Education Code section 17463.7’s Additional Flexibility Regarding Use of Proceeds from the Sale of Surplus Property Provisions Extended to January 1, 2016

Pursuant to the recent passage of Assembly Bill 86 (“AB 86”), as of July 1, 2013, Education Code section 17463.7 has been extended and will remain in effect until January 1, 2016.  Education Code section 17463.7 was added in 2009 and provides school districts with some additional flexibility regarding the use of funds derived from the sale of surplus real property.  AB 86’s passage merely extends the section’s sunset date to January 1, 2016.  The substance of Education Code section 17463.7 remains unchanged.

Accordingly, Education Code section 17463.7 continues to apply only to school district property purchased (1) entirely with local funds, (2) with the proceeds of a local general obligation bond or (3) with revenue derived from developer fees.  It does not apply to property acquired with any other type of funding.

Under Education Code section 17463.7, a school district may deposit all of the proceeds from the sale of surplus property purchased entirely with local funds in the school district’s general fund.  School districts may use the proceeds for any one-time general fund purpose.  However, the proceeds from the sale of surplus property purchased with a local general obligation bond or revenue derived from developer fees are treated differently.  While proceeds may also only be used for a one-time general fund purpose, only a percentage of these proceeds from these properties may be deposited in the general fund.

However, before a school district can make use of the additional options provided by Education Code section 17463.7, it must submit documents to the State Allocation Board (“SAB”) certifying certain facts, specifically: (1) the school district has no major deferred maintenance requirements not covered by existing capital outlay resources; (2) the sale does not violate the provisions of a local bond; and (3) the surplus property is not suitable to meet projected school construction needs for the next 10 years.  Additionally, prior to using section 17463.7, a school district must present, at a regularly scheduled board meeting, a plan that identifies: (1) the source of the funds; (2) the use of the funds; and (3) the reasons why the expenditure will not result in ongoing fiscal obligation for the school district.

It is important to remember under Education Code section 17463.7 school districts that allocate surplus property proceeds pursuant to this section may lose hardship apportionment and eligibility.  First, the SAB will reduce an apportionment of hardship assistance awarded to a school district by an amount equal to the amount of the surplus property proceeds that a school district uses for a one-time expenditure under section 17463.7.  Second, if a school district exercises the authority under section 17463.7, it becomes ineligible for hardship funding from the State School Deferred Maintenance Fund for five years after the date the proceeds are deposited into the general fund.

While Education Code section 17463.7 will remain in effect until January 1, 2016, given the section’s specific requirements and potential limitations, it is recommended that when deciding how best to use its surplus property proceeds school districts weigh the section’s additional flexibility with the potential consequences mentioned above.

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