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In a case important to school districts relying on state construction hardship funding, the California Court of Appeal has ruled that school districts are entitled to keep state hardship funds not spent on projects completed underbudget. San Bernadino City Unified School District v. State Allocation Board (May 24, 2022, C092003) ___ Cal. App. 5th ___ concerned a conflict between the Leroy F. Greene School Facilities Act and State Allocation Board (“SAB”) regulations governing funding under the state School Facility Program. Specifically, the court considered whether the “project savings” provision of Education Code section 17070.63, which rewards school districts for “efficient and prudent expenditure” of project funds apportioned by SAB, applies to districts receiving additional hardship funding. The court held that the Greene Act’s project savings provision applies to both traditional funding and hardship funding, despite an SAB regulation requiring that unspent hardship funds be returned to the state upon completion of a project. The court’s ruling affirmed the supremacy of the Greene Act statutes over SAB’s discretion in administering the School Facility Program.

The Greene Act, consisting of Education Code sections 17070.10 through 17079.30, provides a framework for state and local funding to construct school facilities. For new construction projects, the SAB typically apportions 50 percent of a project’s anticipated cost, with the remaining funding coming from local sources. (See § 17072.30.) However, in “extraordinary circumstances” preventing a district from providing the full 50 percent local match, the district can apply for hardship assistance to cover all or part of the local share. (§ 17075.10(a); Cal. Code Regs., tit. 2, § 1859.81.)

The Greene Act incentivizes efficient project spending by rewarding districts for completing projects underbudget. Section 17070.63(c) provides that when a district receives funds from the state, “Any savings achieved by the district’s efficient and prudent expenditure of these funds shall be retained by the district in the county fund for expenditure by the district for other high priority capital outlay purposes.”

While the Greene Act’s project savings provision does not distinguish between customary and hardship projects, SAB enacted a guideline requiring that unspent hardship funding be returned to the state unless the district spends it on other hardship projects within three years. (See California Code of Regulations, title 2, section 1859.103.)

The San Bernardino case involved an SAB allocation to the San Bernadino City Unified School District of over $36,000,000 in new construction funding to build a new high school. The funding included a hardship apportionment covering almost all of the local share.

The District completed the project approximately $3,000,000 underbudget. When SAB demanded that the savings be returned under its hardship funding regulations, SBCUSD sued. The court sided with the District, concluding that regulations are only enforceable when they are “consistent and not in conflict with the statute and reasonably necessary to effectuate the purpose of the statute.” Since the project savings clause of Education Code section 17070.63 provides no exception for hardship funding, the court held that SAB’s conflicting regulation requiring the return of unspent hardship funds was invalid and unenforceable.

The SAB administers a multibillion-dollar program governed by a complicated set of statutes and regulations, affecting hundreds of districts. Disputes will inevitably arise. When they do, we encourage districts to contact counsel to make sure that their rights under the Greene Act are protected.