncut produce and unopened bags of sliced fruit and cartons of milk to be donated to a food bank or other nonprofit charitable organization. This bill exempts these foods from the current California Retail Food Code regulations, which prohibit food that is unused or returned after being served or sold and in the possession of a consumer, from being offered as food for human consumption. Food placed on sharing tables must first be offered to students during regular meal times before it can be donated. (See Ed. Code, §§ 49580 et seq. and Health & Saf. Code, § 114079.)

Senate Bill 730: State Will Monitor Compliance with “Buy American” Provision

SB 730 will require the California Department of Education to monitor whether school districts receiving a federal subsidy to provide free and reduced price meals are complying with the “Buy American” provision in the federal National School Lunch Act, which requires school food authorities to purchase, to the maximum extent possible, domestic commodities or products. This bill also requires the Department to provide requirements, resources and best practices on its website and to distribute federal guidance and regulations related to the Buy American provision. (See Ed. Code, § 49563.) This bill does not implicate the separate California Buy American Act that was found to be unconstitutional because it is preempted by federal law.

Assembly Bill 836: Schools May Dispense Juice from Vending Machines

Assembly Bill (AB) 836 authorizes the state Department of Public Health (DPH) to modify previous requirements of the California Retail Food Code that prohibit the dispensing of certain bulk foods from vending machines. Specifically, the bill requests that DPH modify this prohibition to permit juice stored in bulk containers to be dispensed from a vending machine under certain conditions. These specialty vending machines are purported to offer healthy food options to customers by making it easy and convenient to access freshly made vegetable and fruit juices. (See Health & Saf. Code, § 113936.)

For more information on these bills or on law governing school nutrition programs in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Alyse Pacheco

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lead-Safe Schools Protection Act: The Continuing Duty to Address Lead

October 2017
Number 61

Schools, colleges and other local and state agencies have a continuing obligation to address lead in the course of new construction, modernization and maintenance projects. Various provisions of California law found in the Lead-Safe Schools Protection Act, the Health and Safety Code and Title 17 of the California Code of Regulations ban the use of materials containing lead in new construction and require that public agencies use properly trained and certified personnel to plan for and address existing materials containing lead that will be disturbed during the course of modernization and maintenance projects.

Voters’ approval of the Proposition 51 state school bond in November 2016 and of more than 200 school and community college district bond measures are contributing to a new wave of public works construction. When undertaking these projects, public agencies should remain vigilant in enforcing the ban on lead in their new construction projects and complying with current regulations to address existing materials containing lead in modernization and maintenance projects.

The Lead-Safe Schools Protection Act

Enacted in 1992, the Lead-Safe Schools Protection Act (the Act) implemented a program of prevention and protection for California public elementary and preschools and related day care facilities. The Act focuses on protecting the youngest students because lead is highly toxic and exposure is particularly dangerous for children ages six or younger.

The Act required the former Department of Health Services (now the Department of Public Health) to conduct a sample survey of California schools to identify risk factors to predict lead contamination. Risk factors included location in relation to high-risk areas, age of facilities and likely use of lead paint, numbers of children enrolled under the age of six and results of lead screening programs. Based on the survey results, which were released in 1998, the Department estimated that nearly 96 percent of schools had some lead paint, more than 18 percent had lead in drinking water at or above the federal action level and six percent had lead levels in soil that exceeded federal standards.

Lead hazards can include lead-based paint or paint presumed to be lead-based (applied before 1978) that is deteriorated or disturbed, lead-contaminated dust or soil or any other nuisance which may result in persistent and quantifiable lead exposure. Lead activities include abatement, hazard evaluation, construction work or any activity which disturbs paint known or presumed to contain lead, or creates a lead hazard.Lead-related construction work means any construction, alteration, painting, demolition, salvage, renovation, repair or maintenance of any public building, including preparation and cleanup, which by using or disturbing materials or soil containing lead may result in significant exposure to adults or children.

Independent of the Act, provisions of the California Health and Safety Code provide that the Department or other local enforcement agency may order a public agency to abate or otherwise correct a lead hazard that exists or is being created on the public agency’s property, and may issue a cease and desist order. Failure to comply with such an order can result in a fine of up to $1,000 for the first violation, and up to $5,000 and imprisonment in county jail for up to six months for each subsequent violation, in addition to other penalties and remedies allowed by law.

Takeaways

To comply with the Act, school districts must not use materials containing lead, including paint, plumbing and solders, in the construction of any new school facility or modernization or renovation of existing school facilities. Districts must also utilize trained and state-certified contractors, inspectors and workers in any abatement action.

For more information on the Lead-Safe School Protection Act or on public agency construction in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.
Written by:

Devon B. Lincoln

Partner & Co-Chair

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Two New Laws Intended to Address Teacher Shortage

September 2017
Number 54

Governor Jerry Brown signed two bills intended to ease California’s teacher shortage. Assembly Bill (AB) 681 seeks to expedite processing of credential applications for teachers who studied in other countries, while AB 170 eliminates the requirement that an applicant for a multiple subject teaching credential possess a bachelor’s degree in a subject other than education.

Both laws take effect January 1, 2018.

AB 681 will give the Commission on Teacher Credentialing (CTC) the authority to deem other countries’ national standards for coursework, programs or degrees equivalent to those offered by a regionally accredited institution in the United States. This allows a potential employee who holds or is eligible for a credential in another country to have satisfied California’s teaching credential requirements. For some job candidates, this will shortcut the case-by-case process of foreign transcript evaluation, and quickly move them into classrooms.

The bill will require the CTC to adopt regulations that establish uniform standards and procedures for determining whether another country’s national standards are considered equivalent to California’s.

The bill will also require school districts, county offices of education and charter schools applying for visas for potential employees to report annually to the state Department of Education the number of visas applied for and the number granted to certain nonimmigrant alien job candidates.

AB 681 also modifies the requirement that county boards of education obtain a CTC certificate of clearance before issuing a temporary certificate authorizing classroom service-a relatively new requirement imposed by 2016’s AB 1918 that had unintended impacts on teachers adding new subject areas to an existing credential. AB 681 will allow teachers with a “credential, certificate or permit authorizing the performance of services in public school” to obtain a temporary certificate without first receiving a certificate of clearance from the CTC.

AB 170 eliminates the requirement that a candidate for a multiple subject teaching credential or preliminary multiple subject teaching credential must possess a baccalaureate degree in a subject other than professional education. Eliminating this requirement allows students who earn a degree in education to more quickly complete a credentialing program.

If you have any questions about AB 681 or AB 170 or teacher credentialing in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Dulcinea A. Grantham

Partner & Co-Chair

Roxana R. Khan

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Environmental Review Not Necessarily Required Prior to Approval of a Real Property Purchase Agreement

September 2017
Number 49

The Fourth District Court of Appeal has ruled that the execution of a purchase and sale agreement for real property that is contingent upon compliance with the California Environmental Quality Act (CEQA) does not trigger a public agency’s duty to prepare an environmental impact report (EIR) under CEQA.

The California Environmental Quality Act

CEQA is a complicated body of law which requires public entities to consider environmental effects of their projects before approving them. This generally involves a three-step process where the agency must first determine whether a given activity is a “project” governed by CEQA. If so, the second step is to determine whether the project is exempt under either a statutory or categorical exemption, and if no exemption applies, the public agency proceeds to a third step of considering whether the project may have a significant effect on the environment. If all impacts are insignificant or can be mitigated to a level of less than significant, the agency may prepare a negative declaration. If the possibility of an unmitigated impact remains, then a more extensive EIR is required.

Background

In Bridges v. Mt. San Jacinto Community College District, the governing board of a community college district approved an agreement to purchase real property, contingent on CEQA compliance. A pair of citizens sued, alleging the district was required to prepare an EIR before executing the agreement. Both the trial court and the Court of Appeal disagreed, confirming that a public agency is not required to complete CEQA review prior to entering into an agreement to acquire real property, as long as the acquisition is contingent on completion of CEQA review. The appellate court held that CEQA requires the preparation of an EIR before the purchase of real property is final, but not before merely executing a purchase and sale agreement contingent upon CEQA compliance.

This exception to CEQA review, however, is narrowly construed. An agency cannot hide behind a contingent purchase and sale agreement to postpone preparation of an EIR. The applicable legal test is whether an agency has committed itself to a definite course of action. No definite course of action can be approved before the EIR is prepared, and a real property purchase and sale agreement contingent upon CEQA review alone is not a definite course of action. Once a definite course of action is taken by a public agency, however, CEQA requirements are triggered. For example, California’s CEQA guidelines authorize a public agency to enter into a land acquisition agreement if it has conditioned future use of the land on CEQA compliance, so long as it has not already approved the use of the site or specific facilities, which would require CEQA review. As long as an agency does not engage in any such action or agreement that would commit it to a definite course of action regarding a specific site, CEQA review is not required before executing a purchase and sale agreement for real property contingent upon CEQA review.

Tips to Avoid a Finding of a Definite Course of Action

  • Agencies should not commit any funds to a project, including loans to contractors or developers, until the preparation of an EIR is complete.
  • Agencies should avoid engaging developers in contract, or drafting detailed development plans, before an EIR is completed.
  • A governing body can pass a resolution selecting a specific site for construction and directing administration to make a purchase offer contingent on completion of the EIR process.
  • Governing bodies should not make public comments that may be construed as commitment to a project for which there is no EIR. Comments regarding hopes that a project will come to fruition or a project’s possibilities are acceptable.

If you have any questions about the Bridges decision or CEQA in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Jennifer Grant

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lawmakers Extend Deadline for Proposition 39 Energy Efficiency Funding and Create New Program

July 2017
Number 42

State lawmakers have extended the deadlines to apply for and encumber money dedicated to energy efficiency projects at schools and community colleges – the program known as Proposition 39 – and have created a new program to fund such projects indefinitely.

Proposition 39 was scheduled to sunset June 30, 2018. Now, Senate Bill (SB) 110 has extended the deadline for encumbering Proposition 39 funds by one year, to June 30, 2019. At the same time, the bill creates the Clean Energy
Job Creation Program, which will administer funds for energy efficiency projects at school districts, charter schools, county offices of education and community colleges. The program opens for business at the start of the
2018-19 fiscal year.

After the bill’s passage, the California Energy Commission sent out a notice extending the deadline for submitting an energy expenditure plan to January 12, 2018. The original deadline had been August 1, 2017. Amendments to an existing energy expenditure plan that request additional funds must also be submitted by January 12, 2018.

Under SB 110, in order to take advantage of Proposition 39, agencies now have until June 30, 2019 to encumber those funds. The California Energy Commission defines “encumbrances” as “obligations in the form of purchase orders, contracts, salaries, and other commitments chargeable to an appropriation for which a part of the appropriation is reserved.”

After March 1, 2018, SB 110 reappropriates the remaining money in the existing Proposition 39 fund based on the number of school districts, charter schools and county offices of education that have not yet submitted energy expenditure plans. The bill devotes $75 million to loans or grants for school bus replacements or retrofits, prioritizing funding to agencies with the oldest school buses or those operating in disadvantaged communities. It also authorizes $100 million for low- and no-interest revolving loans for projects and technical assistance aimed at expanding clean energy generation and improving energy efficiency, prioritizing funding based on diversity in geographic and agency size, energy savings and the percentage of low-income students served.

Any remaining money from Proposition 39 will be used to provide competitive grants to school districts, charter schools and county offices of education for energy efficiency and generation projects, with 10 percent going to education agencies with 1,000 or fewer students, 10 percent going to agencies with between 1,001 and 2,000 students and the rest going to larger education agencies.

Under the new Clean Energy Job Creation Program beginning in 2018-19, 11 percent of available funds will be allocated to the Chancellor of the California Community Colleges for distribution to community college districts for energy efficiency projects, and the California Energy Commission will distribute the rest to school districts, charter schools and county offices of education.

Projects will be selected based on in-state job creation and energy benefits. Priority for grants made through the new program will be given based on the number of students eligible for free and reduced-price meals, geographic diversity, school type and local area workforce needs. Funding will be available as appropriated in the annual budget act. Both the reallocated funds and money provided to local education agencies under the new program must be encumbered within nine months of allocation to those agencies.

Lozano Smith will provide additional details about the new program as they emerge. If you have any questions about SB 110, Proposition 39 or energy efficiency projects in general, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Travel Ban Does Not Apply to Local Agencies

July 2017
Number 41

A California law that bars state agencies from funding travel, and from requiring employees to travel, to states that permit discrimination on the basis of sexual orientation, gender identity or gender expression – and Attorney General Xavier Becerra’s recent expansion of the list of states covered by the ban – have raised questions regarding whether the law applies to cities, counties, school districts and community college districts.

While there is no definitive legal guidance on the issue, the law expressly applies to state agencies, departments, boards, authorities and commissions, including the University of California and the California State University system. As “state agencies,” it appears the law also applies to the California Community Colleges Chancellor’s Office and the California Department of Education. AB 1887 does not state that it applies to cities, counties, school districts or community college districts, nor do these entities appear to be state agencies under the law.

The acting general counsel of the California Community Colleges Chancellor’s Office agrees: In a June 29 legal update, he said that while the restrictions apply to the chancellor’s office itself, community college districts are local education agencies that are not covered by the ban. Still, the letter cautioned local community college districts that the chancellor’s office may not be able to approve a request for state-funded travel to any of the states covered by the ban.

Effective January 1, 2017, Government Code section 11139.8 (enacted by Assembly Bill (AB) 1887) prohibits California state agencies, departments, boards, authorities and commissions from requiring any state employees, officers or members to travel to other states that permit discrimination on the basis of sexual orientation, gender identity, or gender expression and also, from approving a request for state-funded or state-sponsored travel to a state that has passed such a law.

AB 1887 prohibits travel to any state that has enacted a law after June 26, 2015 that voids or repeals existing state or local protections against discrimination on the basis of sexual orientation, gender identity or gender expression or permits discrimination against same-sex couples or their families on those bases.

The original list of states covered by the ban included Kansas, Mississippi, North Carolina and Tennessee. On June 22, Becerra added Alabama, Kentucky, South Dakota and Texas to the list after those states approved laws that permit such discrimination.

Exceptions to the travel restrictions include:

  • Enforcement of California law, including auditing and revenue collection;
  • Litigation;
  • To meet contractual obligations incurred before January 1, 2017;
  • To comply with requests by the federal government to appear before committees;
  • To participate in meetings or training required by a grant or required to maintain grant funding;
  • To complete job-required training necessary to maintain licensure or similar standards required for holding a position, in the event that comparable training cannot be obtained in California or a different state not subject to the travel prohibition; and
  • For the protection of public health, welfare or safety, as determined by the affected agency, department, board, authority, commission or legislative office.

If local government agencies intend to use state grant money for travel to any of the states covered by the ban, they should check to determine if the travel restrictions are included as a condition of the grant. In addition,
local agencies may have adopted their own policies that mirror AB 1887.

Additional information about AB 1887 and the states the travel ban applies to is available on the Attorney General’s website. For more information on AB 1887, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Stephanie M. White

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State’s Top Court Rules that Contractors Can be Prosecuted for Conflict of Interest

July 2017
Number 40

The California Supreme Court has ruled that an independent contractor can be criminally liable for a conflict of interest under California Government Code section 1090, expanding the universe of penalties a contractor can face for violating the statute and reversing a prior appellate court ruling that exempted contractors from criminal liability for such conflicts.

The Court’s decision in People v. Superior Court (Sahlolbei) (June 26, 2017, No. S232639) ___ Cal.5th ___ only applies to independent contractors who have been entrusted with entering into transactions on behalf of the public agency. But due to an expansion of government and public contracting in which regular employees and even consultants can have control over the public purse, the decision has broad implications for all California public agencies.

Section 1090 prohibits public officers and employees from making contracts in which they have a financial interest when acting in their official capacities. Generally, any contract made in violation of section 1090 is void and cannot be enforced. Criminal penalties for a willful violation include a fine of up to $1,000 or imprisonment, and a lifetime ban on holding public office.

Hossain Sahlolbei worked as a surgeon at a Riverside County hospital and served on the hospital’s executive committee, both in an independent contractor capacity. Sahlolbei negotiated a $36,000 per month contract with an anesthesiologist at the committee’s behest plus $10,000 for moving expenses. He then pressured the hospital to hire the anesthesiologist for $48,000 a month, with $40,000 for moving expenses. Sahlolbei instructed the anesthesiologist to deposit his paychecks into Sahlolbei’s bank account, and the surgeon paid the anesthesiologist $36,000 a month and pocketed the rest. He was later charged with violating section 1090.

In reversing the appellate court’s judgment dismissing the charge, the Supreme Court held that independent contractors are not categorically excluded from prosecution under section 1090 and that an independent contractor who has been retained or appointed by a public agency and whose actual duties include engaging in or advising on public contracting is charged with acting on the agency’s behalf. This makes such contractors fully subject to the statute. The Supreme Court found that Sahlolbei violated section 1090 because there was evidence that hospital leadership asked him to assist in identifying doctors to recruit to the hospital, which he actually did and directly profited from.

As the Supreme Court provided in a hypothetical, a stationery supplier that sells paper to a public agency would ordinarily not be liable under section 1090 if it advised the agency to buy pens from its subsidiary, because the
supplier was not engaging in a transaction on the agency’s behalf. However, a person who was initially hired by an agency as an officer or employee with contracting responsibilities and then rehired as an independent contractor to perform the same duties would be subject to section 1090.

The Court also expressly reversed the Second District Court of Appeal decision in People v. Christiansen (2013) 216 Cal.App.4th 1181 (Christiansen), reasoning that the Legislature intended for section 1090 to apply to certain contractors in both the civil and criminal liability contexts. In Christiansen, a school district’s planning and facilities director, who served the district as an independent contractor, was prosecuted for violating section 1090 after she advised the school district to hire her consulting company for facilities management services, among other self-dealings. The appellate court held that prior courts’ expansion of the statutory term “employees” to apply to independent contractors made them civilly but not criminally liable under section 1090. The Supreme Court disagreed with that conclusion.

Since Christiansen, California courts have applied civil liability under section 1090 to independent contractors in a series of “lease-leaseback” cases involving companies that provided “preconstruction” consulting services to school districts that later hired them as lease-leaseback contractors. (See 2017 Client News Brief No. 32,
2016 Client News Brief No. 29 and 2015 Client News Brief No. 30.) The Supreme Court decision in Sahlolbei raises the possibility that such contractors can now be either or both civilly and criminally liable under section 1090.

