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.

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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.