Bates v. Poway Unified Sch. Dist.

83 Cal.App.5th 907

299 Cal.Rptr.3d 828

Albert BATES, et al., Plaintiffs and Appellants,

v.POWAY UNIFIED SCHOOL DISTRICT, Defendant and Respondent.

G061222

Court of Appeal, Fourth District, Division 3, California.

Filed September 29, 2022

Benink & Slavens, Eric J. Benink and Vincent D. Slavens, San Diego, for Plaintiffs and Appellants.

Best Best & Krieger, Tyree K. Dorward and Matthew L. Green, San Diego, for Defendant and Respondent.

OPINION

O'LEARY, P. J.

In 2014, Poway Unified School District (the District), serving over 36,000 students in San Diego County, constructed a new elementary school. The $82 million project was funded primarily by special tax bonds paid for by homeowners in local communities. Approximately four years later, following the passage of Proposition 51, the District received reimbursement funds from the State of California ($27,672,923). The District allocated a small portion to retire local bonds but used a larger amount toward new high priority outlay expenditures.

Two homeowners, Albert Bates and Bridget E. Denihan, disagreed with the District's fund allocation decision and filed a petition for a writ of mandate and a complaint for declaratory and injunctive relief. The trial court denied all relief and entered a judgment in the District's favor. On appeal, Bates and Denihan (the Homeowners) contend the court misinterpreted the applicable rules and statutes. They read California Code of Regulations, title 2, section 1859.90.5 and Education Code section 17070.63¹ as requiring the District to allocate all newly acquired "State Funds" toward retiring the local bonds, unless it could prove there was a savings during construction (but there was none). We conclude the Homeowners' arguments have merit and we reverse the judgment.

FACTS

The District is governed by a five-member Board of Education (the Board). The District formed multiple community facilities districts (CFDs) within its boundaries pursuant to the Mello-Roos Community Facilities Act of 1982, codified in Government Code section 53311 et seq. (Mello-Roos Act).² The Homeowners reside in a community known as 4S Ranch, located within the District's CFD No. 6.

In 2013, the District formalized plans to construct an elementary school it believed would cost $81.5 million (the Project). The District financed the Project relying on special tax bonds funded by numerous CFDs. The Homeowners' CFD contributed $24,980,807.

In 2014, the District applied to the State Allocation Board (SAB) for grant funds through the School Facility Program (SFP) under the Leroy F. Greene School Facilities Act of 1998 (the Greene Act). ( § 17010, et seq. ) When the SFP was created two decades earlier, it was fully funded by several voter-approved general obligation bonds. When the District filed its application in 2014, the SFP's funds (also called State Funds) had been depleted. The SAB placed the District's application on an unfunded list, to wait for funds to become available again.

In 2016, voters approved Proposition 51, authorizing the state to sell billions of dollars in general obligation bonds for education purposes, including school facility projects. The SAB began working through a backlog of waitlisted applications. In 2019, it paid the District $27,672,923, which represented its share of the Project's construction costs.

The District held a meeting to determine how these newly acquired State Funds should be utilized because construction on the Project had finished. The District's associate superintendent, Ronald Little, presented a report recommending the State Funds be allocated 45 percent to CFD-related purposes and 55 percent to high priority capital projects. The 45 percent for CFD purposes was divided in half with $6,226,407.68 earmarked for retiring local CFD bonds and the same dollar amount going toward CFD high priority capital projects. When another Board member (Kimberly Beatty) questioned Little about this recommendation, he responded the allocation was permitted under the applicable regulations and statutes. He added the District's bond counsel had advised the proposed allocation was legal. The Board voted four to one to adopt Resolution No. 24-2019, which authorized the recommended allocation of the State Funds. Beatty was the single dissenting vote.