The Supreme Court limited its decision by refusing to express a view on whether an independent contractor can be held criminally liable under section 1090 for conduct that occurred during the time frame between the decisions in Christiansen and Sahlolbei.

Public agencies should be aware that independent contractors, including consultants, cannot “change hats” to obscure their participation in public contracting. In reviewing any transaction between an independent contractor and a public agency for a conflict, the focus should be on the substance, not the form, of the transaction. Transactions in which a public agency hires a consultant to perform work about which the consultant previously advised the public agency as well as those in which a public agency hires a former employee as a consultant when both roles include similar work are particularly prone to conflicts of interest and should be carefully evaluated for legality prior to any engagement.

If you have any questions about this decision or conflict of interest law in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Iain J. MacMillan

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Agencies No Longer Required to Contract with DIR Registered Contractors for Small Projects

July 2017
Number 38

Senate Bill (SB) 96, passed this June as part of the California state budget, contains provisions designed to encourage more contractors to participate on small public works projects.

Public works projects under $25,000 and maintenance projects under $15,000 are now exempt from the requirements of the Department of Industrial Relations (DIR) registration program. The new law also permits contractors to register for up to three years in advance and imposes new penalties on contractors found to be in violation of the registration requirements. The deadline for public agencies to provide notice to DIR of new public works projects has also been extended from five to 30 days from the date the contract was awarded.

Prior Law

Since April 1, 2015, all contractors have been required to register with the DIR and to pay an annual registration fee of $300 in order to bid on or be awarded a public works project, regardless of whether the project was competitively bid. Some public agencies have experienced difficulty in identifying contractors willing to comply with the registration requirements, especially where the contemplated project is relatively small. In order to assist DIR in monitoring prevailing wage compliance, public agencies were required to provide notice to DIR within five days of the award of any public works contract. (See 2014 Client News Brief No. 43.)

Changes Made by SB 96

SB 96 amended Labor Code § 1725.5 to exempt public works projects, including construction, alteration, demolition, installation or repair work, of $25,000 or less and maintenance projects of $15,000 or less from the DIR registration and electronic certified payroll reporting requirements, effective July 1, 2017. This change is intended to encourage more contractors to participate on small public works projects. The law also increases the registration fee from $300 to $400 but will allow contractors to register or renew their registration for up to three years at a time beginning June 1, 2019.

Labor Code § 1773.3 has also been amended to provide more flexibility to local governments in providing DIR with notice of a new public works project. Public agencies now have 30 days from the date a public works contract was awarded to file the required notice with DIR.

Beginning January 1, 2018, new penalties will apply to any contractor or subcontractor found to be in violation of the registration requirements. Labor Code § 1771.1 now provides that contractors and subcontractors found to have engaged in work on a public works project without being registered may be assessed a $100 penalty for each day of work performed in violation of the registration requirements, up to a maximum of $8,000. Contractors or subcontractors found to have entered into a subcontract with an unregistered lower tier subcontractor could be assessed similar penalties.

Additionally, DIR is required to issue a stop order prohibiting the use of the unregistered contractor or subcontractor on all public works until that contractor or subcontractor complies with the registration requirement. A contractor or subcontractor’s violation of such a stop order is a misdemeanor punishable by imprisonment of up to 60 days in jail and a $10,000 fine.

If you have questions regarding these changes to the DIR registration program or other public works obligations, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

Nicholas J. Clair

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Orders Publication of Lease-Leaseback Decision, Making it Binding Precedent

June 2017
Number 32

On May 31, 2017, the First District Court of Appeal ordered publication of its decision in California Taxpayers Action Network v. Taber Construction, Inc. et al.(2017) 12 Cal.App.5th 115 (Taber), which upholds the validity of a lease-leaseback arrangement. This reversed the court’s initial decision not to publish the case. Publication of the Taber decision means that it serves as citable precedent upon which school districts and others may now rely.

In Taber, the Court of Appeal reviewed the validity of a lease-leaseback arrangement that was challenged on the grounds that it did not comply with Education Code section 17406, the lease-leaseback statute covering school districts. Agreeing withMcGee v. Balfour Beatty Construction, LLC (2016) 247 Cal.App.4th 235 (McGee), which was recently decided by the Second District Court of Appeal, the Taber court declined to follow the lease-leaseback holding ofDavis v. Fresno Unified School District (2015) 237 Cal.App.4th 261 (Davis) and to read Davis’ “genuine lease” and “financing” requirements into the lease-leaseback statute. On the other hand, the Taber court did agree with both Davis andMcGee that allegations that a lease-leaseback contractor acted as an officer or employee of the school district when performing pre-construction services was sufficient to allow a conflict of interest cause of action under Government Code section 1090 to proceed to trial. (For further discussion of the Taber decision, see 2017 Client News Brief No. 23.)

While the Taber decision represents the second appellate court ruling that specifically repudiates the holding of Davis, it does not overrule that case, as one Court of Appeal cannot overturn the ruling of another. In the event a lease-leaseback challenge is brought in state court, a trial court has the option of applying McGee,Taber or Davis. A trial court, however, will ordinarily follow an appellate opinion from its own district even though it is not bound to do so, meaning that trial courts in the First and Second Appellate Districts (generally, the greater San Francisco and Los Angeles areas) may be more inclined to follow Taber and McGee, respectively, while trial courts in the Fifth Appellate District (generally, the Central Valley) may be more inclined to follow Davis. Until and unless the California Supreme Court weighs in, uncertainty may remain.

If you have any questions about the legality of lease-leaseback and which appellate court decision may apply to your project, or about other project delivery methods, please contact the authors of this Client News Brief or
an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Travis E. Cochran

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Entities Must Proceed with Caution When Preparing an Addendum to a Negative Declaration

June 2017
Number 31

A California appellate court has held that a public entity violated the California Environmental Quality Act (CEQA) by preparing an addendum to a mitigated negative declaration. In Friends of the College of San Mateo Gardens v. San Mateo County Community College District (2017) 11 Cal.App.5th 596, the court found that proposed changes to the District’s original facilities project might have a significant effect on the environment, requiring further analysis, rather than use of an addendum.

The California Environmental Quality Act

Under CEQA, a public agency generally conducts an initial study to determine if a project may have a significant effect on the environment unless an exemption applies. If the initial study shows that there is no substantial evidence that the project may have a significant effect on the environment, CEQA requires the agency to prepare a negative declaration. Alternatively, if the project has potentially significant environmental effects but these effects will be reduced to insignificance by mitigation measures, CEQA requires the agency to prepare a mitigated negative declaration. Projects where the environmental effect cannot be reduced to insignificance by mitigation measures require an environmental impact report (EIR).

In the event an agency modifies a project after a negative or mitigated negative declaration has been adopted, CEQA outlines subsequent review provisions that apply so long as the original declaration is relevant. These provisions require the agency to prepare a subsequent negative or mitigated declaration or subsequent EIR depending on certain circumstances. The guidelines also allow the agency to prepare an “addendum,” rather than a subsequent negative or mitigated negative declaration, if there are only “minor technical changes or additions.” Such addenda have more limited analysis and do not reopen public comment opportunities. Alternatively, if the modifications are such that the original negative or mitigated declaration is no longer relevant, the public entity must start over by conducting a new initial study.

Background

The San Mateo County Community College District (District) adopted a facilities master plan proposing nearly $1 billion in new construction and facilities renovations that involved demolition of certain buildings and renovation of others. In order to comply with CEQA, the District published an initial study and mitigated negative declaration analyzing the physical environmental effects of implementing the plan’s proposed improvements in 2006. However, after the District failed to obtain adequate funding for its original plan, it added one building to its demolition list and removed two others. As a result of these changes, the District prepared an addendum to the 2006 mitigated negative declaration.

The proposed changes to the plan prompted complaints by a number of students and faculty which ultimately led to a lawsuit challenging the addendum. (Friends of College of San Mateo Gardens v. San Mateo County Community
College Dist.
(Sept. 26, 2013, No. A135892) [nonpub. opn.].) The community members expressed concern that the proposed changes would eliminate a portion of an existing garden making up one-third of one percent of the total landscaped and open space on campus. The court concluded that the proposed changes constituted a “new” project, meaning that new CEQA review was required. However, the California Supreme Court disagreed and remanded the case with
additional instructions. (Friends of College of San Mateo Gardens v. San Mateo County Community College Dist. (2016) 1 Cal.5th 937.)

On remand, the appellate court found that substantial evidence supporting the District’s original mitigated negative declaration was still relevant and agreed with the District’s determination that CEQA’s somewhat more limited subsequent review provisions were applicable. However, the court concluded that the District did not properly comply with its obligations under those provisions. The court considered testimony from community members regarding the project’s aesthetic value to be substantial evidence that the project might have a significant environmental effect, rendering the proposed changes more than “minor technical changes or additions,” and therefore requiring more than the adoption of an addendum.

Takeaway

The lesson from this case is that, when modifying a project after a negative or mitigated negative declaration has been adopted, public entities should be very cautious when deciding whether to prepare an addendum or adopt a subsequent or supplemental negative declaration or EIR. Although courts give public entities deference when deciding whether to proceed under CEQA’s subsequent review provisions so long as there is evidence that the original negative or mitigated declaration remains relevant, the decision to prepare an addendum (rather than a subsequent or supplemental negative declaration or EIR) is reviewed with much more scrutiny. As we learn from San Mateo Gardens, even complaints about aesthetics from community members could be enough evidence for a court to conclude that modifications to a project may have a significant environmental effect, requiring further review. No matter what subsequent review process is selected, it is important to ensure that the rationale is well-documented in the administrative record in order to best defend the public entity’s decision.

For more information about the California Environmental Quality Act, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bond Insurers on Credit Watch

June 2017
Number 30

On June 6, 2017, S&P Global Ratings (S&P) placed two of the three active municipal bond insurers, Build America Mutual Assurance Company (BAM) and National Public Finance Guarantee Corp. (NPFGC), on credit watch with negative implications.

S&P intends to review the insurers and may adjust their assigned rating based on their competitive strengths or weaknesses relative to their peers. S&P stated that its review may lead to a downgrade of BAM or NPFGC. S&P is of the view that the competitive position of BAM and NPFGC may be sufficiently weaker within the industry than Assured Guaranty Ltd. and its operating subsidiaries, making greater rating differentiation appropriate among the municipal bond insurers. S&P expects to complete its review within the next three months, per its statements given in a research update report issued on June 6, 2017.

What this means for you : Issuers of municipal bonds should review their outstanding bonds to determine if any are insured by BAM or NPFGC. If S&P moves forward with a rating downgrade of BAM or NPFGC, the downgrade is treated as a “material event” under SEC Rule 15c2-12 and, accordingly, must be reported as part of an issuer’s continuing disclosure obligations for any bonds insured by the downgraded insurer.

If your agency has outstanding bonds insured by either BAM or NPFGC and you have any questions regarding continuing disclosure compliance, please contact the authors of this Client News brief or an attorney at one of our nine offices located statewide. Lozano Smith serves as bond and disclosure counsel to school districts, community colleges, and other public agencies throughout California and would be happy to provide guidance regarding these developments. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Daniel Maruccia

Partner

Sean B. Mick

Associate

Jennifer Grant

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Federal Court Upholds Texas School Board’s Practice of Student Invocations at School Board Meetings

June 2017
Number 29

A federal appeals court recently upheld a Texas school district’s practice of permitting students to deliver a religious invocation at the beginning of governing board meetings. ( American Humanist Association et al v. Birdville Independent School District et al (5th Cir. 2017, Nos. 15-11067, 16-11220) ___ F.3d ___ (Birdville). While noteworthy, the opinion is not binding on public agencies in California, where a separate ruling on religious invocations at governing board meetings issued by a California-based district court is now being reviewed by the Ninth Circuit Court of Appeals.

In Freedom from Religion Found., Inc. v. Chino Valley Unified School Dist.Bd. of Ed (C.D. Cal. Feb. 18, 2016, No. 5:14-cv-02336-JGB-DTB) (Chino Valley ), the court ruled that a California school district board violated the Establishment Clause of the U.S. Constitution when it adopted a policy allowing a local clergy member or board member to deliver an invocation before each board meeting. The court also held that board
members citing Bible passages during board meetings in the presence of student board members constituted unlawful school prayer. ( See 2016 Client News Brief No. 20.)

In Birdville, two students opened each board meeting. One student led the Pledge of Allegiance and Texas pledge, while the other delivered “some sort of statement,” which often included an invocation. From 1997 through February 2015, the student comments were called “invocations,” but were dubbed “student expressions” after the District received a complaint from a former student and member of the American Humanist Association (AHA) that the invocation violated the Establishment Clause. The group later sued, claiming that the student invocation amounted to unconstitutional school prayer.

A federal district court ruled in favor of the District, holding that a legislative prayer exception developed by the United States Supreme Court in 1983 applied to the invocation. (See Marsh v. Chambers (1983) 463 U.S. 783.) The Fifth Circuit Court of Appeals agreed, holding that board members, and not the audience at board meetings, were the principal audience for the invocations and that students’ presence at the meetings did not make this a school prayer case because the invocation was delivered during the ceremonial portion of the meeting and was not directed at them. The court also rejected plaintiff’s argument that the District’s invocation policy lacked a “unique history,” noting that at least eight states have some history of opening prayers at school board meetings.

In Chambers, the Supreme Court upheld a chaplain’s invocation because “[t]he opening of sessions of legislative and other deliberative public bodies with prayer is deeply embedded in the history and tradition of this country.” More recently, the Supreme Court extended the legislative prayer exception to city council meetings, so long as the principal audience is the “lawmakers themselves” as opposed to members of the public in attendance and the prayer does not “denigrate nonbelievers or religious minorities.” (See Town of Greece v. Galloway (2014) 134 S. Ct. 1811.)

The court also acknowledged two pre-Galloway cases where school district board meeting invocations were determined to be unconstitutional school prayer. In those cases, the courts held that invocations at school board meetings were not covered by the legislative prayer exception because school board meetings are inextricably linked with the public school system. However, in those cases, the school boards had at least one student member or their meetings were attended by student representatives in their formal role as student government representatives, neither of which was the case in Birdville.

It is not yet clear whether this decision will be appealed to the Supreme Court.

Once issued, the Ninth Circuit’s opinion in Chino Valley will likely set the framework for the legality of invocations at California school board meetings. That ruling, which Lozano Smith is monitoring closely, is anticipated within the next year.

For more information on the Birdville ruling or invocations at school board meetings in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kyle A. Raney

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Public Records Act Applies to Private Accounts

March 2017
Number 11

Emails, text messages and other written communications sent to or from a public official’s private account may be subject to disclosure under the California Public Records Act (CPRA), the California Supreme Court ruled unanimously in a highly anticipated decision published on March 2, 2017. (City of San Jose et al. v. Superior Court (March 2, 2017, No. S218066) ___ Cal.5th ___ < http://www.courts.ca.gov/opinions/documents/S218066.PDF>.)

The court held that the public has a right under the CPRA to access texts, emails and other records discussing public business regardless of whether the records were created, received by or stored in a private account. “If public officials could evade the law simply by clicking into a different email account, or communicating through a personal device,” the court wrote, “sensitive information could routinely evade public scrutiny.”

This case had its origin in a 2009 lawsuit against the City of San Jose, its redevelopment agency and several city officials. The plaintiff in that case, a community activist, claimed that the city’s failure to provide certain records regarding a downtown redevelopment project and other city business violated the CPRA. The city had provided certain records, but declined to provide voicemails, emails and text messages that were sent and received by city officials on personal devices using personal accounts. In 2013, a trial court judge ruled against the city, finding that communications sent to or received from city officials regarding public business are public records regardless of what device or account was used to create and deliver them. ( See 2013 Client News Brief No. 17.)

The city appealed the decision, and in 2014, the Sixth District Court of Appeal reversed the decision. The appellate court ruled that the CPRA’s definition of public records as communications “prepared, owned, used, or retained” by a public agency did not include messages sent or received on individual city officials’ and employees’ private devices and accounts. ( See 2014 Client News Brief No. 21.) Distinguishing between a public agency as the holder of public documents and its individual elected officials and employees, the appellate court held that, as a practical matter, the city could not use or retain a message sent from an individual council member’s phone that was not linked to a city server or account. While acknowledging the potential for abuses, the court determined that it is up to the Legislature to decide whether to require public agencies to police officials’ private devices and accounts.

The community activist then appealed to the California Supreme Court, where the case languished for nearly three years before the high court overturned the appellate decision.

In its ruling, the Supreme Court disagreed with the appellate court because records “prepared” on private devices could still qualify as public records. The high court observed that the agency itself is not a person who can create, send and save communications; rather, any such communication would come from or be received by an individual. As such, the city’s elected officials and employees were in essence acting as the city, and to the extent that their emails pertained to city business, they were public records.

The court did narrow the type of records that are subject to disclosure, holding that records containing conversations that are primarily personal in nature are not subject to disclosure under the CPRA. The court also acknowledged that determining whether particular communications constitute public records is a heavily fact-specific process, and decisions must be made on a case-by-case basis. This will create challenges for public agencies as they attempt to follow the reasoning of this decision.

The court also addressed the practical challenges around retrieving records from personal accounts, including ways to limit the potential for invading personal privacy. For guidance, the court offered examples of methods for retrieving records from personal accounts including procedures adopted by federal courts applying the Freedom of Information Act and followed by the Washington Supreme Court under that state’s records law that allow individuals to search their own devices for responsive records when a request is received and to submit an affidavit regarding potentially responsive documents that are withheld. The court also discussed adoption of policies that would prohibit the use of personal accounts for public business, unless messages are copied and forwarded to an official government account. While these methods were offered as examples, the court did not endorse any specific approach.

The opinion did not address a host of other practical issues, such as how public agencies should proceed when employees refuse or fail to provide access to records contained in their private accounts.

The decision means that public agencies must now carefully consider how to retrieve business-related public records that may be located in employees’ and officials’ personal accounts. One approach is to create new policies that address the decision. However, public agencies should consider the implications such policies may have on issues such as collective bargaining, records retention, acceptable use policies and other policies concerning technology.

