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Sanchez v. State

November 19, 2009


APPEAL from the Superior Court of Riverside County. Edward D. Webster, Judge. Affirmed. (Super.Ct.No. RIC475161).

The opinion of the court was delivered by: Miller, J.



Nine minor school children, seven parents, the Val Verde Unified School District (the District), and the Board of Education of the Val Verde Unified School District (collectively referred to as Val Verde) sought a writ of mandate, as well as injunctive and declaratory relief against the State of California, the State Allocation Board (SAB), the Office of Public School Construction (OPSC), Governor Schwarzenegger, State Department of Finance Director Michael C. Genest and State Controller John Chiang (collectively referred to as the State).*fn1 The writ petition and complaint resulted from a dispute between Val Verde and the State over construction costs for school facilities. The trial court denied Val Verde‟s petition for writ of mandate, and dismissed Val Verde‟s complaint.

Val Verde essentially makes eight contentions. First, Val Verde asserts that the SAB incorrectly interpreted Education Code section 17075.15*fn2 and California Code of Regulations, title 2, section 1859.81. Second, Val Verde contends that the SAB improperly applied California Code of Regulations, title 2, section 1859.81. Third, Val Verde essentially asserts that the SAB abused its discretion by concluding that money from certificates of participation (COPs)*fn3 should be included when calculating a school district‟s ability to fund school construction. Fourth, Val Verde contends that California Code of Regulations, title 2, section 1859.81 is invalid because the SAB exceeded its authority when enacting that regulation. Fifth, Val Verde asserts that substantial evidence does not support the finding that the District possessed $89,000,000 in COP proceeds. Sixth, Val Verde contends that the School Facility Program is unconstitutional. Seventh, Val Verde asserts that the trial court erred by not making factual findings that were requested by Val Verde. Eighth, Val Verde asserts that the trial court erred by overruling Val Verde‟s evidentiary objections and sustaining the State‟s evidentiary objections. We affirm the judgment.


A. Legal Background

We begin by providing a brief summary of the relevant statutory and regulatory scheme.

California established the State School Facilities Fund (the State Fund) to pay for school construction projects. (§§ 17070.40, subd. (a)(1), 17070.63, subd. (a).) It is the duty of the SAB to apportion money from the State Fund to eligible school districts (§§ 17070.35, subd. (a)(4), 17070.40, subd. (a)), and to determine which school districts are eligible to receive money from the State Fund (§ 17070.35, subd. (a)(3)).

Typically, before the SAB apportions money from the State Fund, a school district must show that it has money from local sources to match the money granted from the State Fund. In other words, 50 percent of school construction money typically comes from local sources, and the other 50 percent is derived from the State Fund. (§ 17072.30.) However, there is an exception to this 50/50 rule, which is known as the Financial Hardship Program: if a school district is not financially capable of providing the required matching funds, then the SAB may adjust or defer the amount of local money required for a school construction project. (§§ 17075.10, subd. (b), 17075.15, subd. (a).) When determining whether a school district has sufficient local funds, the SAB can consider the unencumbered funds in a district‟s facility accounts; however, the SAB may exclude funds encumbered for a specific capital outlay purpose, and other funds that are not reasonably available for the construction project. (Cal. Code Regs., tit. 2, § 1859.81, subd. (a).)

B. Facts

We separate the facts into two sections. The first section presents the issues and procedural history of the SAB administrative hearing. The second section presents the facts related to the hearing at the trial court.

1. Administrative Hearing

The District participated in the Financial Hardship Program from 1999 through 2007. During that time, the District received $340,522,619 in financial hardship apportionments, constructed 24 new facilities, and modernized two other facilities. All but three of the District‟s construction projects received 100 percent funding from the State Fund, due to the District‟s financial incapacity. In 2006, the OPSC reviewed the District‟s finances to determine if the District had any money to contribute toward the construction of school facilities. During the financial review, the OPSC discovered that the District possessed approximately $25,476,433 in available net proceeds from COPs. Data from the State Treasurer‟s Office indicated that, since the District was admitted into the Financial Hardship Program, the District had issued 12 COPs, totaling $402,470,000, which would provide total net proceeds in the approximate amount of $89,234,421.

The executive officer of the SAB (the Executive Officer)*fn4 alleged that, by not disclosing the COPs, the District gained a funding advantage of $11,830,232, because the District would not have qualified for 100 percent financial hardship funding if the COP proceeds had been disclosed. Following these discoveries, the Executive Officer recommended that the SAB (1) find that the District failed to disclose material information about the COPs during prior financial hardship reviews; (2) direct the District to repay the $11,830,232, plus interest, for a total of $12,504,792; and (3) apply the total net COP proceeds of $89,234,421 as a local money contribution to the District‟s next construction project(s).

The District took the position that the proceeds from the COPs (1) were encumbered, and therefore, not reasonably available for the construction projects, and (2) were deposited into the District‟s general fund account, rather than its facility accounts, and therefore did not constitute available funds for construction. Essentially, the District asserted that the COP proceeds were encumbered because they were needed to fill the shortfall created between the construction money provided by the Financial Hardship Program, and the money it "actually" took to build an adequate school. In other words, the District contended that the Financial Hardship Program did not provide enough money to build an adequate school, and therefore, the District could not use the COP proceeds as matching funds, because it needed the money to finish the construction projects, which would be incomplete if the only money for the projects was the money from the State Fund. The District asserted that it had already spent approximately $20,000,000 to fill the shortfall in the construction funding provided by the Financial Hardship Program, and estimated that it would need to spend an additional $81,500,000 to fill the funding gaps for construction projects that were in the planning stages.