The Homeowners filed a verified petition for writ of mandate and a complaint for declaratory and injunctive relief. They challenged the District's failure to allocate State Funds to retire local bonds or toward uses permitted by local bonds. They alleged the following: "Property owners in CFD No. 6 pay thousands of dollars in Mello-Roos special taxes each year. In [f]iscal [y]ear 2019-2020, ... Bates was assessed $3,534.64 and ... Denihan was assessed $2,989.66." They argued Reg. 1859.90.5 gave the District only three options for using the SAB's award of State Funds. The first two options allowed the District to use the money toward "retiring local bonds" or "uses permitted by the local bond." (Reg. 1859.90.5 (a) & (b).) They asserted the third option, "high priority capital outlay expenditure[s,]" would only become available if the District could show it achieved "any savings" by "efficient and prudent expenditure[s]" during construction. The Homeowners asserted the District had not achieved any savings, and therefore, its Resolution No. 24-2019 illegally authorized the use of State Funds for capital outlay expenditures.

The Homeowners explained they were seeking a writ of mandate because the District had not yet spent any of the money, and they wanted the court's immediate help in ordering the District to comply with state regulations and statutory authority. They also filed a complaint seeking a judicial declaration stating Resolution No. 24-2019 violated Reg. 1859.90.5 and section 17010.63, as well as an injunction stopping the District from distributing the State Funds for any purpose other than the retirement of local CFD bonds. The complaint requested attorney fees and costs pursuant to Code of Civil Procedure section 1021.5.

On February 25, 2021, the trial court held a hearing and took the matter under submission. It denied the Homeowners' requests for relief and issued a lengthy statement of decision explaining the basis for its ruling. It disagreed with the Homeowners' contention the District needed to show it achieved a savings before expending State Funds on high priority capital projects.

The court made several factual findings. "When it became clear that the state would sell bonds under Proposition 51, and begin reimbursing school districts based on previously submitted applications, the District began evaluating its options for using any potential reimbursement, including the finances of the Project's design and construction, the facilities needs of the CFDs that contributed to the Project's construction costs, and the requirement of the CFD formational documents and agreements, as well as the overall facilities needs of the District. [Citation.] This work also included a full analysis of the complex financing arrangement for the Project, which involved seven total CFDs with various levels of contribution to the Project and allowed the District to calculate the final percentage ... contribution of each CFD. [Citation.] [¶] As the SAB began to implement Proposition 51, and issuance of the State Funds for the Project became likely, the District drafted a summary of its facilities needs and prepared an analysis regarding the feasibility of allocating the reimbursement to support the entire District. This effort included preparation of a Districtwide facilities master plan that identified more than $1.1 billion in facilities needs across the District. [Citation.] The District took into account these Districtwide needs given that all electors of the District were asked to support, and ultimately contributed to, the passage of the statewide vote on Proposition 51. [Citation.] The District therefore determined that all students and parents across the District deserved to benefit from the SFP reimbursement, which the District only obtained through passage of Proposition 51. [Citation.] The District reasoned that to do otherwise would be unfair to non-CFD students and would result in the Districtwide voters located outside of the CFDs potentially seeing no benefit from their votes in support of Proposition 51. [Citation.]"

The statement of decision further provided: "In 2018, the SAB ultimately awarded the District a grant in the amount of $27,672,923 (the ‘State Funds’). [Citation.] To determine how best to allocate the State Funds fairly and equitably across the District, the District analyzed student data to determine the percentage of students in the CFDs versus non-CFD students and what schools they attend. [Citation.] The District also looked at the registered voters of the District, again focusing on CFD voters versus non-CFD voters. [Citation.] The District determined that these data points dictated that if the State Funds were to be equitably allocated, the reimbursed funds should be split on a 45 [percent]/55[percent] basis between the CFD reimbursements versus the other high-priority facilities projects across the District. [Citation.] From this allocation, the remaining data was used to divide the 45[percent] allocated to the CFDs consistent with each CFD's percentage contribution to the original Project funding, as well making funding available for future high priority projects at schools in the CFDs showing future growth. [Citation.] [¶] Based on the foregoing, the District's Board ... adopted Resolution No. 24-2019 (the ‘Resolution’) on March 14, 2019, which allocated ... approximately $21.4 million of the State Funds to fund ‘high-priority capital projects’ on a Districtwide basis. [Citation.]"

In addition, the court stated it took judicial notice of legislative history materials and several other documents provided by the parties. It noted the parties stipulated the matter...