To:
Jordan T. Ellel, Tempe Tri-District Legal Counsel, on behalf of Kyrene School District
Pursuant to A.R.S. § 15-253(B), this opinion affirms in part and revises in part the opinion that you prepared for the Kyrene School District (the “District”) regarding the use of lease proceeds from ground leases pursuant to A.R.S. § 15-1102. That opinion is attached hereto as Appendix A.
Background
In February 2021, the District’s Governing Board approved a 77-year ground lease with a private entity to develop District-owned property near Chandler Boulevard and the I-10 freeway. The District wishes “to utilize the proceeds from the lease in the most advantageous manner possible for the maintenance and operations of the District.” App. A at 1.
A.R.S. § 15-1102 regulates how lease proceeds may be used by districts. The requirements for use of lease proceeds differ based on a district’s level of bonded indebtedness. Compare A.R.S. § 15-1102(B) (applying to the sale and lease proceeds of a “common school district or high school district that has an outstanding bonded indebtedness of seven percent … or less” and to “a unified school district that has an outstanding bonded indebtedness of fourteen percent … or less”) with § 15-1102(C) (applying to the sale and lease proceeds of a “common school district or a high school district that has an outstanding bonded indebtedness of greater than seven percent” and “a unified school district that has an outstanding bonded indebtedness of greater than fourteen percent”).
Analysis
Use of lease proceeds
The first question presented in your opinion asks how the District’s lease proceeds should “be classified under A.R.S. § 15-1102(B) and (C)?”
This Office agrees with your conclusion that, under A.R.S. § 15-1102(B)(1)(a), a common school district or high school district “that has an outstanding bonded indebtedness of seven percent … or less” may expend lease proceeds “for maintenance and operations in an amount that does not exceed fifteen percent of the revenue control limit for that year.” This Office also agrees with your conclusion that A.R.S. §§ 15-1102(B)(2) and (C)(2) do not apply to lease proceeds.
Although your opinion focuses on the District’s particular circumstances, it could be read to suggest that any district, regardless of its level of bonded indebtedness, may use lease proceeds for maintenance and operations. That is not accurate. This Office therefore revises your opinion to clarify that common school districts and high school districts with bonded indebtedness that is greater than seven percent and unified districts with bonded indebtedness greater than 14% may not use lease proceeds for maintenance and operations. CompareA.R.S. § 15-1102(B)(1)(a) (for school districts at or below the bonded indebtedness threshold, “the total sum of the proceeds [from certain sales of school property or] from the lease of school property … [m]ay be expended for maintenance and operations”) with A.R.S. § 15-1102(C)(1)(a) (for school districts above the bonded indebtedness threshold, allowing only “sales proceeds” to “be expended for maintenance and operation”) (emphases added); see also § 15-1102(C)(1)(b) (“The sale or lease proceeds may be expended for capital outlay in any amount.”) (emphasis added).
Calculation of Bonded Indebtedness
The second question addressed in your opinion asks when “the District’s bonded indebtedness [is] calculated for purposes of determining the District’s level of indebtedness to determine restrictions on use of lease proceeds?”
This Office agrees with your opinion’s analysis on this issue, and therefore affirms it.
Conclusion
We agree with your opinion as to its interpretation of A.R.S. § 15-1102(B)(1)(a) and its conclusion that A.R.S. § 15-1102(B)(2) and (C)(2) do not apply to lease proceeds. We revise your opinion to clarify that common districts and high school districts with greater than seven percent bonded indebtedness and unified districts with greater than 14% bonded indebtedness may not use lease proceeds for maintenance and operations. A.R.S. § 15-1102(C)(1)(a)-(b). We affirm the portion of your opinion addressing the calculation of a district’s bonded indebtedness.
Kris Mayes
Attorney General