SCHOOL DEDICATION AND DONATION AGREEMENTS
By Jay S. Kramer and Scott W. Hyder
Since the City of Peoria placed an informal "moratorium" on new residential construction on the pretext of preventing a shortage of essential public facilities (i.e., public schools), funding and donation agreements with the affected school districts have become an integral part of the municipal zoning and land use planning process. Prior to Home Builders Association of Central Arizona, et al. v City of Apache Junction, Pinal County Superior Court Case No. CV 99-046716,1 it was generally understood that municipalities could not impose development fees for public school facilities school districts are separate legal entities from the municipality and capital funding for school districts has historically been paid through ad valorem real estate taxes and assessments, bond overrides and, more recently, State general funds pursuant to the "Students First" legislation.
Municipal zoning and land use agencies are oftentimes requiring school district approval as a condition to municipal zoning and land use approval of major residential projects, including residential apartment projects. In order to obtain such tacit approval from the school districts, school districts are now "asking" the developer to "dedicate" school sites to the school district without any compensation and, in addition to or instead of, such dedication, "asking" developers or home builders to provide cash donations to the school district, generally based on the density and type of residential improvements proposed, to compensate the school district for the additional burden imposed on the school district by the proposed subdivision.
The dedication of the school site is generally accomplished through a dedication agreement that addresses many of the same issues as the sale of residential lots or commercial property within the subdivision. The developer wants to assure that the school improvements, including colors and materials, landscaping, walls, outdoor lighting and signage are consistent with the remainder of the development; that construction of the school improvements commences within a specified period time and is thereafter diligently prosecuted to completion;2 that the school site and improvements are maintained in a "first class" manner; that traffic flow and traffic patterns within the subdivision are adequately considered; and, possibly, that homeowners within the subdivision can use the school facilities. The dedication agreement must be approved by the governing board prior to execution by the school district.
The "donation agreement" generally provides for a "donation" to the school district the first time a home builder obtains a building permit for each lot. The donation agreement may include covenants from the school district (akin to those applicable to development fees) requiring the school district to use the funds for the purpose of facilitating the acquisition and development (and not for operational purposes) of public school facilities within the district; requiring an accounting that details the uses of donations; and requiring the school district to credit the home builder if a municipality subsequently assesses development fees to the home builder relating to the construction of school facilities.
Frequently, these
dedications and donations are required prior to the time that the developer's
zoning or site plan application is approved by the municipality because
the school district needs to begin construction by a certain date in order
to assure that the school will open in time to accommodate students. In
such case, the developer requires assurances that its dedication or donation
to the school district is contingent on the municipality approving its
desired zoning application and site plan. The developer also wants to
make sure that the school district will not request that the municipality
impose additional zoning stipulations or development requirements.
School districts are
a legislative creation and have only the specified powers granted to them
by the legislature. School district governing board members are public
officers and must act for the public interest. A governing board member
acts as a fiduciary when deciding matters of interest to the district
and may not agree to restrict her freedom of action in the exercise of
her powers. Unless specifically authorized by the legislature, any agreement
which attempts to interfere with the governing board member's unbiased
discharge of her duty to the public, in the exercise of her office, is
against public policy and unenforceable because it affects future policy
properly subject to change to meet changing conditions. Further, a governing
board is considered a noncontinuous body, organized each year. Therefore,
agreements that attempt to restrict not only the governing board making
the agreement, but future governing boards as well, are also against public
policy and unenforceable, unless specifically authorized by the legislature.
Thus, a dedication or donation agreement cannot require the school district
to agree in advance to affirmatively support (or even not oppose) a developer's
zoning application. If such long-term commitments were permissible, citizen
control (via elections) over school districts would be ineffective.
Developers (and school
districts) must work within the existing statutory framework to realize
their mutual goals. Thus, instead of requiring the school district to
support (or not affirmatively oppose) any proposed zoning or site plan
application, the agreement between the developer and school district can
require that the dedication or donation will be effective only when the
zoning or site plan applications have been properly approved by the applicable
governmental authority or that the school site reverts back to the developer
if the proposed zoning or site plan application is not approved. Of course,
until the zoning or site plan is approved, the developer bears the risk
that the governing board will renege on its agreement in the exercise
of its fiduciary duty obligations.
The developer and
the school district can agree that any future obligations (if any) of
the developer under the dedication or donation agreement can be terminated
if the school district opposes any subsequent amendment or modification
of the developer's zoning or site plan, or any requested variance or use
permit. This is an important point if there are future developer obligations
because circumstances change and it is likely that the developer will
require minor or major changes to its zoning and/or conceptual site plan
during the course of the completion of the project. Such a provision in
the dedication or donation agreement would not prevent the school district
from making any independent decisions, but merely clarifies that the developer's
promises in the agreement are based upon the unspoken premise that the
school district will not oppose the developer's zoning and site plan applications.
This permits the school district to exercise its fiduciary duty obligations,
but incentivizes the district to honor the commitments of prior governing
boards or lose the future benefits of any such agreement.
Clearly, it is in
the best interest of both the developer and the school district to provide
for adequate schools in the community and to integrate the school into
the developer's community. In turn, the developer wants to avoid any surprises
of future requirements that may be demanded by the school district but
were not earlier contemplated by the developer. The developer needs to
recognize that the law may limit a school district's ability to make certain
promises in a dedication or donation agreement. As a result, careful drafting
of a dedication or donation agreement is necessary to insure that the
promises of the parties are clearly defined and legally enforceable.
Jay Kramer is a director
and shareholder of Fennemore Craig, P.C. He is a certified real estate
specialist and "AV" rated by Martindale-Hubbell. He specializes
in the areas of planned community and commercial real estate acquisition
and disposition, financing and development.
Scott Hyder is an
associate at Fennemore Craig, P.C. He graduated from Arizona State University
School of Law in 1996 and practices in the areas of planned community
real estate acquisition, disposition and development.
1 The Superior Court
for Pinal County held on August 10, 1999 that The City of Apache Junction's
ordinance assessing development fees for additional public school capital
facilities is Constitutional. The Home Builders Association of Central
Arizona has filed, or will shortly file, a Petition for Special Action
with the Arizona Court of Appeals requesting expedited review of this
decision. In the interim, other municipalities, including the Town of
Gilbert, are considering imposing similar development fees.
2 With the advent
of charter schools, developers now have a private alternative if the school
district cannot legally, or does not choose to, construct schools within
the project.
"As previously
published in the The Arizona Report, Vol. 2, No. 3. September 1999 - Arizona
District Council of the Urban Land Institute"