Legislative Analyst urges conditions on selling property

March 20, 2013

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The Legislative Analyst’s Office is taking issue with Gov. Jerry Brown’s proposal to remove restrictions limiting how school districts can use money from the sale of district property. The LAO wants to add a condition intended to make a district carefully weigh the option of selling district property to plug a hole in its general operating budget.

Condominiums replaced the Carl Sandburg School, whose sale brought in $30 million for San Bruno Park School District.

Until the recession, with few exceptions, districts had to put money from the sale of district land and buildings into a capital account for building repairs or future construction. But in 2009, to give districts more options to deal with the recession, the Legislature temporarily allowed districts to spend the proceeds from the sale of property purchased entirely with district funds on one-time general operating expenses. These are defined as “costs that are nonrecurring in nature and do not commit the school district to incur costs in the future.” Only eight districts have taken advantage of the offer so far, according to LAO analyst Paul Golaszewski. San Bruno Park School District in San Mateo County was among them and spent $12 million from the sale of a shuttered school site  on textbooks, technology upgrades and non-capital equipment – among the uses permitted, according to an interim report by the State Office of Public School Construction.

Last month, to help close an estimated $88 million deficit and avoid issuing preliminary layoff notices for the fifth straight year, trustees of San Diego Unified voted 4-1 to raise an estimated $51 million by selling a parcel and a former school. Using money to pay for ongoing staffing costs is clearly not one of the allowable purposes under the statute, but, according to the San Diego Union-Tribune, it was clear from school board discussions that most of the additional revenue would go toward restoring teacher furlough days and enacting pay increases that the board negotiated in 2010.  Nonetheless, the budget for San Diego Unified, the state’s second-largest district, is so large that the district will be able to designate the sale of the properties to one-time permissible purchases, according to district officials. In other words, smart finance officials will likely be able to figure out ways to use revenues from property sales however trustees decide.

The Legislature’s exemption on the use of proceeds for operating expenses expires at the end of this year. Brown proposes to make the flexibility permanent for those properties bought with districts’ own money.

The LAO says it’s conceivable that districts would sell land and buildings, use the money for operating expenses, and then turn around and seek state building aid to help buy additional land and build a new school. To deter that, the LAO recommends making districts that divert proceeds from property sales to the general fund ineligible for state construction and modernization funds for at least five years. “This higher stakes trade-off” would force districts to think hard about selling off assets to pay current bills and better ensure that the state’s facilities funds are spent wisely, the LAO said.

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