Lozano Smith attorneys can provide a wide array of CPRA services, including preparing policies to address this opinion, responding to CPRA requests, analyzing documents and assisting in related litigation. Lozano Smith has a model email retention policy, and is in the process of reviewing and updating this and other model policies to reflect the impact of this decision. In order to receive our existing retention policy, which addresses individual employees’ obligations in relation to electronic communications, or to request our upcoming board policy to address the court’s decision, you may also email Harold Freiman at hfreiman@lozanosmith.com or Manuel Martinez at mmartinez@lozanosmith.com. We will also be producing webinars about the City of San Jose case and electronic records under the CPRA.

For more information on the City of San Jose opinion or about the California Public Records Act application to personal technology in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Change in Law May Require Shift to Even-Year Elections

February 2017
Number 8

In September 2015, Governor Jerry Brown signed into law Senate Bill (SB) 415. SB 415, which becomes operative on January 1, 2018, prohibits political subdivisions from holding odd-year regular elections if a prior odd-year election resulted in a “significant decrease in voter turnout,” as defined by statute. The new law reflects a policy of encouraging election consolidations to defray election costs and encourage voter participation. It applies only to regular elections and not to special elections.

Specifically, the new law, which is codified at Elections Code sections 14050 et seq., provides that a political subdivision (such as a city, school district, community college district or other district organized pursuant to state law) shall not hold an election other than on a statewide election date if holding an election on a “nonconcurrent date” has previously resulted in a “significant decrease in voter turnout.” “Nonconcurrent dates” are non-statewide election dates such as odd-year board member elections (or “off-cycle” election dates). A “significant decrease in voter turnout” is a voter turnout in a regular election in a political subdivision that is at least 25 percent less than the average voter turnout within that political subdivision for the previous four statewide general elections.

If a political subdivision has experienced such a “significant decrease in voter turnout” and is prohibited from holding future off-cycle elections, it may still hold off-cycle elections through 2021 if, by January 1, 2018, it has adopted a plan to consolidate a future election with a statewide election not later than the November 8, 2022 statewide general election.

In determining when to make the transition, political subdivisions should build in an administrative time buffer. In order to consolidate a currently-scheduled election into a general election, cities will need to enact an ordinance and seek approval from their county board of supervisors, among other requirements. Likewise, certain other categories of political subdivisions that wish to consolidate a currently-scheduled legislative body member election will need to adopt a resolution, seek approval from their county board of supervisors and comply with other statutory preconditions. Elections Code sections 10404 and 10404.5 provide that such a resolution must be adopted and submitted for approval no later than 240 days prior to the date of the currently-scheduled election. For an election scheduled in November 2017, the deadline for such actions would be March 13, 2017.

Political subdivisions should also consider the short-term effects of the transition. School districts, for example, which may now be able to hold Proposition 39 bond measure elections on an annual basis, will be limited to holding such elections once every two years once they transition to even-year election cycles. Political subdivisions should also be aware that consolidating elections to move them from odd to even years may affect the duration of their officers’ or board members’ terms. Consolidating school board elections, for example, will result in extending terms for current board members by one year.

A political subdivision that holds an odd-year election after January 1, 2018 without first adopting a transition plan can be sued by a voter within the political subdivision and compelled to comply with SB 415. If the voter prevails, the political subdivision will be liable for attorney’s fees and litigation expenses.

Lozano Smith has assisted political subdivisions with applying the 25 percent rule of SB 415 and with the mechanics of transitioning to even-year election cycles. If you have questions about compliance with SB 415 or any other issues impacting school districts and other local government entities, please contact an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Steven Nunes

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

County Boards of Education May Not Exempt Charter Schools from Local Zoning Regulations

February 2017
Number 7

A California Court of Appeal has held that a county board of education may not grant exemptions from zoning ordinances under Government Code section 53094. ( San Jose Unified School District v. Santa Clara County Office of
Education
(Jan 24, 2017, No. H041088) ___ Cal.App.5th ___ < http://www.courts. ca.gov/opinions/documents/H041088.PDF >.) Specifically, county boards may not exempt the charter schools they authorize from zoning ordinances. School districts have this power; county boards do not.

The Santa Clara County Office of Education granted Rocketship Education (“Rocketship”) a countywide charter to operate up to 25 charter elementary schools within the county. Rocketship proposed to locate one of its elementary schools on property that was owned by the City of San Jose (“City”) and not zoned for school use. The proposed property was located within the jurisdiction of the San Jose Unified School District (“District”), but was zoned only for open space, parklands and habitat. Because the City’s General Plan prohibited operating a school on the property, the Santa Clara County Board of Education granted Rocketship an exemption to the City’s zoning ordinance under Government Code section 53094.

Under the language of Government Code section 53094, subdivision (b), only the “governing board of a school district” may grant zoning exemptions. The San Jose Unified School District and a local property owner filed separate petitions for writs of mandate seeking to invalidate the exemption. They argued that county boards of education are not school district governing boards, and lack authority to exempt property from local zoning laws. The trial court granted the District’s writ petition and ordered the County Office of Education to rescind Rocketship’s zoning exemption – thus leaving Rocketship without a school site.

The Court of Appeal upheld the trial court’s decision. In reaching its conclusion, the appellate court relied on the legislative history of section 53094, which was enacted in response to the decisions inHall v. City of Taft (1956) 47 Cal.2d 177 andTown of Atherton v. Superior Court (1958) 159 Cal.App.2d 417.Hall and Atherton generally held that school districts engage in sovereign activities of the state when they design and construct school facilities, and therefore are not required to comply with local zoning ordinances in designating school locations. These cases, however, unwittingly immunized a large number of state agencies from local regulation, and section 53094 was passed to narrow this exemption authority specifically to local school districts.

The court noted that, although county offices of education have authority to grant charter petitions and oversee charter schools, it is local school districts that are obligated to provide charter school facilities under Proposition 39 (Ed. Code, § 47614, subd. (b).) Because a county office of education does not bear responsibility to acquire sites for charter schools, it does not perform a sovereign activity on behalf of the state if it chooses to do so. This is because the state has tasked districts, not county offices of education, with such responsibility. Therefore, empowering county boards of education to issue zoning exemptions would not advance section 53094’s purpose – namely, preventing local interference with the state’s sovereign activities.

While each charter school’s situation is unique, this decision will likely impact the siting of county-authorized charter schools and require increased collaboration between government entities when zoning serves as an impediment to locating a charter school facility.

For more information on the San Jose Unified School District opinion or the Charter Schools Act, please contact the authors of this Client News Brief or an attorney in Lozano Smith’s Charter School Practice Group or at one of our nine offices located statewide. You can also visit our website , follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Edward Sklar

Partner

Erin Hamor

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Attorney Invoices are Subject to Disclosure under the Public Records Act

January 2017
Number 3

The California Supreme Court has ruled that invoices from a public agency’s legal counsel are subject to disclosure under the California Public Records Act (CPRA), with limited exceptions. Invoices for work in pending and active legal matters may generally be shielded from disclosure under the attorney-client privilege.

In Los Angeles County Board of Supervisors v. Superior Court (Dec. 29, 2016, No. S226645) ___ Cal.4th___ < http://www.courts.ca.gov/opinions/documents/ S226645A.PDF >, the court considered to what extent invoices from a public entity’s attorney are subject to disclosure under the CPRA.

The American Civil Liberties Union (ACLU) suspected attorneys for the Los Angeles County jail system of wasting public funds by engaging in “scorched earth” litigation tactics. The ACLU submitted a CPRA request to Los Angeles County (County) seeking invoices indicating amounts billed in connection with nine different lawsuits in order to determine whether the county engaged in wasteful legal strategies. The county agreed to produce invoices relating to three lawsuits that were no longer pending, with attorney-client privileged information redacted, but declined to produce invoices for the six remaining lawsuits that remained pending, claiming the attorney-client privilege protected them from disclosure.

The Court of Appeal ruled that the attorney-client privilege generally protects attorney invoices from disclosure if the invoices were maintained in a privileged manner.

In a close 4-3 ruling, a divided Supreme Court reversed the appellate court’s decision, balancing competing rights and privileges in its majority opinion. While the CPRA provides the public with a broad right of access to records in the possession of state and local government agencies, it also contains a number of exceptions that protect certain categories of documents from disclosure, including documents protected by the attorney-client privilege.

In analyzing whether attorney invoices are categorically protected by the attorney-client privilege, the Supreme Court adhered to the principle that “the heartland of the privilege protects those communications that bear some relationship to the attorney’s provision of legal consultation.” The court explained that the attorney-client privilege does not extend toall communications between an attorney and client, but rather “to communications that bear some relationship to the provision of legal consultation.” The court concluded that the primary purpose of invoices is for the attorney to receive payment, and not “for the purpose of legal consultation.” In other words, invoices may not be withheld simply because they are sent from an attorney. Whether an invoice or specific information in the invoice can be withheld is a fact-specific inquiry into whether the invoice as a whole, or certain information contained in it, bears a relationship to the provision of legal consultation.

The court concluded that information in an invoice “to inform the client of the nature or amount of work occurringin connection with a pending legal issue” is protected by the attorney-client privilege. The amount of fees being expended on a pending and active legal matter is also privileged, because changes in spending could indirectly reveal legal strategy to a party that can use that information to the detriment of the government agency. However, fee information for concluded legal matters may not be subject to the privilege because, over time, the information “no longer provides any insight into litigation strategy or legal consultation.” While the fee information contained in such an invoice may not be protected by the attorney-client privilege, the court’s opinion appears to allow redaction of specific information in the invoice that may reveal information about legal consultation, though the court was not that express about this point.

The takeaways from this case can be summarized as follows:

  • Legal invoices for concluded matters are disclosable, subject to any lawfully allowed redactions of information that reveals attorney-client confidences; and
  • Legal invoices for pending or active matters can be withheld in their entirety.

Lozano Smith strives to provide invoices that have sufficient information for audit purposes and to keep clients informed. However, we are conscious of our clients’ obligations under the CPRA and endeavor to avoid including information in invoices that could reveal attorney-client privileged advice or strategy.

For more information on this case or the California Public Records Act in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App .
Written by:

Nicholas J. Clair

Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

School District Bid Threshold Raised for 2017

December 2016
Number 88

According to the California Department of Education Office of Financial Accountability and Information Services, pursuant to Public Contract Code section 20111(a), the bid threshold for K-12 school districts’ purchases of equipment, materials, supplies and services (except construction services) has been adjusted to $88,300, effective January 1, 2017. This represents an increase of 0.626 percent over the 2016 bid limit. The notice may be viewed here.

The California Community Colleges Chancellor’s Office is expected to announce a similar adjustment to the bid threshold for community college districts’ purchases of equipment, materials, supplies and services (except construction services), pursuant to Public Contracts Code section 20651(a), sometime in the next few days. Once released, that information will be availablehere.

The bid limit for construction projects remains at $15,000.

The bid thresholds for cities, counties and special districts are not affected by the bid limits discussed here.

For more information on how the new law impacts your agency, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit ourwebsite, follow us on Facebook or Twitter or download our Client News Brief App.
Written By:

Devon Lincoln

Partner

©2016 Lozano Smith
As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Claims Resolution Process Will Apply to All Public Contracts Effective January 1, 2017

October 2016
Number 83

Effective January 1, 2017, a new claims resolution process will be required for all public works projects. On September 29, 2016, Governor Jerry Brown approved Assembly Bill (AB) 626, which adds section 9204 to the Public Contract Code. The law is aimed at assisting contractors in enforcing claims against public agencies. Currently, the law requires public agencies to follow a certain claims process for claims that are $375,000 or less. Section 9204 will apply to all claims related to any public works contract entered into on or after January 1, 2017. A “claim” is defined in the statute to mean a “separate demand by a contractor” for one or more of the following: (1) a time extension, including for relief from damages or penalties for delay asserted by a public entity under a contract for a public works project; (2) payment by the public entity of money or damages arising from work done by, or on behalf of, the contractor pursuant to the contract for the public works project and payment for which is not otherwise expressly provided or to which the claimant is not otherwise entitled; or (3) payment of an amount that is disputed by the public entity. (Pub. Contract Code, § 9204(c)(1).) Upon receipt of any such claim, the public entity will be required to comply with the following process:

  1. Review and Provide a Written Response. The public entity must conduct a reasonable review of the claim and provide a written response within 45 days of receiving it, identifying the portion of the claim that is disputed and the portion that is undisputed. The 45-day timeline can be extended by mutual agreement of the public entity and the claimant. If the public entity needs approval from its governing body before it can provide the written response, and the governing body does not meet within the 45-day period or a mutually agreed-upon extension of that period, the public entity will have up to three days following the next public meeting of the governing body after the period expires to provide the written statement to the claimant. If the public entity fails to respond within the prescribed timelines, the entity will be deemed to have denied the claim in its entirety.
  2. Pay Any Undisputed Amount. Within 60 days after receipt of the claim, the public entity is required to process and make payment on any undisputed amount.
  3. Meet and Confer with the Contractor on Any Disputed Amount, if Demanded. If the claimant disputes the public entity’s written response, or if the public entity fails to respond to the claim within the prescribed time frame, the claimant may demand in writing an informal conference to meet and confer for settlement of the issues in dispute. Upon receipt of such a demand, the public entity is required to schedule a meet and confer conference within 30 days.
  4. Provide a Second Written Response Following Informal Meet and Confer Conference. Within 10 business days after the meet and confer conference is concluded, if the claim or any portion of it remains in dispute, the public entity is required to provide the claimant with another written statement identifying the portion of the claim that remains in dispute and the portion that is undisputed. Any undisputed amount must be processed and paid within 60 days after the public entity issues the written statement.
  5. Submit Any Remaining Dispute to Mediation. If any amount remains in dispute after the completion of the meet and confer conference, as identified by the contractor in writing, the parties must submit the dispute to nonbinding mediation in which the public entity and the claimant will share the associated costs equally. Within 10 business days after the disputed portion of the claim has been identified in writing, the public entity and the claimant must agree to a mediator. If they are unable to do so, each party must select a mediator and those mediators will select a qualified neutral third party to mediate regarding the disputed portion of the claim. Each party is responsible for the fees and costs charged by its respective mediator in connection with selecting the neutral mediator. If mediation is unsuccessful, the portion of the claim remaining in dispute will be subject to any applicable procedures outside of Public Contract Code section 9204.

Effective January 1, 2017, the text of section 9204, or a summary thereof, must be set forth in the plans and specifications for any public works project that may give rise to a claim defined by the section. Public agencies will need to update their construction contracts’ claim procedures moving forward to ensure compliance. Also, a waiver of the rights granted to contractors under section 9204 will be void and contrary to public policy, provided that the parties may agree, in writing, to waive such rights once a claim is actually received by the public entity. Notwithstanding the new law, public entities will still be able to prescribe reasonable change order, claim and dispute resolution procedures and requirements in addition to the provisions of section 9204, as long as such contractual provisions do not conflict with or impair section 9204’s time frames and procedures.

Under existing law, sections 20104, et seq., of the Public Contract Code also prescribe a specific process for resolution of claims that are $375,000 or less. Section 9204 applies “notwithstanding” the provisions of section 20104, but it does not replace the existing requirements. Thus, claims under $375,000 that are not resolved pursuant to the requirements of section 9204 may also be subject to the requirements of section 20104, which could mean a further meet and confer process, mediation and non-binding arbitration before any litigation.

If you have any questions regarding AB 626 or public project issues in general, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon Lincoln

Partner

Kelly Rem

Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Governor Signs Bill Requiring Child Safety Alert Systems on School Buses

October 2016
Number 76

Governor Jerry Brown recently signed into law Senate Bill (SB) 1072, a bill modifying the Education Code and Vehicle Code to require additional safety measures for students being transported on school buses. Also called the “Paul Lee School Bus Safety Law,” the bill responds to multiple reports of California schoolchildren being left unattended on school buses for hours, often in dangerous conditions. In 2015, a student, Paul Lee, died after being left unattended on a school bus during a heat wave. The bill, effective January 1, 2017, will provide multiple new safeguards intended to prevent students traveling on school buses from being left unattended.

Child Safety Alert Systems

SB 1072 significantly modifies existing law, requiring school buses, youth buses and child care motor vehicles to be equipped, by the 2018-2019 school year, with child safety alert systems. A child safety alert system, as defined by SB 1072, is a device located at the interior rear of a vehicle that a driver must manually contact or scan before exiting the vehicle, thereby prompting drivers to inspect the vehicle for students. These devices are currently made by multiple manufacturers and have reportedly already been deployed on some buses in California school districts. SB 1072 also requires the Department of Motor Vehicles (DMV) to adopt regulations governing the specifications, installation and use of child safety alert systems on or before January 1, 2018. Once available, these regulations should provide guidance to school districts regarding the next steps in the child safety alert system implementation process.

Procedures to Ensure Students Not Left Unattended

Currently, school officials must institute transportation safety plans which contain procedures for school personnel to follow to ensure the safe transport of students. SB 1072 mandates that districts’ transportation safety plans include procedures which will ensure that a student is not left unattended on a school bus, school pupil activity bus or youth bus, and the designation of an adult chaperone, other than the driver, to accompany students on a school activity bus. Furthermore, school district governing boards must require that any contract for transportation of students to and from activities include the condition that a pupil shall not be left unattended on a school bus.

Notification of Driver Misbehavior

SB 1072 also requires public officials to report certain driver misbehavior to the DMV. School officials must report school bus driver misbehavior when the board, or the driver’s employer if transportation services are contracted out, has done the following: 1) ordered and upheld disciplinary action against a driver of a school bus in connection with leaving a student unattended onboard a school bus, and 2) made a finding that the driver’s actions constituted gross negligence. Gross negligence, as defined by the law, means “the want of even scant care or an extreme departure from the ordinary standard of conduct.” If the above situation occurs, officials must make their report to the DMV within five days of the discipline and finding of gross negligence.

Enhanced Requirements for Driver Certificates

In addition to a driver’s license, school bus drivers must also obtain a certificate to operate a school bus. Pursuant to SB 1072, in order to receive their certificates, drivers must receive at least 10 hours of original or renewal instruction each year. Classroom instruction must cover inspection procedures to ensure no student is left unattended on a school bus, in addition to topics such as emergency procedures, passenger loading and unloading and accident prevention. Currently, under the Vehicle Code, the DMV must refuse to issue or revoke a certificate if the driver has been convicted of certain felonies, a sex offense or has otherwise failed to meet training and testing requirements for the certificate. SB 1072 authorizes the DMV to refuse to issue or revoke a certificate if the driver has been reported to the DMV for leaving a student unattended on a school bus, giving teeth to the reporting requirements discussed above.

