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Court of Appeal Upholds School District's Use of Proposition 39 Bond Funds for Facilities Construction

San Diego, CA – Because of declining enrollment matched with increases in property values and construction costs, many school districts have been forced to revise construction plans by scaling back or eliminating new school projects that were previously intended for bond funding. Resulting lawsuits challenging district projects and plans can be costly to defend and delay the ability of districts to go to the bond market and obtain funding -- thus delaying the construction of needed schools. The California Court of Appeal has provided assurance to school districts utilizing bond financing that lawsuits challenging construction plans, and post-election changes to those plans, must be filed quickly or they will be time-barred.

In November 2000, voters approved Proposition 39, which amended the state constitution by lowering the number of voters required to approve bond indebtedness incurred by a school district for construction or rehabilitation of school facilities from two-thirds to 55%. The district is required to identify the projects that may be funded by the bonds and provide an oversight committee.

In 2002, voters within Vista Unified School District (VUSD) approved Proposition O, which authorized the issuance of $140 million in general obligation bonds to fund 14 categories of school construction projects. Soon thereafter, skyrocketing construction and land costs forced the District to scale back its plan, eliminating two K-8 schools and a temporary school so that funds could be redirected to a $90 million high school project.

Two years after the VUSD embarked on that course of action, Jerry McLeod sued the district under the "taxpayer waste" statute, seeking to stop construction of that high school near his home. McLeod argued that the district was required to build all the projects listed in the initial bond program, even the two K-8 and temporary schools, and that there was no statute of limitation to bring an action challenging what he alleged was an "illegal expenditure". The Court of Appeal agreed with the VUSD that any such legal challenge must be brought within 60 days as a “reverse validation action” or is forever barred. The court reasoned that the absence of a statue of limitation would create such uncertainty for district financing and budgets that it could not effectively conduct its business.

This decision is also good news for other public agencies and private contractors in the business of new school and public facilities renovation and construction. In short, if a would-be challenger seeks to halt a particular bond-funded expenditure or construction plan for allegedly not meeting the letter or intent of a successful ballot measure, that plaintiff has just 60 days from the agency's decision on that course of action to file a lawsuit. If not filed within 60 days, the claim is barred and the district's course of action is presumptively "valid".

“This decision is good news for school districts and other public agencies that fund projects with general obligation bonds and related financing,” said John C. Lemmo, an attorney with Procopio, Cory, Hargreaves & Savitch LLP, and a member of the team of attorneys who argued the case in the Court of Appeal on behalf of Vista Unified School District. “It provides certainty to bond market expectations by identifying the applicable 60-day statute of limitations.”

About Procopio, Cory, Hargreaves & Savitch LLP

Procopio, Cory, Hargreaves & Savitch LLP was established in 1946 and is now one of the largest business law firms in the San Diego region. With offices in San Diego and Carlsbad, Procopio’s more than 110 experienced attorneys provide comprehensive legal services in the areas of construction; corporate and securities; emerging growth and technology; employment, labor and benefits; environmental, land use and governmental affairs; finance, restructuring and bankruptcy; health care; intellectual property; international law; litigation; Native American law; patent prosecution and counseling; real estate; tax; trademarks and copyrights; and trusts, estates and probate. Through its membership in Law Exchange International and Legal NetLink Alliance, Procopio's ability to assist clients reaches around the world.