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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
school districts; lease agreements; requirements
Purpose
Modifies a school district governing board's (governing board's) authority to enter into a lease for or purchase school property, including by requiring school district elector approval to enter a lease that is for a period of at least 10, rather than 20, years and prohibiting the purchase of a school site that is located outside of a school district's geographic boundaries. Narrows the eligibility for a tax exemption for educational and library property. Requires the Division of School Facilities (Division) to compile and submit an annual report as outlined regarding the real estate holdings owned or leased by each school district during the immediately preceding year.
Background
Statute allows a
governing board to: 1) enter into leases or lease-purchase agreements, as
lessor or lessee, for school buildings or grounds for periods of less than 20
years without voter approval, except if the lease is for school construction;
2) enter into leases or lease-purchase agreements, as lessor or lessee, for
school buildings and grounds for a period that is between 20 and 99 years with
voter approval, unless prescribed conditions are met; 3) enter into option
agreements for the purchase of school sites; and 4) construct school buildings
or purchase or lease school sites without voter approval if the building and
sites are totally funded from specified sources. A governing board may lease
school property, including school buildings, grounds, buses and equipment to
any person, group or organization for any lawful purpose (A.R.S. §§ 15-342;
15-491;
and 15-1105).
A governing board, or a school district superintendent or chief administrative officer with governing board approval, may spend the proceeds from the sale or lease of school property for the payment of any outstanding bonded indebtedness or for the reduction of school district taxes. A common, high school or unified school district may also spend a prescribed amount of the proceeds from the sale of school property, or the lease of school property to persons or entities other than schools for more than one year, for maintenance and operation or capital outlay if outlined conditions are met. The statutory restrictions on spending proceeds from the sale or lease of school property for maintenance and operation or capital outlay do not apply to proceeds from: 1) leases of school property to other schools; 2) leases of school property for less than one year; or 3) sales of school property of less than $100,000 per transaction (A.R.S. § 15-1102).
Libraries, colleges, school buildings and other buildings used for education, including the furniture, libraries, equipment and land, are exempt from taxation if used for education and not used or held for profit. Property and buildings are eligible for a tax exemption for educational and library property if leased from a school district pursuant to a lease or lease-purchase agreement for a period that is for less than 20 years without voter approval, or between 20 and 99 years with voter approval (A.R.S. § 42-11104).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Lease and Purchase Agreement Modifications
1. Requires a governing board to call an election and obtain voter approval to enter into a lease for school buildings or grounds if the lease is for a period that is between 10 and 99 years, rather than 20 and 99 years.
2. Specifies that the authorization by the school district electors is not required for a lease or lease-purchase agreement that is for a period of less than 10 years.
3. Specifies that a governing board, or school district superintendent or chief administrative officer with governing board approval, may lease school property for term of not more than 10 years without voter approval or 99 years with voter approval.
4. Specifies that a lease that a school district enters for school property with a county, city, another school district, tribal government agency or the state must be for a term of less than 10 years without voter approval, or 99 years with voter approval.
5. Stipulates that, if a governing board does not enter a lease for school buildings or grounds listed on a ballot within 10, rather than 20, years after the date of the election, the governing board must call a special election to reauthorize the governing board to negotiate and enter into a lease that is for a period between 10 and 99 years, rather than 20 and 99 years.
6. Prohibits a governing board from leasing or approving the lease of school property to or for any person if the school district leased that property, in whole or part, from another person.
7. Prohibits a governing board from purchasing a school site or building that is located outside the school district's geographic boundaries.
8. Specifies that a school district may enter a lease-purchase agreement as lessee for school buildings or grounds only if the school buildings or grounds are located within the school district's geographic boundaries.
9. Specifies that a school district may enter into option agreements for the purchase of school sites only if the school sites are located within the school district's geographic boundaries.
10. Requires, rather than allows, a governing board, or a school district superintendent or chief administrative officer with governing board approval, to spend the proceeds from the lease of school property for the payment of any outstanding bonded indebtedness of the school district or for the reduction of school district taxes.
11. Removes a school district's authority to spend the proceeds from the lease of school property to persons or entities other than schools for more than one year on maintenance and operation or capital outlay as outlined.
12. Removes the exemption from the statutory restrictions on spending the proceeds from the lease of school property on maintenance and operation or capital outlay for leases of school property:
a) to other schools; or
b) that are less than one year.
13. Determines that property and buildings that are leased from a school district as prescribed are:
a) eligible for a tax exemption for educational and library property, only if the property and buildings are used for educational purposes and meets other requirements; and
b) not eligible for a tax exemption for affordable housing projects.
14. Specifies that property, buildings and improvements are eligible for a tax emption for education and library property as prescribed only if:
a) the buildings and improvements are constructed on land that is leased from a school district;
b) the lease was executed before January 1, 2026; and
c) the buildings and improvements become school district property on termination of the lease.
15. Applies the lease requirement modifications to any lease that is executed, renewed or amended after the general effective date.
Real Estate Holding Annual Report
16. Requires, by October 1, 2026, and each year thereafter, each school district to report to the Division the following information about each real estate holding that is owned or leased by the school district during the immediately preceding year:
a) the address of the real estate holding;
b) a description of the real estate holding, including any structure, building or other improvement that is part of the real estate holding;
c) for each building that is part of the real estate holding, a description of the building's current use;
d) whether any part of the real estate holding is located outside the school district's geographic boundaries;
e) the real estate holding owner; and
f) if the real estate holding is subject to a lease agreement:
i. the parties to the lease agreement;
ii. the lease term;
iii. an estimate of the total amount of revenue that will be generated by the lease agreement; and
iv. the total amount that was received or paid by the school district pursuant to the lease agreement during the immediately preceding year.
17. Requires the Division to:
a) compile the school district reports into a single comprehensive report for the previous school year; and
b) by December 1, 2026, and each year thereafter, submit the Division's report to the Governor, Senate President and Speaker of the House of Representatives and provide a copy of the report to the Secretary of State.
Miscellaneous
18. Defines real estate holding as any real property if the school district owns the property or leases the property as lessee and:
a) the school district leases the property as lessor;
b) any part of the property is used for nonacademic purposes; or
c) any part of the property is located outside the school district's geographic boundaries.
19. Makes technical and conforming changes.
20. Becomes effective on the general effective date.
House Action
ED 1/21/26 DP 6-4-2-0
3rd Read 2/25/26 31-23-6
Prepared by Senate Research
March 19, 2026
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