If you have any questions about SB 1072 or any other issues related to school bus and transportation safety, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne Collins

Senior Counsel

Ellen Denham

Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Finance Legislative Roundup

October 2016
Number 69

In August and September 2016, Governor Jerry Brown signed three Assembly bills and one Senate bill related to public finance, including bills regarding K-14 school districts’ general obligation bonds and school district parcel taxes.

The specifics of each bill are described below.

Assembly Bill (AB) 2116: Requirement to Obtain Reasonable and Informed Projections of Assessed Valuations Prior to Ordering a Bond Election

Some critics have complained that too often, advisors may be tempted to offer an overly optimistic revenue projection when presenting a potential bond measure to a district’s governing board. AB 2116 is intended to provide improved school bond oversight, accountability and fiscal responsibility by requiring that the governing board consider the county assessor’s projections as well. As amended by the bill, Education Code section 15100, subdivision (c) now requires a school district or community college to “obtain reasonable and informed projections of assessed property valuations that take into consideration projections of assessed property valuations made by the county assessor” before calling a bond election. The Governor signed the bill on August 17, 2016 and it becomes effective on January 1, 2017.

Assembly Bill (AB) 1891: Parcel Tax Exemptions Granted by a School District are Now Valid until Taxpayer Becomes Ineligible

Under existing law, a public agency granting exemptions from parcel taxes to seniors or disabled individuals may choose whether to require an annual re-certification or “opt-out” from paying the special tax. By adding section 50079, subdivision (d) to the Government Code, AB 1891 clarifies that any exemption granted shall remain in effect until the taxpayer becomes ineligible and that, if the taxpayer becomes ineligible, a new exemption may be granted by the school district in the same manner as the original exemption. The Governor signed the bill on September 22, 2016 and it becomes effective on January 1, 2017.

Assembly Bill (AB) 2738: Bond Construction Proceeds on Deposit with the County May No Longer be Invested Outside of County Treasury

AB 2738 is intended to address a dispute over ostensibly conflicting law as to whether a district may withdraw funds from a county-held building fund for investment outside of the county treasury pool. As a matter of policy, AB 2738 answers the question in the negative. The bill amends section 15146, subdivision (g) of the Education Code to expressly prohibit a school district or community college from withdrawing bond proceeds from the building fund held by the county for investment outside of the county treasury. The Governor signed the bill on September 22, 2016 and it becomes effective on January 1, 2017.

Senate Bill 1029: Additional Annual Bond Reporting Requirements to State Treasurer

SB 1029 continues the State Treasurer’s drive for more transparency in bond reporting for California public agencies. Effective for any debt for which the public agency files a “Report of Final Sale” on or after January 17, 2017, all public agencies issuing bonds, notes, certificates of participation or other debt must supply the California Debt and Investment Advisory Commission (CDIAC), a commission chaired by the State Treasurer, with an annual report containing information about the public agency’s debt issued and outstanding and the use of proceeds of the debt, for the prior reporting period (July 1 through June 30). The annual report will be due to CDIAC within seven months of the end of the reporting period (starting with the report due in January 2018, for any debt sold after January 1, 2017.) SB 1029 affects section 8855 of the Government Code, which generally authorizes CDIAC to collect, maintain and provide information on local agency debt and investments. The Governor signed the bill on September 12, 2016 and it becomes effective on January 1, 2017.

If you have questions about general obligation bonds or any other issues impacting California school district or community college financing, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Sean Mick

Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Legislature Imposes New Procedures for Selection of Lease-Leaseback Contractors

September 2016
Number 63

Scrutiny regarding school districts’ use of lease-leaseback (LLB) construction contracts has prompted the Legislature to impose additional contracting requirements that will make the use of LLB more complicated, and will limit a school district’s discretion in selecting the LLB contractor. Assembly Bill (AB) 2316, which the Governor signed on September 23, 2016, will require school districts to use a comprehensive “best value” selection process for LLB contractors. AB 2316 also grants specific financial protection to contractors who were awarded LLB contracts prior to July 1, 2015. The bill goes into effect on January 1, 2017.

What is Lease-Leaseback?

Education Code section 17406 permits a school district to lease a site to a contractor for $1 per year for the purpose of the contractor performing construction on that site. The contractor typically leases the site back to the school district in exchange for payments to compensate the contractor for the cost of construction. Until now, section 17406 has specifically permitted selection of the LLB contractor without advertising for bids and without requiring any selection process.

Recent History of Lease-Leaseback

The law related to LLB contracts has changed significantly over the last two years. Effective January 1, 2015, AB 1581 required prequalification for contractors on LLB projects that were over $1 million, funded by the state and for districts with an average daily attendance (ADA) of 2,500 or more. (Ed. Code, § 17406; Pub. Contract Code, § 20111.6; see 2014 Client News Brief No. 71.) Though not a model of clarity, effective January 1, 2016, AB 566 appears to have extended prequalification to all LLB projects for districts with ADA of 2,500 or more, regardless of funding source and regardless of price. AB 566 also required use of a “skilled and trained workforce.” (See Ed. Code, §§ 17406, 17407.5; and 2015 Client News Brief No. 51.)

On June 1, 2015, an appellate court held that an LLB contract must contain provisions that reflect contractor financing and post-construction tenancy by the school district, and that an LLB contract with an entity that provided preconstruction services under a separate contract could be subject to legal challenge for a potential conflict of interest under Government Code section 1090. (Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261; see 2015 Client News Brief No. 30.)

On April 12, 2016, an appellate court agreed with the Davis court about the potential for a conflict of interest in an LLB contractor’s performance of preconstruction services under an earlier contract, but disagreed with the Davis court regarding terms required for LLB contracts, ruling that an LLB contract need not include provisions about contractor financing and post-construction tenancy. (McGee v. Balfour Beatty Construction (2016) 247 Cal.App.4th 235; see 2016 Client News Brief No. 25.) A conflict therefore exists in California courts as to what must be contained in an LLB contract.

New Procedures for Selection of Lease-Leaseback Contractor

Beginning on January 1, 2017, AB 2316 requires selection of the LLB contractor through a “best value” procedure specifically laid out in statute. Proposals submitted in response to a request for proposals (RFP) will be ranked by their best value scores and the Board must award to the contractor that submitted the sealed proposal determined by the Board to be the best value. In other words, aside from developing a scoring system for ranking the proposals, a school district will now have limited discretion in selecting its LLB contractor.

Beneficially, the bill expressly permits a school district to award a single LLB contract that includes preconstruction services, thus avoiding any potential conflict of interest issue under Davis and McGee resulting from the award of multiple contracts to the same contractor. AB 2316 also permits a school district to award the LLB contract for an agreed-upon lump sum or a fee for performing the services.

Protection for Pre-Davis Lease-Leaseback Contractors

Another significant aspect of AB 2316 is that it provides protection for contractors that entered into an LLB contract prior to July 1, 2015. For these contracts, if a court declares the contract award invalid due to a lack of competitive bidding, the contractor would be allowed to recover its reasonable costs incurred in performing the project, but not its profit. To recover such costs, the contractor must meet several requirements, such as establishing that it had a good faith belief that the LLB contract was valid.

Effect of AB 2316 on Recent Lease-Leaseback Law

The bill does not change existing statutory requirements that contractors be prequalified prior to award of an LLB contract and that they use a skilled and trained workforce. In addition, AB 2316 does not provide any guidance on what lease and payment terms are required in the LLB contract, and does not eliminate the risk of a conflict of interest caused by multiple contracts with the same contractor. (See Davis and McGee, above.)

Given the new requirements and the remaining unresolved legal issues concerning LLB, school districts considering this delivery method should consult closely with their legal counsel to evaluate the use of LLB as an alternative delivery method for construction projects.

If you have any questions about the new LLB contractor selection procedures or the legality of LLB contracts under the Davis and McGee cases, or about public works issues in general, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon Lincoln

Partner

Arne Sandberg

Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Fate of Level 3 Developer Fees Remains Clouded

September 2016

The State Allocation Board’s (SAB) effort to authorize eligible school districts to levy Level 3 developer fees has hit another legal roadblock. On September 1, California’s Third District Court of Appeal stayed the proceedings in the trial court case pending in Sacramento County Superior Court. This appears to keep a temporary restraining order in place that prohibited the SAB from notifying the Legislature that state bond funding is no longer available.

In May, the SAB took the unprecedented step of determining that state funding is no longer available for apportionment for school facilities, triggering eligible districts’ ability to collect the higher Level 3 fees. (See 2016 Client News Brief No. 33.) The California Building Industry Association (CBIA) promptly sued, obtaining a temporary restraining order (TRO) stopping the SAB from taking further action. (See May 27, 2016 Client News Alert.)

On August 22, 2016, the trial court judge denied CBIA’s request to further enjoin the SAB from completing the steps needed to authorize the fees and concluded that the TRO would be lifted. However, CBIA appealed before a final order was issued. The appellate court issued a stay order that is vague, but Court of Appeal staff confirmed to Lozano Smith the court’s intent to halt anything in the trial court case that wasn’t finalized, including the judge’s order to lift the TRO. (For more on the trial court’s decision, see 2016 Client News Brief No. 55.) As a result, it appears that SAB remains restrained from notifying the Legislature that state funding is not available. SAB filed opposition papers with the appellate court on September 12, 2016.

Given the uncertainty about when or how the appellate court will rule on CBIA’s appeal – and the upcoming November 8 statewide vote on a $9 billion school bond that could soon provide fresh funding for facilities – it remains prudent to contact legal counsel before seeking to collect Level 3 fees.

Lozano Smith will continue to keep you informed of the latest twists and turns in the CBIA case and what they mean for school districts who are considering imposing Level 3 fees. For more information about the case or developer fees in general, please contact an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold Freiman

Partner

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

FCC Issues Guidance on Schools’ Use of Robocalls

September 2016
Number 61

Last month, the Federal Communications Commission (FCC) confirmed that in limited circumstances, schools may make robocalls to their student community without violating the Telephone Consumer Protection Act (TCPA). The FCC determined that schools could “lawfully make robocalls or send automated texts to student family wireless phones pursuant to an ’emergency purpose’ exception or with prior express consent.”

The ruling provides much-needed guidance for schools but does not provide the blanket immunity some educational organizations had anticipated. Therefore, school districts that implement automated messaging services must carefully review their policies and practices to ensure consistency with the FCC’s recent decision.

The TCPA generally prohibits making any non-emergency call using an automatic telephone dialing system or an artificial or prerecorded voice to a wireless telephone number, often referred to as “robocalling,” without prior express consent. The FCC has long interpreted the TCPA to apply not only to robocalls but also automated text messages. The TCPA expressly exempts from these prohibitions calls made for “emergency purposes.” If the call includes or introduces an advertisement or constitutes telemarketing, then consent must be in writing. Otherwise, consent may be either oral or written. For more information about the TCPA, you can review the FCC’s summary.

On February 24, 2015, Blackboard, Inc. requested that the FCC issue a declaratory ruling that “all automated informational messages sent by an educational organization via a recipient’s requested method of notification are calls made for an ’emergency purpose’ and thus outside the requirements of the [TCPA].” The FCC issued a ruling partially granting the request, finding that “school callers may lawfully make autodialed calls and send automated texts to student family wireless phones without consent for emergencies including weather closures, fire, health risks, threats, and unexcused absences.” However, the FCC declined to extend the TCPA’s emergency purpose exception to all robocalls made by educational organizations.

The FCC further determined that other messages “closely related to the school’s mission, such as notification of an upcoming teacher conference or general school activity” were acceptable to the extent that such calls were “made with the prior express consent of the called party when a telephone number has been provided to an educational institution by that called party.” However, schools should be cautious in relying on this exception as the “scope of consent must be determine[d] upon the facts of each situation.” School districts should evaluate whether their current policies and practice provide for written consent from each intended recipient that explicitly addresses the types of non-emergency robocalls that the school intends to make.

The FCC determination also highlights the need for school districts to be aware of potential liability when a phone number is reassigned. Last year, the FCC found that the TCPA required consent from each “called party” for calls that fall outside of the “emergency purpose” exception, regardless of whether the number had been reassigned. You can read the FCC declaratory ruling here. Based upon this ruling, school districts may be liable for automated calls and text messages to numbers that have been reassigned, subject to a limited, one-call opportunity for cases when the caller is not aware of the
reassignment.

In its most recent ruling, the FCC declined to reconsider its prior ruling and confirmed that robocalls made pursuant to the “emergency purpose” exception did not require consent but nonetheless encouraged “educational organizations to regularly update their emergency calling lists to ensure that emergency-purpose calls do in fact reach the parent or guardian of each affected student and are not received by consumers with no connection to the school.”

For more information about robocalls or the Telephone Consumer Protection Act, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Megan Macy

Partner

Shawn VanWagenen

Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Gotta Catch ‘Em All: Spotting the Issues Augmented Reality Games Raise for Public Agencies

September 2016
Number 59

Released in July 2016, Pokémon Go is a technological and gaming sensation that swept across the country, where players use their mobile devices to locate Pokémon (virtual creatures) in the real world. Pokémon can appear in any physical location, and as avid fans know, players “gotta catch ’em all.” This may result in players entering or approaching public property to capture Pokémon, which means public agencies may have to address issues regarding disruption to operations, trespass, safety and privacy, among others. While the Pokémon Go phenomenon seems to be cooling, there may be an increase in the number of games utilizing Pokémon Go’s gaming format, known as “augmented reality.” Below, we highlight some issues that public agencies may need to consider as a result.

Augmented Reality Basics
Augmented reality games utilize a mobile device’s GPS and camera capabilities to generate a virtual map based on real-life surroundings. Players create a virtual version of themselves, which appears on the map on the mobile device’s screen. In the case of Pokémon Go, players are directed to nearby virtual Pokémon, PokéStops and Pokémon gyms, where players can buy in-game items like lure modules that help attract Pokémon to a trainer, meet up and battle one another.

Disruption to Operations and Trespassing
Local agencies may need to anticipate disruption to their operations and trespassing issues as a result of Pokémon Go and future augmented reality games. The game’s popularity has seen increased pedestrian traffic in public areas as members of the public take to the streets to play the game. For Pokémon Go, PokéStops, Pokémon gyms and Pokémon may be located in any physical location, including in a public agency’s restricted areas. For example, players found a Pikachu in an employee-only room of a county hospital. Additionally, as the game may be played at all hours, public agencies may need to guard public property after business hours. In one instance, trainers trespassed onto a zoo after climbing a fence at 1:30 a.m. to capture a Pokémon located within the zoo’s grounds.

Safety
Augmented reality games raise safety concerns for local agencies. The increased potential for large crowds gathering on public property may lead to increased accidents or confrontations. Individuals have even used Pokémon Go to lure and rob players who were in search of a rare Pokémon.

School districts will need to be vigilant about the potential increase in unauthorized people trying to enter school sites while students are present. Likewise, school authorities will need to ensure that students do not leave campus in response to lure modules set off campus.

Privacy
Augmented reality games raise privacy concerns for public agencies.

School districts need to be aware that they are responsible for protecting student data. As a mobile device’s camera helps create the images on the device’s screen, there may be an increased risk that players will use the game as a pretext to take pictures of employees, members of the public or, in the case of schools, students. In other words, a player may have his mobile device raised as if he is playing, but he may actually be taking pictures of a person.

Technology Use Policies/Agreements and Discipline
Pokémon Go’s popularity may result in increased mobile device activity in the workplace during work hours or attempts to access the game using a public agency’s Internet or wireless networks, in violation of technology use agreements, policies or professional standards governing the workplace. This may lead to discipline of employees who engage in non-related work activities during work hours or who create liability for the local agency by failing to comply with use agreements or policies.

School districts may face an increase in student disciplinary issues resulting from disruptions on campus, like playing the game during class; violations of behavior expectations, such as bringing mobile devices to campus if they are not allowed; and violations of technology use agreements, like using district-issued mobile devices to play or to try to download the game.

How to Prepare for a Future with Augmented Reality
For a public agency, one way to prepare is to use Pokémon Go to inspect areas of the public agency. This will help identify specific issues the public agency may face and to find out if any PokéStops, Pokémon gyms or Pokémon are located in any restricted areas.

Local agencies may wish to review and update their policies regarding access to their respective parks, buildings, schools and other maintained venues, as well as safety procedures, employees’ and students’ expectations and technology use.

Where access needs to be prohibited, public agencies may need to work toward removing Pokémon, PokéStops and Pokémon Gyms from public property. Working with Pokémon Go creator Niantic and other third-party cybersecurity companies, local businesses and companies have been able to prevent the game from drawing individuals to specific geographic locations that maybe sensitive.

Pokémon Go may be the tip of the iceberg for augmented reality games. Our Technology and Innovation Practice Group will continue to monitor this emerging field and analyze its impact on public agencies.

If you have any questions regarding how Pokémon Go and other augmented reality games and technology may impact your agency, or need assistance reviewing or revising your policies and technology use agreements, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold Freiman

Partner

William Curley III

Senior Counsel

Elí Contreras

Associate

Nicholas Felahi

Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

The Satanic Temple Seeks Access to Public Elementary Schools Nationwide

September 2016
Number 57

A secular organization called The Satanic Temple has announced it will be seeking access to public elementary school facilities nationwide to offer its “Educatin’ with Satan” after-school program. The group stated that it intends to offer a scientific after-school club to balance the religious viewpoint presented by other programs such as the “Good News Club” run by the Child Evangelism Fellowship.

Based upon the United States Supreme Court’s 2001 opinion in Good News Club v. Milford Central School (2001) 533 U.S. 98, public schools are in most cases “limited public forums” for First Amendment speech. As limited public forums, schools are not required to allow all persons access to their facilities for every type of speech. However, if a school does allow access to outside groups, it cannot then discriminate against the speech of others based on their viewpoints on similar issues.

