In Davis v. Fresno Unified School District, the Supreme Court today holds that, even though a new public middle school has already been built and paid for, a taxpayer — who also happens to be the president of a contractor that has done other work for school districts — can still sue for disgorgement of money paid under what the taxpayer claims was an invalid arrangement between the school district and the contractor to build the school.

The court’s unanimous opinion by Justice Martin Jenkins concludes the arrangement at issue — a type of lease-leaseback agreement — was not a “contract” specified by Government Code section 53511, which, the court finds, is one that “is inextricably bound up with government indebtedness or with debt financing guaranteed by the [local] agency,” but is not “every local agency contract that is funded by local agency bonds.” Because the agreement is not such a “contract,” a challenge to it need not be brought under validation statutes with their very short time limit.

Why is that important and why did the case attract seven different amicus curiae briefs, including from the Howard Jarvis Taxpayers Foundation and the League of California Cities and California Special Districts Association?

Well, the court explains that, under a lease-leaseback agreement, “the school district obtains costly improvements to its school facilities and pays for them over the course of many years, but it does so without entering into a debt obligation that would require voter approval” and the district can “avoid competitive bidding requirements otherwise mandated by state law.”

Additionally, the opinion reports the Courts of Appeal disagree whether a lease-leaseback agreement is allowed for projects that are independently financed by the school district or only for builder-financed projects. But, the court says, “that split of authority is not before us.” It might not be before the court now, but today’s decision seems to make it easier for a case raising that issue to find its way back up later.

The court affirms the Fifth District Court of Appeal’s published opinion. It disapproves a 2020 Second District, Division Eight, decision.