The California Court of Appeal recently held that a school district receiving hardship funding to build a school was not required to return unused funds resulting from project savings. (San Bernardino City Unified School District v. State Allocation Board (May 24, 2022, 3rd App. Dist., Civ. No. C092003.) The Court held that pursuant to Education Code section 17070.63(c), the District may keep the savings for other proper purposes.
The San Bernardino City Unified School District (“District”) received project funding under the Leroy F. Green School Facilities Act of 1998 (“Act”). Under the Act, school districts must provide 50% of project funding before the State Allocation Board (“SAB”) releases state funds to cover the remaining 50% funding unless the district qualifies for hardship funding assistance. Education Code section 17070.63(c) allows districts to retain excess funding resulting from project savings. SAB regulations require districts to return any hardship funding savings if not used for other hardship projects within three years.
The District received state funding of $36,203,558 for its high school project, including $17,880,758 in new construction funding and $17,683,996 in hardship funding. The District spent a total of $33,222,704. The Office of Public School Construction audit determined the District was required to return over $3.3 million to reduce the hardship apportionment it received. The SAB rejected the District’s appeal, and the District brought an administrative mandamus action to overturn SAB’s decision. The Trial Court agreed with the District and entered judgment against the SAB.
The Third District rejected the SAB’s demand to return savings pursuant to SAB regulations. The Court noted that while redirecting the unused funds pursuant to the regulation would be good public policy, the Court noted that the SAB’s regulation conflicts with Education Code section 17070.63(c), which authorizes districts to retain “savings achieved by the district’s efficient and prudent expenditure” of the funds. The Court also noted that the Act does not allow for hardship funding to be adjusted after the funds had been given to a district. Thus, the regulation was unenforceable to the extent it conflicted with the statute.
To the extent a school district achieves a savings in its construction projects due to its efficient and prudent expenditures of funds, it may retain any unused state allocated hardship funding for other projects.
If you have any questions regarding state funding or capital projects, please do not hesitate to contact a DWK attorney in our Business, Property & Construction Law practice group.