The Executive Officer contended that the construction funds provided to the District through the Financial Hardship Program were sufficient to build a complete school, but that the District wasted the funds by making unnecessary modifications in the midst of construction, such as adding skylights to an administrative office, and by building unnecessary facilities, such as a weight room at a high school. The Executive Officer argued that "any enhancements to a construction project should be borne by the District. If a district is receiving 100 percent financial hardship assistance from the State, any enhancements need to be built within the apportionment provided. Further, that any local funds made available should be used solely to offset the financial hardship assistance provided by the State."

The District contended that limiting construction funds to those provided by the State would lead to construction of "inadequate, incomplete schools," and that "children living in areas of limited resources will have to attend schools without libraries, multipurpose rooms, resource specialist spaces and other essential program support facilities." The District requested that the SAB find that the COP proceeds used to supplement the money provided by the Financial Hardship Program were "encumbered," and therefore, not available for a local matching funds contribution.

At the SAB meeting on July 25, 2007, a motion was made to deny the District‟s request, and to recommend that the $89,234,421 of COP revenue be deemed available for future school facility projects. The motion carried with nine votes in favor, and one abstention.

2. Trial Court Hearing

In a combined petition for writ of mandate and complaint for declaratory and injunctive relief, Val Verde requested that the trial court (1) declare the State‟s regulatory system for allocating financial hardship funds (Cal. Code Regs., tit. 2, § 1859.81, subd. (a)) to be invalid and unconstitutional for failing to avoid gross-disparities in expenditures and education quality; (2) declare that COP funding was not "available" for local matching contributions, and that COP funding shall not be used by the state to offset future construction funding from the state; (3) issue preliminary and permanent injunctions ordering the State to stop following the allegedly invalid and unconstitutional regulatory system when allocating financial hardship funds; (4) grant a writ of mandate directing the State to stop following the allegedly invalid and unconstitutional regulatory system when allocating financial hardship funds; (5) issue preliminary and permanent injunctions directing the State to take all steps necessary to ensure that the apportionment of financial hardship funds is completed in a constitutional manner; and (6) order the State to reimburse the money the District paid to complete the various school construction projects.

The State opposed Val Verde‟s requests. The State contended that (1) Val Verde did not demonstrate the regulatory system was unconstitutional, because (a) Val Verde was not similarly situated to non-hardship schools, and (b) Val Verde did not demonstrate that funding from the Financial Hardship Program was linked to a lower-quality education; and (2) the definition of an ""adequate‟ school" is a public policy question, not the basis for a lawsuit.

At the hearing on the petition and the complaint, the trial court remarked that the record did not reflect that Val Verde had received disparate treatment, because the record showed that other school districts had to scale-back their school construction plans due to the amount of financial hardship funds granted to them. Therefore, the trial court concluded, "there‟s no suspect classifications" and "no indication that anybody‟s been selected out under any kind of equal protection analysis." The trial court found that the SAB did not abuse its discretion by deciding that the District‟s $89,234,421 of COP revenue should be deemed "available" for future school facility projects. Consequently, the trial court denied the writ petition, as well as the requests for declaratory and injunctive relief.


A. Statutory Interpretation

Val Verde contends that the SAB erred by interpreting section 17075.15 and California Code of Regulations, title 2, section 1859.81, as allowing the SAB to deem money deposited in a general fund account to be "available" or "unencumbered." We disagree.

"As a starting point, the interpretation of an administrative regulation is subject to the same principles as the interpretation of a statute. [Citation.]" (County of Sacramento v. State Water Resources Control Bd. (2007) 153 Cal.App.4th 1579, 1586.) """When interpreting a statute our primary task is to determine the Legislature‟s intent. [Citation.] In doing so we turn first to the statutory language, since the words the Legislature chose are the best indicators of its intent." [Citations.] . . . ""If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (in the case of a statute) . . . .‟" [Citation.] However, the literal meaning of a statute must be in accord with its purpose as our Supreme Court noted in Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 658-659 . . . as follows: "We are not prohibited "from determining whether the literal meaning of a statute comports with its purpose or whether such a construction of one provision is consistent with other provisions of the statute. The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. [Citation.] Literal construction should not prevail if it is contrary to the legislative intent apparent in the [statute] . . . .‟" In Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 . . . , our Supreme Court added: "The intent prevails over the letter, and the letter will, if possible, be so read as to conform to the spirit of the act. [Citations.] . . . An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in the light of the statutory scheme [citation] . . . ." The Supreme Court has held: ""The courts must give statutes a reasonable construction which conforms to the apparent purpose and intention of the lawmakers.‟ [Citation.]" [Citation.] Further, the Supreme Court has held: "We have recognized that a wide variety of factors may illuminate the legislative design, ""such as context, the object in view, the evils to be remedied, the history of the time and of legislation upon the same subject, public policy and contemporaneous construction."‟ [Citations.]" [Citation.]‟ [Citation.]" (State ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 446; see also Horwich v. Superior Court (1999) 21 Cal.4th 272, 276.)

Our interpretation of a statute is typically subject to de novo review. (Cequel III Communications I, LLC. v. Local Agency Formation Com'n of Nevada County (2007) 149 Cal.App.4th 310, 316.) Despite the similarities between interpreting statutes and regulations, an important difference between the interpretation of a statute and the interpretation of a regulation is that "we defer to an agency‟s interpretation of a regulation involving its area of expertise, ""unless the interpretation flies in the face of the clear language and purpose of the . . ...

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