There is perhaps some irony that the Good News Clubs, which according to the Christian Evangelism Fellowship reached almost 20 million children in 192 countries in 2014, were the victor in Good News Club case but are now the target of The Satanic Temple for its after-school programs. School districts in nine states have reportedly been contacted by Satanic Temple chapters, and the organization’s website makes clear that it is “not interested in operating After School Satan Clubs in school districts that are not already hosting a Good News Club. However, The Satanic Temple ultimately intends to have [its programs] operating in every school district where the Good News Club is represented.” In California, The Satanic Temple currently has chapters in Los Angeles, San Jose and San Marcos.

For context, The Satanic Temple is not a “Satanist organization” as one might infer from its name. According to its website, the organization does not believe in a “supernatural Satan,” but instead endorses a “scientific understanding of the world.” The organization has indicated that its one-hour monthly after-school programs will include critical reasoning, independent thinking, fun and a healthy snack.

Regardless of viewpoint, California school districts are required under the Civic Center Act, codified at Education Code section 38130 et seq., to allow organizations to access school facilities for purposes of “supervised recreational activities” and meeting and discussing “any subjects and questions … pertain[ing] to the educational, political, economic, artistic and moral interests of the citizens of the communities in which they reside.” In California, it is likely that The Satanic Temple will lean heavily on the Supreme Court’s Good News Club opinion and its First Amendment free speech underpinnings, and the Civic Center Act, when it approaches school districts for facilities access. Although parallel in many respects, the First Amendment’s and Civic Center Act’s application to outside organizations’ school facilities access is distinct from the federal Equal Access Act, which applies to non-curricular student groups’ access to school facilities and resources. (20 U.S.C. § 4071.)

For more information on how this organization’s activities might impact your district, or on the free speech and other legal principles governing outside organizations’ access to your school facilities, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Sloan Simmons

Partner

Lee Burdick

Senior Counsel

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Level 3 Developer Fees are Again Moving Forward after Latest Court Decision

August 2016
Number 55

A recent court decision has again opened the door for eligible school districts to impose ‘Level 3’ developer fees. As Lozano Smith previously reported, the State Allocation Board (SAB) took unprecedented action in May to authorize eligible school districts to collect Level 3 fees. SAB’s determination that state funds are no longer available for new school construction, which triggers the Level 3 fees, was challenged in court by the California Building Industry Association (CBIA), and a temporary restraining order (TRO) was issued halting further action by SAB to allow for collection of Level 3 developer fees. On August 22, 2016, the Sacramento County Superior Court issued a ruling denying CBIA a preliminary injunction and lifting the TRO. As a result of this latest ruling, SAB is again permitted to authorize school districts to impose Level 3 developer fees. (For further discussion of the SAB’s actions, see 2016 Client News Brief No. 33.) In light of a possible appeal by CBIA and the upcoming November statewide bond election, the question of how to move forward remains somewhat clouded.

Level 3 fees were intended as part of Senate Bill (SB) 50 essentially to replace matching funds from the state for new construction and modernization projects when state funding is not available. As a result, they roughly double ‘Level 2’ fees currently being collected by eligible school districts. As soon as the SAB took its action in May, CBIA immediately filed a lawsuit claiming that state funds remained available, largely because hardship funds for the Seismic Mitigation Program still exist. The TRO issued by the court in May did not resolve the CBIA’s claims for the long-term.

After considering the further arguments made by CBIA and SAB, the court found that no state funding is available within the meaning of SB 50, in large part because the amount approved by SAB for “next in line” funding applications exceeds the amount of available state funds for new construction. The court concluded that CBIA had demonstrated “no likelihood of success on the merits” of its claims and terminated the TRO. As a result, the SAB may now proceed to “notify the Secretary of the Senate and the Chief Clerk of the Assembly, in writing” of its determination that state funds are not available, which will open the door to the levying of Level 3 fees by individual school districts in accordance with law.

Although the recent ruling is good news for many school districts, it also may not be the end of the story. CBIA has expressed intent to oppose all efforts by the SAB to authorize Level 3 fees. It is possible that CBIA may rapidly appeal the superior court’s decision, and further may request that the trial court or the court of appeal stay the decision, in another attempt to halt imposition Level 3 fees. Additionally, the court’s denial of the injunctive relief does not terminate CBIA’s case, which may continue to move forward in the court.

In addition to a potential appeal, there are several practical issues facing school districts interested in levying Level 3 fees. Only school districts who are eligible for Level 2 fees may impose Level 3 fees; this issue will not be immediately relevant for school districts who have been eligible only for Level 1 statutory fees. Additionally, adoption of Level 3 fees may be only a temporary measure in place for the next several months. If voters approve the Kindergarten through Community College Public Education Facilities Bond Act of 2016 (Proposition 51), a $9 billion school bond measure on the November ballot, Level 3 fees will likely no longer be authorized once the SAB again begins to approve and fund apportionments.

Another consideration is that Level 3 fees are, by the terms of SB 50, a “supplemental” fee above the amount of the Level 2 fee. Once state funds are received, the supplemental amount (the difference between the Level 2 and Level 3 fees) must either be reduced from the state’s future funding to a school district or must be reimbursed to the developer who paid the fee. School districts can negotiate with developers as to whether and how the Level 3 supplement may be reimbursed to developers. With these thoughts in mind, and with the political pressure that developers may bring in some communities around the impact of school fees on the cost of housing, school districts should carefully evaluate whether and how to levy Level 3 fees and address the reimbursement issue at this time.

Should eligible school districts decide to proceed, they should first review their existing school facilities needs analyses and previously adopted board resolutions for Level 2 fees to determine what procedural steps remain to impose the Level 3 fees. School districts are encouraged to work with their legal counsel to ensure that they are taking the appropriate and necessary steps to impose Level 3 fees. It is very likely that local developers and CBIA will be watchdogging Level 3 fee imposition and that school districts may face legal challenges to any perceived procedural defect.

Lozano Smith’s developer fee handbook addresses imposition of Level 3 fees and related procedures, and remains available to current Lozano Smith school district clients at no cost, and to other school districts at a low cost. School districts that have not previously ordered the handbook can do so here or by contacting Client Services at clientservices@lozanosmith.com or (800) 445-9430.

For any questions about school impact fees, or Level 3 fees in particular, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Harold Freiman

Megan Macy

Shawn VanWagenen

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Energy Commission Sets Eligibility Deadline for Proposition 39 Funds

August 2016
Number 52

Local educational agencies (LEAs) must act soon to be eligible for funding under the Proposition 39 program. The California Energy Commission (CEC) stated earlier this month that energy expenditure plans (EEPs) will not be accepted after August 1, 2017. That leaves less than one year for LEAs to complete their EEPs.

The California Clean Energy Jobs Act, enacted by voter initiative (Prop 39) in 2012, provides funds to all LEAs in California for a variety of energy efficiency and conservation projects. In order to be eligible for funding, LEAs must submit an EEP to the CEC and receive approval. The EEP must include detailed information regarding proposed energy efficiency measures including energy savings, energy cost savings, measure costs, rebates, and other non-repayable funds to demonstrate a qualified savings-to-investment ratio. (For more information about the Prop 39 program and recent changes to the applicable guidelines, see 2016 Client News Brief No. 40.)

Until recently, the only significant deadline of concern to LEAs was June 30, 2018, which is the last day to “encumber” funds under the Prop 39 program. An encumbrance is defined by the California Department of Education as a “commitment in the form of a purchase order or offer to buy goods or services.” That means that LEAs have until June 30, 2018, to enter into an agreement to buy goods or services with Prop 39 funds. However, the CEC has now created the August 1, 2017 deadline with the intent of allowing sufficient time for “the planning process to receive allocation amounts, identify project energy measures and specifics, EEP development, submittal and approval, funding disbursement, and conclude with encumbering funds by the June 30, 2018, deadline.” This new eligibility deadline substantially shortens the window of opportunity to qualify for Prop 39 funding.

As this new deadline is likely to create a rush to complete EEPs, LEAs that have not already done so should begin the process now. If you have any questions regarding the Prop 39 program or energy efficiency and conservation projects, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon Lincoln

Shawn VanWagenen

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Supreme Court Upholds Superintendent’s Criminal Conviction for Misappropriating Funds

July 2016
Number 46

The Supreme Court of California in People v. Hubbard (2016) 63 Cal. 4th 378 recently upheld the criminal conviction of the former superintendent of the Beverly Hills Unified School District for improperly paying a district employee without board approval.

Jeffrey Hubbard served as superintendent of the Beverly Hills Unified School District from 2003 to 2006. During his tenure, he directed the district’s payroll department to increase the compensation of Karen Christiansen, the district’s director of planning and facilities, including increasing her auto allowance by $350 per month and issuing her a one-time stipend of $20,000. Hubbard testified this was compensation for additional work Christiansen performed for the district after the termination of its construction management team. Hubbard did not submit the auto allowance increase or the stipend to the district’s governing board for approval.

Hubbard was convicted of violating Penal Code section 424, which states that “each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys” who appropriates money without authorization for the use of another may be punished with imprisonment. Hubbard appealed his conviction, arguing that he was not an “officer” under Penal Code section 424 because only the board had the authority to approve the payments to Christiansen. The Court of Appeal agreed and overturned the conviction.

The Supreme Court of California reinstated Hubbard’s criminal conviction, holding that it did not matter whether Hubbard had exclusive control over the funds. As Hubbard had “some degree of material control over the funds’ disposition,” this was sufficient to establish criminal liability. The court found that as superintendent, Hubbard had a duty to safeguard school district funds and, as a public officer, he should face criminal liability for misappropriating those funds.

This case is an important reminder of the role of a superintendent and other public officers responsible for safekeeping public funds. It also cautions public administrators to obtain the approval of the governing board, city council or other governing body for salary increases. Superintendents and other public officers of cities, counties, school and other districts entrusted to safeguard public funds could be held criminally or civilly liable if they knowingly misappropriate public funds that they are responsible for protecting.

If you have any questions regarding the Hubbard decision or public officers’ responsibilities with respect to public funds, please contact the author of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Dulcinea Grantham

Partner

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Requirement to Offer Surplus Property to Interested Charter Schools Prior to Sale or Lease No Longer in Effect

July 2016
Number 44

School districts selling or leasing surplus property are no longer required to first offer that property to interested charter schools. The requirement has expired and is no longer effective as of July 1, 2016.

Surplus property is real property belonging to a school district that is not needed for school classroom buildings. Before a school district can dispose of surplus property, it must generally take certain steps, which include making written offers or solicitations to sell or lease the property to various statutorily designated agencies. (Ed. Code, §§ 17455, et seq.) If the property remains unsold or unleased after this process, it can be put out to bid to the general public.

Education Code section 17457.5, which became effective on June 27, 2012, required school districts seeking to sell or lease surplus property to first offer that property to any charter school that had submitted a written request to be notified of surplus property offered for sale or lease. Such offers were required for any property designed to provide instruction or instructional support, and interested charter schools received priority over other entities.

Section 17457.5 was originally set to become inoperative on June 30, 2013, and to be repealed on January 1, 2014. However, as part of the trailer bills adopted to implement the 2013-2014 state budget, these deadlines were extended to July 1, 2016. That date has now passed without further legislative action. As a result, the charter school requirements of section 17457.5 are no longer in effect.

We will continue to monitor and provide updates regarding any future legislation related to surplus property. The sunsetting of section 17457.5 does not impact any other school district obligations to charter schools under Proposition 39 or otherwise.

If you have any questions regarding this Client News Brief, or surplus property issues in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook orTwitter, or download our Client News Brief App.

School districts are also invited to review our Checklist for Sale or Lease of School District Surplus Property, which describes the requirements and other rules applicable to the lease or sale of surplus school property in detail. To access a copy of the most recent edition of the Checklist, click here.

Written by:

Harold Freiman

Partner

Kelly Rem

Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Energy Commission Makes Project-Friendly Changes to Proposition 39 Program Guidelines

July 2016
Number 40

On June 27, 2016, the California Energy Commission (CEC) issued a new set of proposed Proposition 39 Program Implementation Guidelines (guidelines). The proposed guidelines include a number of project-friendly changes, including a reduction in the Savings-to-Investment Ratio (SIR). These proposed guidelines are expected to be approved at the CEC’s general business meeting on July 13, 2016.

The California Clean Energy Jobs Act, commonly referred to as the Proposition 39 program, provides funds to all local educational agencies in the State of California for a variety of energy projects. The guidelines are intended to define how the state will implement the Proposition 39 program, and to provide direction to potential applicants on the types of awards and required proposals, describe the standards to be used to evaluate project proposals and outline the award process. The revisions to the guidelines should create additional flexibility for local educational agencies and increase the availability of Proposition 39 energy projects and funding.

Savings-to-Investment Ratio

Any local educational agency seeking Proposition 39 funding must show that its proposed energy project is “cost effective.” To be cost effective, the current guidelines require local educational agencies to achieve a minimum SIR of 1.05. The proposed guidelines reduce the SIR to 1.01, meaning that for every dollar invested on the project, the local agency must only accrue $1.01 in savings. This new minimum SIR applies to projects that include only one school site, and also applies cumulatively to projects involving multiple school sites.

Zero Net Energy

As an alternative option to satisfying the minimum SIR, the current guidelines allow local educational agencies to submit a narrative describing how a proposed energy project would be cost effective if the local agency can show that each school site benefiting from a Proposition 39 grant has zero-dollar utility bills, referred to as “Zero Net Energy.” Because very few local educational agencies are completely zero net energy, local educational agencies generally cannot take advantage of this option. The proposed guidelines allow the zero net energy option for any school site, i.e., on a per school site basis. This change opens the door for more local educational agencies to utilize the zero net energy option in lieu of satisfying the minimum SIR, even if the entire educational agency is not zero net energy.

The proposed guidelines also increase the maintenance savings assumption from 2 percent to 3 percent of project costs, remove certain size limitations to solar systems under power purchase arrangements and provide further clarification to other areas in the existing guidelines.

If you have any questions regarding the Proposition 39 guidelines or have any planned or anticipate planning energy projects and would like to discuss Proposition 39 eligibility and funding, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Devon Lincoln
Partner

Travis Cochran
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Job Order Contracting for School District Public Works Projects

June 2016
Number 35

As of January 1, California school districts have been authorized to use job order contracts for public works projects greater than $25,000. Approved by Governor Jerry Brown in October of last year, Assembly Bill No. 1431 modified the Local Agency Public Construction Act to authorize job order contracting for school districts until January 1, 2022. This bill comes after a decade-long pilot program of the job order contract project delivery method at Los Angeles Unified School District. At the same time, the new law requires prequalification and project labor agreements, echoing other recent laws.

Job order contracting is an alternative to the traditional lump-sum competitive bidding process used by school districts, and allows a district to assemble a stable of approved “on call” contractors from which the district may select to perform a clearly defined task for a pre-established unit price. This time-and-material contracting procedure is intended to minimize project costs, expedite project completion and reduce construction contracting complexity for school districts. (See Public Contract Code sections 20919.20 et seq. for the entire statutory scheme.)

If a school district wants to utilize job order contracting, it may do so by preparing a set of documents for job order contracts, including a price catalog with various tasks and proposed unit prices for those tasks, job order contract technical specifications, and any other necessary information to describe the school’s needs. The school district’s proposed unit prices must be based on local prevailing wages, but may not include overhead and profit. The school district may prepare a request for bid that invites prequalified job order contractors to submit competitive sealed bids that include “adjustment factors.” In their adjustment factors, bidding contractors increase or decrease the school district’s unit prices in the catalog as part of their bid. The statutes do not provide any specifics regarding the permitted bases for a bidding contractor’s adjustment factors. Awards are then made to the prequalified bidders that the school district determines to be the most qualified based upon criteria established by the school district.

This process enables school districts to enter into “master” contracts with contractors where each contractor may perform multiple projects (or “job orders”) on a time-and-material basis. Each job order may only include work covered by the district’s price catalog; any other work not listed in the catalog must be competitively bid, unless a legal exception to competitive bidding applies. Contractors are also given incentive to provide responsive services, quality work, and accurate proposals because their contracts may be renewed or extended after their initial term.

There are, however, limitations to a school district’s ability to use job order contracts. To take advantage of this process, a school district must prequalify the contractors, and also must have entered into a project labor agreement or agreements that will apply to all public works in excess of $25,000. Additionally, the maximum total dollar amount that may be awarded under a single job order contract may not exceed $5 million for the first term of the job order contract and, if extended or renewed, a maximum of $10 million over the subsequent two terms of the job order contract.

If you have any questions regarding job order contracting, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Arne Sandberg
Senior Counsel

Ellen Denham
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State Allocation Board Authorizes Collection of “Level 3” Developer Fees for the First Time in California History

*** Update: May 27, 2016***
The litigation that was threatened and that was mentioned in the below client news brief has become a reality. Details here.

May 2016
Number 33

The State Allocation Board (SAB) has taken the unprecedented step of determining that state funding is no longer available for apportionment for school facilities, triggering some school districts’ eligibility to collect higher ‘Level 3’ fees for the first time ever.

The Board’s historic May 25 decision is already facing potential challenges. The California Building Industry Association (CBIA) has indicated that it will seek a temporary restraining order to halt collection of Level 3 fees. If voters approve the $9 billion school bond measure on the November ballot, making state facilities money available again, collection of the fees may no longer be authorized. The triggering of Level 3 fees for the first time – in the nearly 18 years since Senate Bill 50 (SB 50) went into effect, in 1998 – will raise a number of questions for school districts, particularly in light of the threatened litigation and the November vote.

SB 50 revamped the state’s school facilities funding program and rewrote the law regarding school impact fees. Under SB 50, school districts could be eligible for one of three different levels of developer fees. All school districts that are able to justify the fees remained eligible to collect what have commonly become known as ‘Level 1’ fees, the statutory amount authorized by Education Code sections 17620, et seq. The Level 1 fee amounts are adjusted by the SAB every two years, and most recently rose to $3.48 per square foot for residential development and $0.56 per square foot for commercial development. For further discussion of the Level 1 fee increase, see 2016 Client News Brief No. 9.

School districts that meet certain express criteria laid out in Government Code sections 65995.5 and 65995.6, a higher ‘Level 2’ can be imposed on residential development. Unlike a fee justification study supporting a Level 1 fee, which gives school districts some flexibility in how to calculate the justified fee, the Level 2 fee is based on a very specific statutory formula. School districts support their eligibility for this fee in a “School Facilities Needs Analysis.”

Under SB 50, school districts that meet the criteria to be eligible for Level 2 fees would be able to increase to Level 3 fees if the SAB determines that state funding is not available for local school facilities projects. (Gov. Code § 65995.7.) Theoretically, Level 3 fees equate to approximately 100 percent of what the state assumes is the cost of school construction to house students from new residential development. (Both Level 2 and Level 3 fees are limited to residential development; school districts are only eligible to impose fees on commercial development under the Level 1 statutory scheme.)

One major difference between Level 2 and Level 3 fees is that while a Level 2 fee calculation takes into account the amount of local funds school districts dedicate to accommodating new growth (such as a general obligation bond), the Level 3 fee calculation does not include that component. As a result, unlike the Level 2 fee, the Level 3 fee does not penalize a school district for raising funds locally for new construction.

Until yesterday, the SAB has never taken action to determine that state funding is not available for facilities projects.

Since the early 2000s, there have been disputes about what it means for state funds not to be “available.” In 2012, ostensibly to avoid limiting California’s economic recovery, the Legislature amended Government Code section 65995.7 to make Level 3 fees inoperative through the end of 2014, unless no statewide bond measure was placed on the ballot by November of 2014, or such a measure was placed on the ballot but did not pass. When there was no statewide bond measure in 2014, the Level 3 fee legislation became effective again. The renewed the SAB’s authorization to determine that state funding is “unavailable.”

CBIA remains steadfastly opposed to Level 3 fees, as evidenced by their threat of legal action and testimony to the SAB. Until any such litigation is pursued and resolved, the question of how to move forward remains somewhat clouded. For school districts that are already eligible for or are collecting Level 2 fees, existing School Facilities Needs Analyses and previously adopted Board resolutions for Level 2 fees should be reviewed. Lozano Smith has long offered a Level 2 fee Board resolution that includes authorization for a Level 3 fee in the event that the SAB determines that state funds are no longer available. Absent such language in a resolution adopting a Level 2 fee, as well as supporting analysis in an adopted School Facilities Needs Analysis, school districts interested in levying Level 3 fees may have to begin a new process of preparing and approving a School Facilities Needs Analysis. School districts seeking to impose Level 3 fees may wish to consult with their legal counsel regarding the applicable procedures.

The intent of SB 50 was that Level 3 fees would essentially provide bridge financing until state funds again are available. If voters approve the Kindergarten through Community College Public Education Facilities Bond Act of 2016, a $9 billion school bond measure on the November ballot, Level 3 fees will likely no longer be authorized. Thus, any adoption of Level 3 fees may be only a temporary measure in place for the next several months.

Also, consistent with the intent of SB 50, once a statewide bond measure does pass, school districts will be required to reimburse the amount of Level 3 fees that were collected above the Level 2 fees. The reimbursement of this differential must either be made through an optional “reimbursement election” to the developers who pay the higher Level 3 fees, or by a reduction of future state facilities funding in an equivalent amount. (Ed. Code § 17072.20(b); Gov. Code § 65995.7(b).) This affords school districts some flexibility to negotiate with developers regarding school impact mitigation, including just how much may be reimbursed to the developer versus retained by the school district. SB 50 expressly authorized such negotiations. (Gov. Code § 65995.7(c).)

We will continue to monitor and report on the developments regarding Level 3 fees in the coming weeks and months. Lozano Smith authored the Level 3 fee section of “Senate Bill 50 and School Facilities Fees: A Report Prepared by C.A.S.H.’s Legal Advisory Committee” when SB 50 passed, and the firm also authors the “Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting and Accounting for School Impact Fees in California,” which includes procedures and relevant laws related to Level 3 fees.

Lozano Smith is continuing to make the handbook available to school district clients at no cost. School districts that have not previously ordered the handbook can do so here or by contacting Client Services at clientservices@lozanosmith.com or (800) 445-9430.

For any questions about school impact fees, or Level 3 fees in particular, please contact the authors of this Client News Brief or one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Megan Macy
Partner

Kelly Rem
Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Orders Publication of Decision on Lease-Leaseback, Making it Binding Precedent

May 2016
Number 29

On May 4, the Second District Court of Appeal in McGee v. Balfour Beatty Construction, LLC, et al. (McGee) ordered publication of its decision upholding the validity of a lease-leaseback arrangement. Publication of the decision means that it now serves as precedent on which school districts and others may rely.

In McGee, the court reviewed the validity of a lease-leaseback arrangement that was challenged on the grounds that the arrangement did not comply with Education Code § 17406. The party challenging the lease-leaseback arrangement relied heavily on the Fifth District’s decision in Davis v. Fresno Unified School Dist. (2015) 237 Cal.App.4th 261 (Davis), which held that a valid lease-leaseback arrangement under Section 17406 must include a “financing component” and a “genuine lease.” (For a further discussion of the Davis decision, see Client News Brief No. 30, June 2015.)

On April 12, the McGee court issued its decision to uphold the validity of the lease-leaseback arrangement. McGee also rejected Davis‘ interpretation of Section 17406 and Davis‘ attempt to improperly add requirements into the statute. Specifically,McGee disagreed with Davis‘ conclusion that a valid lease-leaseback arrangement must contain elements of a “genuine lease,” whichDavis understood to include occupancy of the premises during the lease term and a financing component. (For a further discussion of theMcGee decision, see Client News Brief No. 25, April 2016.)

On behalf of the California Association of School Business Officials (CASBO), Lozano Smith filed a request for partial publication, and sought to have the court publish the portion of the decision specific to Education Code § 17406 and the lease-leaseback construction delivery method. CASBO also requested that the court refrain from publishing a portion of the decision concurring with Davis that a third-party taxpayer may have standing to allege a conflict of interest under Government Code § 1090 when applied to the conduct of independent contractors. Although CASBO sought only partial publication, the McGee court granted publication of the entire decision, including the portion relating to a conflict of interest under Section 1090 (the court, however, has at least made it clear that application of Government Code § 1090 to independent contractors is very dependent on the specific facts). As a result of the publication order, the entire McGee decision is now precedent and can be relied on outside the Fifth District Court of Appeal, where Davis still controls. Legislation has recently been proposed which could again address lease-leaseback issues. We will be tracking all such legislation.

If you have any questions about this decision or the lease-leaseback construction delivery method, or about other project delivery methods, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Harold Freiman
Partner

Travis Cochran
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Another California Appellate Court Opines On Lease-Leaseback Construction

April 2016
Number 25

An appellate court has ruled that a lease-leaseback (LLB) contract without competitive bidding was legally enforceable. In McGee v. Balfour Beatty Construction, LLC, et al. (Apr. 12, 2016) 2016 Cal.App.Unpub. Lexis 2626, a California appellate court rejected the holding of Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261, that competitive bidding was required for an LLB contract unless additional non-statutory contract terms were included. However, the McGee decision agreed with Davis that a third party had standing to sue regarding the LLB contractor’s potential conflict of interest. Unfortunately, the McGee court elected not to publish its decision, meaning that it cannot be cited by other courts as legal precedent. Lozano Smith filed an amicus curiae brief with the McGee appellate court on behalf of the California Association of School Business Officials (CASBO).

As in Davis, the plaintiffs in McGee alleged that the LLB contract documents were not genuine leases, but instead were a “subterfuge” to avoid competitive bidding. However, unlike Davis, the appellate court in McGee held that the plain language of the LLB statute (Education Code §17406) only required that the school district own the land, that the lease be for purposes of construction, and that the title vest in the school district at the end of the school term. The court held that the plaintiffs’ “efforts to engraft additional requirements – such as the timing of the lease payments, the duration of the lease, and the financing – are not based on the plain language of the statute.” This in effect repudiates the Davis case.

In short, the McGee court declined to “rewrite the [LLB] statute.” It relied heavily on Los Alamitos Unified School District v. Howard Contracting, Inc. (2014) 229 Cal.App.4th 1222, which held that Education Code section 17406’s exception from competitive bidding was valid.

McGee also focused on whether the taxpayer plaintiff had standing as a third party to allege a cause of action for conflict of interest under Government Code section 1090 (as held in Davis), or did not have such standing (as held in another recent case, San Bernardino County v. Superior Court (2015) 239 Cal.App.4th 679). The appellate court held that the plaintiffs had standing since the present case was a validation action like Davis, and since a prior Supreme Court case (on which Davis relied) implicitly gave standing to third parties. In addition, the appellate court held that the plaintiffs’ allegations that the LLB contractor acted as an officer or employee of the District when performing pre-construction services were sufficient to let the cause of action proceed to trial.

What does the McGee decision mean for school districts? Since it is not binding precedent, it merely provides additional perspective on certain LLB issues, but this perspective highlights the ongoing uncertainty surrounding LLB. The appellate courts have not agreed on LLB and what contract terms are required, or on the standing of third parties to sue regarding an LLB contractor’s conflict of interest and the application of conflict of interest laws to private contractors. The California Supreme Court dodged this issue by denying review of the Davis case. There is yet another LLB case pending in another appellate court (California Taxpayers Action Network v. Taber Construction Inc., et al.), in which Lozano Smith also filed an amicus brief on behalf of CASBO. The hope remains that clarity will yet come out of these divergent cases.

One or more parties may request reconsideration, publication, or Supreme Court review of the McGee decision. If not reconsidered by the appellate court or reviewed by the Supreme Court, the McGee action would move forward in the trial court solely on the conflict of interest cause of action. However, the final judgment cannot be predicted, and may yet be appealed.

If you have any questions about the legality of LLB and which appellate court decisions may apply to your project, or about other project delivery methods, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Harold Freiman
Partner

Arne Sandberg
Senior Counsel

Travis Cochran
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

The Public Private Partnership (P3) Project Delivery Method: What Is It and Is It an Option for Your Project?

April 2016
Number 23

Local public agencies have several options when it comes to choosing a delivery method for a construction project. The public-private partnership method, or P3, is one option that is receiving increased attention. P3 involves a long term partnership between a public agency and private entity, where typically the private entity finances, designs, builds, operates, and/or maintains a fee-producing public project. In exchange, the private entity will be repaid over an extended period of time through the fees generated by the public project or as otherwise permitted by statute. This can involve the private entity’s lease or ownership of the project for an extended period of time during the repayment period.

In order to utilize the P3 method for a public agency’s project, there must be authorizing legislation. The primary P3 law is the California Infrastructure Finance Act (Gov. Code §§ 5956 et seq.), which allows P3 for specific types of fee-producing local government projects through a “competitive negotiation” process. This Act applies to cities, counties, school districts, community college districts, county boards of education, public districts, joint powers authorities, transportation commissions or authorities, and any other public or municipal corporations. The Act covers specified types of projects: irrigation; drainage; energy or power production; water supply, treatment, and distribution; flood control; inland waterways; harbors; municipal improvements; commuter and light rail; highways or bridges; tunnels; airports and runways; purification of water; sewage treatment, disposal, and water recycling; refuse disposal; and structures or buildings, except structures or buildings to be primarily used for sporting or entertainment events.

Other California statutes allow P3 but apply less generally to local public entities. For instance, Government Code section 70371.5 permits public-private partnerships whereby the private entity shares some of the risk of financing, design, construction, or operation of court facilities. Section 143 of the Streets and Highways Code permits CalTrans and regional transportation agencies to partner with private entities for transportation projects.

One notable P3 project that has garnered attention recently is the new city hall, library, park, and port headquarters being built in the City of Long Beach. The City benefited from specific legislation that established its right to utilize the P3 method for these projects. (Gov. Code §§ 5975 et seq.) Since these projects were not fee-producing, existing legislation did not permit use of P3.

A major benefit of the P3 method is the ability to obtain private financing. Additionally, risks and responsibilities of the project design and construction are shifted to the private entity. Of course, the public agency also gives up some control of the project design. Each project is unique and each public agency’s needs are different, so the use of P3 should be evaluated on a case-by-case basis. For additional information about other project delivery methods, read the following: Client News Brief No. 8, February 2015 and Client News Brief No. 71, November 2015.

If you have any questions regarding P3 or other delivery methods for your project, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

David Wolfe
Partner

Arne Sandberg
Senior Counsel


Maryn Oyoung
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Supreme Court Refuses to Review Court of Appeal Decision Barring Parcel Tax Challenge Filed after Expiration of Period for Reverse Validation Action

April 2016
Number 22

The California Supreme Court recently denied a petition for review of the Court of Appeal’s decision in Golden Gate Development Company, Inc. v. County of Alameda, et al. (2015) 242 Cal.App.4th 760. As a result, the holdings in Golden Gate Development remain undisturbed, including that: (1) a reverse validation action is the proper procedure for challenging a parcel tax; and (2) such action must be brought within 60 days of passage of the parcel tax measure.

In February 2014, real estate developer Golden Gate Development Company, Inc. (Golden Gate), filed suit seeking a refund of taxes paid under parcel tax measures of the Albany Unified School District (District) passed in 2009. Golden Gate’s complaint, which referenced the recent decision in Borikas v. Alameda Unified School District (2013) 214 Cal.App.4th 135, alleged that the tax rates Albany’s measures were improper because different rates were imposed on residential and nonresidential properties, as well as nonresidential properties of different sizes. In Borikas, the Court of Appeal held that a tiered-rate parcel tax exceeded the school district’s taxing authority and was invalid because the rate structure was not uniform for all taxpayers and parcels.

The County and District demurred to Golden Gate’s complaint, contending that Golden Gate failed to present its claims in a reverse validation action within 60 days of passage of Albany’s measures pursuant to Code of Civil Procedure section 860 et seq. Generally, the validation statutes provide an expedited process by which certain public agency actions may be determined legally valid and not subject to subsequent legal challenge. The trial court sustained the demurrer without leave to amend. Golden Gate appealed the trial court’s decision.

The Court of Appeal upheld the trial court’s ruling, finding that the exclusive procedure for challenging the validity of the parcel tax measures was a reverse validation action. In reaching its decision, the court reasoned that Golden Gate’s claim, while styled as a refund of taxes, was based on the alleged illegality of the tax scheme of the parcel tax measures, which can only be challenged under the validation statutes. Since Golden Gate did not timely bring a reverse validation action against the measures, it had missed its opportunity to challenge their legality.

On February 17, the California Supreme Court refused to disturb the ruling, denying Golden Gate’s petition for review; therefore, this decision is now settled law.

Lozano Smith prepared the amicus curiae brief of the California School Boards Association’s Educational Legal Alliance in support of the District before the Court of Appeal.

If you have questions regarding this decision, or parcel taxes generally, or would like assistance preparing a parcel tax measure, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California United States District Court finds that Prayers, Bible Readings, and Proselytizing at School Board Meetings Violated the U.S. Constitution

April 2016
Number 20

A United States District Court in California recently concluded that a school board unconstitutionally endorsed religion by reciting prayers, conducting Bible readings, proselytizing at board meetings and adopting a resolution allowing religious prayer at board meetings. (Freedom from Religion Found., Inc. v. Chino Valley Unified School Dist. Bd. of Ed. (C.D. Cal. Feb. 18, 2016) Case No. 5:14-cv-02336-JGB-DTB, 2016 U.S. Dist. Lexis 19995.) The Establishment Clause of the U.S. Constitution’s First Amendment prohibits public entities from passing laws regarding an establishment of religion, which correspondingly bars government agencies from promoting or affiliating with any religious doctrine or organization. Unlike permissible prayer before certain legislative bodies’ meetings, the District court in Freedom from Religion Foundation found prayer and proselytizing at school board meetings akin to prayer at school football games or graduations, which have previously been restricted or struck down by the courts.

In 2014, the Board of Education for the Chino Valley Unified School District adopted a resolution regarding invocations at board meetings and instituted several policies regarding delivery of invocations. Specifically, the board resolution allowed invocation or prayer to be offered at board meetings to “solemnize” the proceedings. A local clergy member or religious leader would be invited to deliver the invocation or prayer, but a board member or member of the audience could volunteer to deliver the prayer in the absence of a religious leader. The board could not review or preview the planned prayer and an invocational speaker could not be scheduled for more than three board meetings in a calendar year. The board resolution expressly stated it was not intended to express the board’s preference for or affiliate with any faith or religious denomination.

At board meetings, however, various board members delivered the invocation, recited and read passages from the Bible, and made comments of a religious nature. Students were present at board meetings and attended as student representatives on the board, to give presentations, accept recognition for achievements, and at times for disciplinary reasons. Parents of and students enrolled in the District filed a lawsuit alleging that the District violated the Establishment Clause through its policy and practice of prayer at school board meetings.

As an initial matter, the court found that the plaintiffs suffered an injury because they attended board meetings where religious prayers were delivered and were offended. The merits of the case hinged on the characterization of board meeting prayers. The plaintiffs argued that the prayers were similar to prayer in public schools, which has been restricted by the courts under the U.S. Constitution. The District argued that school board prayer is subject to the “legislative prayer” exception, which under United States Supreme Court precedent permits for legislatures to open sessions with prayer. The court rejected the District’s argument and found that the legislative prayer exemption does not apply because of student involvement in board meetings and the “distinct risk of coercing students to participate in, or at least acquiesce to, religious exercises in the public school context.” Having made this finding, the court continued the required analysis regarding whether the board policy and its actions violated the U.S. Constitution.

The court analyzed whether the board’s policy and practice: (1) had a secular purpose; and (2) had the effect of endorsing religion. The court noted that the stated purpose of the resolution was to “solemnize” board meetings. However, the statements of board members “cast serious doubt on the sincerity of the school board’s articulated secular purpose.” The court gave specific examples of “overtly religious, proselytizing statements” that raised serious questions about the motivation of the resolution. The court concluded that there were non-sectarian ways to solemnize board meetings, such as using inspirational words from American leaders. For those reasons, the court found that the District failed to show the resolution had a secular purpose. The court further concluded that the effect of the board’s resolution was to promote Christianity. This conclusion was based on the opening prayers, Bible readings, and references to Jesus Christ by board members throughout the meetings.

Ultimately, the court ruled that the District’s board violated the U.S. Constitution and ordered that the board members no longer permit or endorse school-sponsored prayer at school board meetings. The court also awarded the plaintiffs attorneys’ fees and costs.

The time to appeal the court’s ruling in Freedom from Religion Foundation has not yet expired and early indications are that the District will appeal. While the court’s ruling is not binding on other California state or federal courts, it does signal how federal courts in California may address this issue if and when litigated. That is, decisions of federal district courts are not binding precedent for California state or federal courts, however, California state and federal courts may look to such decisions as persuasive authority. For these reasons, California school boards should be mindful of prayers at board meetings and the potential for liability. Please note that Freedom from Religion Foundation and its analysis is specific to school boards. For more information regarding prayer at city council and other public entity board meetings under the United States Supreme Court’s opinion on point in Town of Greece, New York v. Galloway, (see Client News Brief No. 28, May 2014).

If your school district has any questions regarding the Freedom from Religion Foundation, Inc. opinion or the prayers or invocations at school board meetings in general, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Frances Valdez
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Two Cases Demonstrate the Reach of Government Code Section 1090: Criminal and Civil Penalties Await the Unwary Government Official

March 2016
Number 15

Two recent cases involving high profile public officials highlight the reach of Government Code section 1090. Government Code section 1090 prohibits conflicts of interest, self-dealing and corruption among public entity officials.

Sweetwater Union School District v. Gilbane Building Company (February 24, 2016) 245 Cal.App.4th 19, sprang from one of the largest political corruption scandals in San Diego County history, in which construction vendors provided gifts to school district board members as incentives for the award of construction management contracts. Among other things, vendor representatives paid for expensive dinners with District officials, provided tickets to entertainment and sporting events, paid travel expenses, and made contributions to political campaigns and charities in an effort to influence the District’s award of construction management contracts. District board members and vendor representatives pled guilty to various crimes associated with this “pay to play” scheme.

The District sought to void three construction management contracts under Government Code Section 1090, and demanded that the vendors awarded those contracts disgorge all monies paid under the void contracts. In response, the vendors filed an anti-SLAPP motion challenging the District’s Section 1090 claim. “SLAPP” refers to a “strategic lawsuit against public participation” — that is, a lawsuit brought primarily to “chill”, or prevent, the valid exercise of constitutional rights to challenge unlawful conduct. An “anti-SLAPP motion” refers to the procedural mechanism a defendant may use to challenge that “chilling” lawsuit as an alleged infringement of the defendant’s free speech rights. A court faced with an anti-SLAPP motion must engage in a two pronged analysis. First, the court decides whether the defendant made a threshold showing that plaintiff’s claim is one arising from protected activity. However, a defendant cannot meet this showing if its alleged protected activity is illegal as a matter of law. Second, if the defendant clears this initial hurdle, the court then analyzes whether the plaintiff has demonstrated a probability of prevailing. If the plaintiff meets that burden, the anti-SLAPP motion will be denied.

The trial court held that the vendors’ anti-SLAPP motion could not meet the first element, finding that the conduct underlying the complaint was illegal as a matter of law.

On appeal, however, the Sweetwater court disagreed with the trial court’s finding on the first element, concluding that the vendors could show that their claim arose from constitutionally protected activity, namely that making political contributions and lobbying government officials is a type of political speech. The appellate court also held that although the District introduced evidence that many of the individuals entered guilty or no contest pleas to certain criminal activity, none of the individuals pled guilty to Section 1090 violations. The Sweetwater court found that “while the evidence may establish that some of the conduct may have been illegal, the evidence does not establish that all of the conduct at issue was illegal as a matter of law.” (Emphasis in the original.)

The Sweetwater court next turned to the second element of an anti-SLAPP motion, finding that the evidence the District proffered confirmed that the District had a probability of prevailing on the merits of its Section 1090 claims. While there was no allegation that any official stood to gain economically from the contract performance, it was clear they had a financial interest in the relevant contracts as a result of activities that occurred during the contracting process and in the making of the contracts. For example, testimony of those convicted and testimony of other individuals knowledgeable of the facts showed that the gifts and contributions were made for the purpose of swaying District officials’ votes in favor of awarding contracts to the vendors. Thus, one could reasonably infer from the chronology of campaign contributions and excessive gift giving, together with the award of the contracts, that the former District officials were influenced to award contracts to the vendors as a result of the gifts and contributions. Accordingly, because the District showed facts sufficiently demonstrating a probability of prevailing on its Section 1090 claims against the vendors, the District defeated the anti-SLAPP motion and the case continued.

In another case involving Government Code section 1090, a former school district superintendent in San Diego County recently pled guilty to a felony charge for bonuses he received tied to the approval and authorization of charter schools. Steve Van Zant served as the Superintendent of the Mountain Empire School District (San Diego County) from 2008 through 2013. Beginning in 2010, Mr. Van Zant’s contract awarded him a stipend for each charter school that the District authorized. The stipend was equivalent to five percent of the revenue generated by the charter authorization. Once authorized, a handful of the charter schools subsequently hired Mr. Van Zant’s private consulting firm to provide administrative services.

In January 2016, the San Diego District Attorney’s office filed a felony charge against Mr. Van Zant alleging that his actions violated Government Code section 1090’s conflict of interest provisions. While unwilling to provide specific details, the District Attorney noted that Mr. Van Zant violated section 1090 on or around May 12, 2010 (the date Mr. Van Zant’s stipend incentive was adopted). On February 26, 2016, Mr. Van Zant pled guilty to the felony charge. As part of his plea agreement, Mr. Van Zant agreed to return the stipends he received for authorizing the charters, 5 years’ probation, 300 hours of community service, and 30 days home confinement.

These two cases illustrate that seriousness of Government Code Section 1090’s conflict of interest provisions, and demonstrate the very real potential of penalties for a violation. If you have any questions about these cases or Government Code section 1090, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

William Curley III
Senior Counsel

Matthew Hicks
Senior Counsel

Ryan Tung
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Supreme Court Holds Attorney-Client Privilege Not Waived by Public Agency’s Accidental Disclosure of Privileged Communications in Response to a Public Records Act Request

March 2016
Number 14

If a public agency accidentally discloses privileged attorney-client information when it responds to a Public Records Act request, does the agency waive the attorney-client privilege? The answer is no, according to a California Supreme Court ruling issued today, March 17, 2016. The decision significantly impacts how public agencies throughout the state handle Public Records Act requests.

In Ardon v. City of Los Angeles, the California Supreme Court resolved conflicting rulings by courts of appeal on the proper interpretation of a provision of the Public Records Act, Government Code section 6254.5, which provides in relevant part:

Notwithstanding any other provisions of law, whenever a state or local agency discloses a public record which is otherwise exempt from this chapter, to any member of the public, this disclosure shall constitute a waiver of the exemptions specified in Section 6254, 6254.7, or other similar provisions of law.

The California Supreme Court reversed a decision by the Second District Court of Appeal, which had held that the City of Los Angeles waived the attorney-client privilege as to documents the City mistakenly disclosed to a taxpayer, who was also the plaintiff in a pending lawsuit against the City. In response to a Public Records Act request made by the plaintiff, the City handed over 53 pages of documents, three of which were privileged and previously withheld when the plaintiff requested them in litigation. The City requested return of the privileged documents two months after their production when the requesting party’s attorney notified the City that the documents were produced. The Ardon Court of Appeal concluded that because “the City has disclosed the documents to one member of the public,” that it “was prohibited as a matter of law from ‘selectively withholding’ that document from any other member of the public.” Furthermore, according to the Ardon Court of Appeal, the plain language of section 6254.5 dictated a waiver because the law contained nine explicit exceptions to waiver, but did not include documents handed over by mistake or inadvertence.

Rejecting the decision of the Ardon Court of Appeal, the California Supreme Court followed the First District Court of Appeal in Newark Unified School District v. Superior Court (Newark). Lozano Smith successfully represented Newark Unified School District in this litigation, including before the Court of Appeal (See Client News Brief No. 42, August 2015). In contrast to the Ardon Court of Appeal, the Newark Court of Appeal held that a school district did not waive the attorney-client privilege when its employee accidentally gave privileged information to the requesting party. The California Supreme Court agreed, reasoning in Ardon that the Legislature could not have possibly contemplated that the mistaken release of privileged information would waive the attorney-client privileges, especially given the Public Records Act’s safeguards for private, sensitive information of citizens that are in the hands of the government. Rather, the law focused on preventing intentional and selective disclosures by a public agency. Citing to Newark‘s discussion of the law’s legislative history, the California Supreme Court stated: “When a release is inadvertent, no selection occurs because the agency has not exercised choice in making the release. It was an accident. Accordingly, an inadvertent release does not involve an attempt to assert the exemption as to some, but not all, members of the public, the problem section 6254.5 was intended to address.” Like the Newark Court of Appeal, the California Supreme Court further reasoned that Evidence Code section 912 and the importance of the attorney-client privileges repudiate “the ‘gotcha’ theory of waiver, in which an underling’s slip-up in a document production becomes the equivalent of actual consent.” Indeed, one further point made by the California Supreme Court is the impracticality of such a rule: “the logistical problems public entities can face in reviewing, in some cases, even thousands of pages of records responsive to a public records request . . . is daunting. It would be foolish to believe that human errors in the processing of public records requests will cease . . . .”

It is important to emphasize that the California Supreme Court in Ardon, like Newark, presumed that a public agency’s mere assertion that a mistaken release of documents could be challenged and a trial court would examine all the relevant circumstances to determine waiver. “This holding applies to truly inadvertent disclosures and must not be abused to permit the type of selective disclosure section 6254.5 prohibits,” the California Supreme Court stated. Moreover, in some circumstances, it may not matter whether or not a public agency can show that it released documents by mistake. Public agencies must take note of the caveat in the Newark decision, that a member of the public could prove the distribution of privileged documents reached a point that would make a court order to return the documents hard to enforce. Newark specified that trial courts would have to make a determination on a case-by-case basis; in Newark, there was no evidence of such a wide and irretrievable distribution and the school district employee quickly put the requesting party on notice of the accidental disclosure of privileged documents and demanded their return. This “Newark notice” appears a prudent step by public agencies that would seek a court order to return privileged documents disclosed by mistake.

In October 2015, the California Supreme Court granted review of the Newark decision, but effectively stayed its review pending the outcome of Ardon. Today, the California Supreme Court ordered the Newark decision published and noted that order in its Ardon decision, meaning that the case is good law to be relied upon by public agencies statewide.

The school district’s litigation team in Newark included Lozano Smith Partners Jerome Behrens and Sloan Simmons, Senior Counsel Steve Ngo and Matthew Hicks, and Associate Frances Valdez.

If your public agency has any questions regarding the Ardon or Newark opinion or the Public Records Act in general, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Sloan Simmons
Partner

Steve Ngo
Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

The Department of Industrial Relations Suspends Electronic Submission of Certified Payroll Records by Contractors

March 2016
Number 13

The Department of Industrial Relations (DIR) recently announced that it has temporarily suspended enforcement of its requirement that contractors submit their certified payroll records (CPR) electronically. This electronic system (“eCPR” system) was intended to take the place of contractors submitting paper copies of their records, but the eCPR system is not working as expected. Even though the DIR has suspended the eCPR system for the time being, contractors are still required by Labor Code section 1771.4 to submit their CPR to DIR at least monthly. As a result, questions have been raised as to where and how contractors are to file their CPR.

The CPR submittal requirement is part of Senate Bill 854 (SB 854) which introduced this requirement so that the DIR could monitor whether prevailing wages are being paid on public works projects. SB 854 also added the contractor registration requirements and related provisions as described in an earlier Lozano Smith news brief (see Client News Brief No. 43, July 2014). The Labor Commissioner announced last year that contractors would have to submit their CPR to the DIR through the eCPR system.

Although DIR has suspended the eCPR system, it has not provided guidance as to how contractors should submit their CPR to the DIR in the meantime. Nothing in the language of SB 854 or recent DIR notices requires public agencies to accept the CPR from contractors as a substitute for the eCPR system. Instead, contractors remain obligated to maintain CPR and to provide them upon request, as provided in Labor Code section 1776. The DIR reports that the eCPR upgrades should be completed by June 2016. Hopefully, the eCPR system will be back in operation in time for the peak of the summer construction season.

If you have any questions about these CPR issues or other items related to upcoming construction projects, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Ruth Mendyk
Partner

Arne Sandberg
Senior Counsel

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

April 1 Deadline for Filing Form 700’s

March 2016
Number 11

April 1 is the deadline for those holding “designated positions” under their agency’s Conflict of Interest Code (Code filers), as well as so-called “Section 87200 filers,” to file the annual Statement of Economic Interests (Form 700). Section 87200 filers include mayors, city council members, city managers, city attorneys, city treasurers, members of planning commissions, members of the board of supervisors, district attorneys, county counsels, county treasurers, county chief administrative officers, other public officials who manage public investments, and candidates for any of these offices at any election. The Political Reform Act (Gov. Code, §§ 81000-91014) requires those public officials and employees to disclose on Form 700 certain investments, interests in businesses and real property, and sources of income, as well as certain gifts that were received in the previous 12-month period which exceed designated dollar amounts. School districts, cities, counties, and other public agencies are required to adopt a conflict of interest code which, at a minimum, includes the terms of Government Code section 87300, and the related regulations.

If a Code filer or Section 87200 filer receives a gift or gifts totaling $50 or more from a single source in the previous calendar year, then the gift or gifts must be disclosed on the Form 700. (Gov. Code, § 87210) The filers may not receive gifts totaling more than $460 (for 2015-2016) in any calendar year from a single source if they would be required by their agency’s Code or Section 87200 to report income or gifts from that source on Form 700. (Gov. Code, § 89503; Cal. Code Regs., tit. 2, § 18940.2)

The Political Reform Act includes a broad definition of a “gift”: anything of value that is received by a public official or employee for free or at a discount and which is not otherwise made available to members of the general public. This could include meals, tickets to concerts or sporting events and some forms of travel. There are some limited exceptions for gifts that are exchanged for holidays, birthdays and similar occasions, gifts received from relatives and informational materials that primarily convey information and are provided to assist the recipient in the performance of his or her official duties. (Cal. Code Regs., tit. 2, §§ 18942, 18942.1) Because the reporting of gifts and other conflict of interest issues have drawn particular scrutiny and media attention recently, including a few high-profile enforcement actions, particular care should be taken to comply with the rules.

Under the Political Reform Act, required filings such as Form 700 must be open for public inspection and reproduction during a public agency’s regular business hours. Although these disclosure requirements are similar to the Public Records Act, there are separate rules that apply. (Gov. Code, § 81008)

If you have any questions regarding the Political Reform Act’s rules on gifts, when reporting is required, or updating your agency’s conflict of interest code, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Ruth Mendyk
Partner

David Wolfe
Partner

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State Allocation Board Adopts Increase to Level One Developer Fees That Can Be Imposed by School Districts

February 2016
Number 9

On February 24, 2016, the State Allocation Board (SAB) adjusted the amount of “Level 1” developer fees that school districts are authorized to collect to $3.48 per square foot of residential development and $0.56 for commercial development. The SAB’s action represents a 3.59 percent increase over the maximum amounts authorized as of January of 2015. The increase takes effect immediately, and may now be implemented by school districts through local action. The latest increase came after the SAB initially took action on January 27, 2016, to authorize a smaller increase of only 1.05 percent over the previously authorized amounts. Following that initial action, the SAB was made aware of a discrepancy in the data used to support the increase, and took further action on February 24 to resolve the discrepancy.

Government Code section 65995 authorizes the SAB to increase the amount of Level 1 developer fees that school districts are authorized to collect. Such an increase may be adopted in every even year. The SAB based increases prior to 2016 on the Marshall & Swift Eight California Cities Index for construction costs. In April of 2015, the SAB adopted the Class B construction cost index according to the RS Means Index. At its January meeting, the SAB based its 1.05 percent increase on the RS Means Index. After that increase was approved, RS Means provided corrected source data to the Office of Public School Construction (OPSC). OPSC staff reviewed the new data and recommended that the SAB amend the 2016 Level 1 assessment for development fees to reflect the corrected amounts. On February 24, 2016, the SAB approved that recommendation.

The SAB increase does not affect “Level 2” developer fees, which must be adopted annually based on a school district’s own School Facilities Needs Analysis. The change also does not affect “Level 3” fees, which school districts may not collect unless and until the SAB certifies that state funds for new school facility construction are no longer available. Since Level 3 fees were created by the Legislature nearly two decades ago, the SAB has never been willing to make that certification.

Based on this and other legal developments, Lozano Smith is preparing the 2016 update for Lozano Smith’s publication, Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California. The handbook can help school districts reduce their legal costs by providing comprehensive information regarding California law and process for school impact fees. Toward this end, the handbook contains procedures, time lines, checklists, and forms to be used when adopting and implementing fees and/or increases.

At this time, Lozano Smith is continuing to make the handbook available to school district clients at no cost. School districts that previously ordered the handbook will be sent the 2016 updates at no charge. School districts that have not previously ordered the handbook can do so here.

For more information on the Developer Fee Handbook, or to order a copy, please contact our Client Services department at: clientservices@lozanosmith.com, or call (800) 445-9430. If you have any questions regarding the adoption or implementation of fee increases or any other developer fee issue, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold Freiman
Partner

Kelly Rem
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Solar Energy Gets Two Important New Year Boosts

February 2016
Number 10

The future of solar energy projects for public agencies looks bright, as two important incentives expected to expire at the end of the year have instead been renewed. Specifically, the federal Solar Investment Tax Credit (ITC), which supports most power purchase agreements (PPAs), was set to expire December 31, 2016. In addition, by most estimates, the current Net Energy Metering program that the investor-owned utilities have up until now offered to their public agency customers (often called NEM 1.0) appeared likely to run out over the summer of 2016. Particularly in the latter half of 2015, school districts and other public agencies accelerated solar energy projects, and especially PPAs, in order to take advantage of these incentives before they expired.

These two pending expirations drove a veritable boom in solar projects planned for this year. However, Congress has now extended the ITC, and the Public Utilities Commission (the Commission) has created a successor Net Energy Metering program. These programs will continue to make the economics of new solar energy projects more attractive than ever to public agencies.

On December 18, 2015, Congress voted to extend the ITC for an additional five years. The ITC offers a federal tax credit of thirty percent of the total cost of qualified solar energy projects. Originally established by the Energy Policy Act of 2005, the ITC was set to expire at the end of 2016. However, as part of the Consolidated Appropriations Act of 2015 (H.R. 2029), Congress extended the thirty percent tax credit for projects beginning prior to January 1, 2020. The ITC will then be gradually phased out through 2022. In practical terms, the ITC makes it possible for a solar energy provider to offer low, fixed rates of energy through a PPA, because the solar energy provider can utilize the ITC to offset tax costs elsewhere in its portfolio. The extension of the ITC has been widely seen as a victory for clean energy projects nationwide.

Also in December 2015, the Commission issued a decision proposing to adopt a new Net Energy Metering (NEM) program. Under the current NEM 1.0 program, solar projects may receive a financial credit from the three investor-owned utilities (Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDGE)) for unused power, to offset future energy bills. For instance, if a school district has installed a solar photovoltaic system on a school facility under NEM 1.0, it is able to sell unused power generated by that system (for instance, power generated during the summer when the facility is unoccupied) to its utility at the same rate at which the district would purchase power from the utility when its system is not generating sufficient energy for the facility’s needs (e.g., during evening functions at the facility). NEM 1.0 is limited to a set number of megawatts of energy for each utility, and is forecasted to end sometime in 2016 once it reaches the program capacity.

On January 28, 2016, the Commission’s proposed decision was adopted. As a result, many of the benefits of NEM 1.0 have been extended with NEM 2.0. Eligible solar energy projects will continue to receive a credit for unused power generated. The new NEM program also retains an annual net metering calculation which is particularly important to school districts and other agencies with a large seasonal variation in electricity usage. While the new NEM program retains many of the benefits of the original NEM program, it does allow utility providers to charge an interconnection fee and other nonbypassable charges. The Commission will review the new NEM program in 2019 to evaluate possible adjustments. You can read the decision here.

NEM 2.0 will take effect for new NEM customers after the utilities’ existing NEM program participation caps are met, or July 1, 2017, whichever comes first. Customers who enroll prior to the expiration of the existing NEM program will be eligible for NEM 1.0.

These two actions means that the economic conditions for solar projects remains favorable, but of course each project should be evaluated on its own merits. For more information on the legal landscape of solar energy projects, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Devon Lincoln
Partner

Shawn VanWagenen
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Tactical Response Plans and SB 707: Are Your Schools Prepared to Evaluate and Respond to Threats?

February 2016
Number 8

Recently, various school district officials nationwide received anonymous communications threatening violent attacks. These events, and the school districts’ responses, highlight the importance of having appropriate plans in place to evaluate and respond to threats.

The California Education Code establishes the basic framework for school districts to take steps to make schools safe. Each school in a district is required to develop a comprehensive school safety plan “that addresses the safety concerns identified through a systematic planning process.” (Ed. Code, § 32280.) A “safety plan” is “a plan to develop strategies aimed at the prevention of, and education about, potential incidents involving crime and violence on the school campus.” (Ed. Code, § 32280.) The plan must be annually reviewed and updated by March 1. (Ed. Code, § 32286.)

Generally, the school site council is responsible for developing the safety plan. (Ed. Code, § 32281.) However, in lieu of the school site council, a school district or county office of education may elect to develop confidentially the portions of the safety plan that include tactical responses to criminal incidents that may result in death or serious bodily injury at the school site, otherwise known as a “tactical response plan.” (Ed. Code, § 32281(f)(1).) The term “tactical response” means the “steps taken to safeguard pupils and staff, to secure the affected school premises, and to apprehend the criminal perpetrator or perpetrators.” (Ed. Code, § 32281(f)(2).) When developing a tactical response plan, district or county officials must consult with law enforcement officials and invite representatives of exclusive bargaining units of district employees to participate. (Ed. Code, § 32281(f)(1).)

The range of incidents that may be addressed in a tactical response plan is broad, and may include serious criminal threats and acts such as bomb threats, active shooter situations, and terrorist attacks. Tactical response plan considerations will vary by district and school. What may be a critical need during an emergency for a large urban school district may not be a concern for a rural school district. Similarly, rural schools may not be able to rely on the resources provided to schools in urban areas. Recognizing this reality, the components of a tactical response plan are purposefully broad to allow educators and law enforcement officials to tailor plans to the unique needs of their district.

Because of the sensitive nature of tactical response plans, they are afforded special protection from disclosure to the public. For example, a governing board may meet in closed session to discuss the tactical response plan. (Ed. Code, § 32281(f)(3); Gov. Code, § 54957.) Additionally, the plan may be exempt from disclosure under the California Public Records Act. (Ed. Code, § 32281(f)(1); Gov. Code, § 6254(aa).) However, a governing board must publically announce the outcome of any vote to approve the plan. (Ed. Code, § 32281(f)(3).)

One current, critical issue related to tactical responses for active shooter situations is permitting the presence of concealed weapons on campus. Recently passed legislation, Senate Bill (SB) 707, gives district officials the authority to determine whether concealed weapon permit holders may possess firearms on school grounds. However, SB 707 provides no guidance to district officials on appropriate standards and procedures in exercising that authority. As a result, school officials are left to struggle with important questions, including:

  • Should concealed weapons be permitted at district sites at all?
  • Who should be granted permission?
  • What criteria should be applied for granting permission?
  • What conditions should be imposed on the storage, handling and use of concealed weapons?

The answers to these questions implicate student and staff safety, district and individual liability exposure, and risk management.

The recent threats across the country are a reminder to California educators to be vigilant and to proactively address student safety, including by paying close attention to the tactical response components of school safety plans.

Lozano Smith will be presenting workshops on topics relating to school safety and SB 707 implementation. For information on our next series of workshops click here.

If you have any questions regarding comprehensive school safety plans, tactical response plans, and SB 707, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Trevin Sims
Partner

Eric Barba
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Good for a Limited Time Only: MCDC Settlement Offers on the Way

February 2016
Number 5

On Wednesday, February 10, 2016, the Government Finance Officers Association (GFOA) issued an alert urging bond issuers to be on the lookout for calls from the Securities and Exchange Commission’s Enforcement Division with settlement offers under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. Based on the SEC’s treatment of underwriters in recent rounds of settlement negotiations (in which underwriters were given as little as one week to agree to settlement terms), the GFOA cautions issuers to be prepared for a similarly short timeline to agree to the terms of settlement.

As we reported in 2014 (see Client News Brief No. 45, July 2014), the MCDC Initiative was launched in early 2014 by the SEC to allow bond issuers and underwriters to self-report potential violations of their disclosure obligations. The deadline for bond issuers to participate in the MCDC Initiative was December 1, 2014.

Careful consideration should be given by any bond issuer, in consultation with its legal experts, before entry into a settlement under the MCDC Initiative. As reported in the Wall Street Journal, Lozano Smith negotiated the nation’s first settlement under the MCDC Initiative, on behalf of a California school district. Read the article here or here. Our firm has assisted many school districts, community colleges, and other public agencies as bond counsel, disclosure counsel, and district counsel. If you have any questions about the MCDC Initiative, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By
Daniel Maruccia
Partner

Sean Mick
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

School Districts and Community Colleges May Not Pay for Pre-Election Services with Bond Proceeds

February 2016
Number 4

In light of a recent Attorney General opinion, school districts and community colleges are advised to examine their contracts with municipal finance firms for their planned future bond elections and post-election issuance services, particularly where the agency will pay for such services on a contingency basis. According to Attorney General Kamala Harris, in her Opinion No. 13-304, released January 26, 2016, a school or community college district violates California law concerning the use of bond proceeds if the district pays for “pre-election services” from the proceeds raised from the bond sale. In the opinion, the term “municipal finance firm” casts a wide net to include investment bankers, financial advisors, and bond attorneys. The opinion suggests a significant change in how municipal finance firms structure fee arrangements, since fees for pre-election services are usually paid out of bond proceeds as a separate item or, as the Attorney General suggests, covered under an inflated rate for issuance service fees, payable only upon a sale of bonds.

An Attorney General opinion does not carry the force of law. Nevertheless, in the absence of controlling authority, an Attorney General opinion on point is considered persuasive to a court. In the opinion, the Attorney General raises her concerns over what has been an industry-standard practice for many years: the entry into a contingent-fee arrangement with a municipal finance firm that includes pre-election services (i.e., opinion surveys, public information programs, preparing the project list, preparing bond ballot measure language, and drafting the district’s resolution of intention), where the payment for such services is contingent on a successful campaign.

While not declaring such a contingent-fee contract illegal per se, the opinion concludes that fees for any pre-election services may not be paid from proceeds of a bond issue. The Attorney General declares that only expenses “directly related and integral to the approved construction or approved bond sale” are permitted to be paid from bond proceeds. According to her opinion, pre-election services are necessarily outside the scope of statutory authority precisely because they occur before approval from the electorate.

In addition to addressing payment for pre-election services, the opinion reiterates existing law that certain pre-election services may never be paid from public funds. The California Constitution and statutes prohibit expenditure of public funds on pre-election services that may be fairly characterized as campaign activity. Per the Attorney General, a district runs afoul of the law where it enters into an agreement with a municipal finance firm where either the sole or partial purpose is to induce the firm to contribute to the bond-election campaign (financially or with in-kind services) or the firm’s fee for its post-election services is inflated to account for its campaign contributions (and the district fails to take reasonable steps to make sure it was not inflated).

The issue here is whether the pre-election services to be performed by a municipal finance firm are considered “campaigning” (i.e., advocacy for the passage of a bond measure) or merely informational, as California courts have articulated in Stanson v. Mott (1976) 17 Cal.3d. 206, and its progeny, and the Legislature has codified at Education Code section 7054. The Stanson court made it clear that, in the absence of legislative authorization, a district may not expend public funds to promote a partisan position in an election campaign. The Attorney General has clarified what Lozano Smith has long advised our clients: namely, that this includes bond campaigns. There are limited exceptions to this rule, such as preparation by the governing board, district staff, or consultants of an argument supporting the bond campaign, or conducting a poll to determine if there is support for a potential bond campaign. Other gray areas in the dichotomy between informational activities and prohibited campaigning require a careful factual analysis, and districts are advised to consult their legal counsel.

Lozano Smith has expertise in public finance matters, serving as bond counsel on over $1 billion of school district and community college district bond issues since 2008. If you have any questions regarding this Attorney General opinion, or about navigating a future bond campaign, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Daniel Maruccia
Partner

Sean Mick
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Recent Appellate Court Ruling Provides Guidance on Contractor’s Delay Damages and on Challenging a Performance Bond Surety’s “Lack Of Notice” Defense

January 2016
Number 3

The appellate court in JMR Construction Corp. v. Environmental Assessment and Remediation Management, Inc. (December 30, 2015, M105497) 2015 Cal.App.Lexis 1172 (JMR Construction), recently affirmed a trial court’s six-figure judgment in favor of a general contractor against its subcontractor and the subcontractor’s performance bond surety arising from a federal works project. The judgment included an award of damages for, among other things, the subcontractor’s delay and deficient work. The ruling addresses the requirement for “proving up” a contractor’s delay claim and recovery for such a claim and also highlights for public works owners a potential avenue of attack against a performance bond surety where the surety contends it has no liability under the performance bond because it was not provided “proper notice” under the performance bond’s terms.

In JMR Construction, the surety argued that it had no liability under the performance bond because the general contractor did not provide the surety notice of the subcontractor’s failure to perform as required under its subcontract. Such a failure would constitute a “default” under the subcontract. The surety argued that “a declaration of default was a condition precedent” to its liability. While it was true that the general contractor neither formally declared the subcontractor in “default under the subcontract” nor requested that the surety complete the bonded work under the subcontract, the court held that the surety’s “receipt of a declaration of default [by the general contractor] is not a condition precedent to triggering [the surety’s] liability under the bond.” This was because (1) the performance bond did not expressly require such notice is a condition precedent to liability, and (2) the underlying subcontract, which the performance bond incorporated by reference, did not contain notice provisions requiring the general contractor to notify the surety of its claims against the subcontractor.

Without an express contractual requirement to provide “notice of default,” the court refused to endorse the surety’s argument that a “declaration” or “notice of default” is a condition precedent implied from the language of the bonds or underlying subcontract. Coupled with the bond and subcontract’s language, the court cited Civil Code sections 2806 and 2807 holding that the surety’s obligation was deemed unconditional unless otherwise agreed to (Civil Code § 2806) and that “a surety who has assumed liability for payment or performance is liable to the creditor immediately upon the default of the principal, and without demand or notice.” (Emphasis in the original.)

The JMR Construction decision highlights for public works owners a potential avenue to overcome a performance bond surety’s technical defense that it was not provided proper notice sufficient to trigger its bonded obligations. Unless the express terms of the bond and/or underlying contract require such notice, a surety cannot simply argue that a “declaration” or “notice of default” is an implied requirement before it can have exposure under the performance bond. For these reasons, it is important that public agencies review the terms of performance bonds on public works projects closely before agreeing to them.

Another notable aspect of this decision for public works owners is that JMR Construction is the first California reported decision recognizing the “Eichleay” formula for calculating a contractor’s home office overhead costs in connection with a delay claim. The Eichleay formula is an established methodology in federal court cases allocating a contractor’s home office overhead costs to a project that has been extended or delayed. The court here held that the Eichleay formula was a legally permissible method of determining the general contractor’s home office overhead damages against the subcontractor and its surety and applies in California state cases. This is important to public works owners in this state because general contractors now have a legally recognized method to calculate home office overhead delay damages against such owners, which could result in an increase in damages against public works owners who are found to be responsible for the contractor’s delay.

For more information on issues arising from public works construction disputes, including surety defenses and contractor delay claims, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold Freiman
Partner

Matthew Hicks
Senior Counsel

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court of Appeal Highlights the Importance of a Public Agency Complying With its Own Bid Requirements

January 2016
Number 2

The Third District Court of Appeal’s recent decision in DeSilva Gates Construction, L.P. v. Department of Transportation (2015) 242 Cal.App.4th 1409 (DeSilva), confirms the importance of ensuring that bidders on public construction projects comply with the express requirements of an invitation for bids. In DeSilva, the Court of Appeal held that a public entity incorrectly determined a contractor’s bid to be nonresponsive where the contractor had complied with all requirements in the invitation to bid and under applicable statute, despite the contractor adding a new subcontractor after submitting its original bid. The DeSilva court also reaffirmed the longstanding rule that a public entity cannot waive a material error in a bid.

In DeSilva, the California Department of Transportation (Caltrans) issued an invitation for bids on a public construction project. The invitation required each bidder to list, in its bid proposal, all subcontractors performing work in an amount in excess of one-half of one percent of the total bid or $10,000, whichever was greater. Each bidder was also required to provide, in its bid or within twenty-four hours thereafter, the bid items for each subcontractor and the corresponding percentages of those items being subcontracted. These requirements mirrored those in Public Contract Code section 4100, et seq. Caltrans then issued an addendum to the invitation which, in part, instructed bidders that the items declared in the addendum were an “essential part of the contract” and that bids should be submitted “with the understanding and full consideration of [the] addendum.” Caltrans received and opened nine bids for the project. The lowest bid was deemed nonresponsive and was not at issue in the appeal. The second lowest bid was submitted by DeSilva Gates Construction LP (DeSilva), and the third lowest bid submitted by Papich Construction Company, Inc. (Papich).

DeSilva’s bid included the names and appropriate descriptions of work to be performed by all subcontractors slated to perform work exceeding one-half of one percent of the bid amount. After submitting its bid, and within twenty-four hours of bid opening, DeSilva sent Caltrans a second subcontractor list, which provided additional information regarding its subcontractors and also listed an entirely new subcontractor. On the second subcontractor list, the new subcontractor was listed to perform less than one-half of one percent of the work. The next lowest bidder, Papich, challenged the award of the contract to DeSilva. Caltrans then rejected DeSilva’s bid on the grounds that listing the entirely new subcontractor on its second subcontractor list was improper and rendered DeSilva’s bid nonresponsive.

The Court of Appeal disagreed with Caltrans’ determination and held that DeSilva’s bid was not nonresponsive and that Caltrans’ rejection of the bid was improper. Even though DeSilva’s second subcontractor list was not identical to the initial subcontractor list, and listed an entirely new subcontractor, DeSilva’s bid did not run afoul of the invitation for bids or any applicable statute. The only requirement was that DeSilva, in its initial bid, list all subcontractors performing in excess of one-half of one percent of the work. Because the new subcontractor was not slated to perform more than one-half of one percent of the work, DeSilva had no legal requirement to list the new subcontractor in its original bid. As stated by the Court, the listing of the new subcontractor in the second subcontractor list was “accurate, albeit unnecessary.” The Court also noted that DeSilva’s listing of the new subcontractor did not appear deceptive or indicate any attempt to gain an unfair advantage, and showed no attempt by DeSilva to flout the requirements in the bid invitation. Because DeSilva’s bid met the express requirements of the invitation, did not conflict with any applicable statute, and was not otherwise improper, the bid was responsive and should not have been rejected. The Court also rejected arguments that its ruling would allow for improper bid shopping after the initial bid is submitted.

Papich’s bid, on the other hand, failed to acknowledge or accept the addendum to the invitation to bids. Although Caltrans initially determined Papich’s bid nonresponsive for this reason, Caltrans allowed Papich to provide documentary evidence showing that Papich considered and agreed to be bound to the addendum. After receiving this evidence from Papich, Caltrans waived the mistake and determined Papich’s bid to be responsive.

The Court of Appeal again disagreed, holding that Caltrans could not waive the error in Papich’s bid. Under existing case law, a bid error may only be waived if the error or variance in the bid is immaterial in that it does not affect the amount of the bid or give the bidder an advantage or benefit not allowed other bidders, i.e., the error is not material. A material error, on the other hand, cannot be waived. Caltrans’ invitation for bids specifically stated that “a bidder’s failure to acknowledge a material amendment to the contract renders its bid nonresponsive.” The Court therefore concluded that Papich’s failure to acknowledge the addendum in its bid was a material error that Caltrans could not waive, and Papich’s bid should have been rejected as nonresponsive.

The holding in this case boils down to whether or not the contractors’ bids complied with the specific requirements for the invitation for bids. To that end, DeSilva serves as a reminder that public entities, despite their broad discretion in determining responsiveness of bids, must properly and equally enforce the express requirements of a bid request and the numerous California statutes applying thereto. This also emphasizes the need to review bid instructions closely prior to bidding, as the public agency will be afforded limited opportunities to deviate from those instructions once bids are received.

If you have any questions regarding public bidding, or have any planned or anticipated construction projects and would like to discuss the bidding process, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold Freiman
Partner
Walnut Creek Office
hfreiman@lozanosmith.com

Travis Cochran
Associate
Monterey Office
tcochran@lozanosmith.com

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.