BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 184 HEARING: 5/18/11
AUTHOR: Swanson FISCAL: No
VERSION: 1/25/11 TAX LEVY: No
CONSULTANT: Weinberger
BENEFIT ASSESSMENTS FOR SEISMIC SAFETY
Adds seismic strengthening improvements to the types of
improvements to private property that can be financed with
voluntary contractual assessments.
Background and Existing Law
A benefit assessment is an involuntary charge that property
owners pay for a public improvement or service that
provides a special benefit to their property. The amount
of the assessment must be directly related to the amount of
the benefit that the property receives. Benefit
assessments can finance public projects like flood control,
street improvement, streetlights, and public landscaping.
As an alternative to benefit assessments, and only with the
free and willing consent of affected property owners,
public agencies can use "voluntary contractual assessments"
to finance:
Public improvements to developed parcels (SB 837,
McQuorquodale, 1987).
Renewable energy sources or energy efficiency
improvements that are permanently fixed to real
property (AB 811, Levine, 2008).
Water efficiency improvements that are permanently
fixed to real property (AB 474, Blumenfield, 2009).
Electric vehicle charging infrastructure (SB 1340,
Kehoe, 2010).
To use voluntary contractual assessments, a public agency's
legislative body must adopt a resolution, which:
Determines that it would be convenient, advantageous,
and in the public interest to designate an area within
which officials and property owners may enter into
contractual assessments and make related financing
arrangements.
AB 184 -- 1/25/11 -- Page 2
Identifies the kinds of public works which may be
financed.
Describes the area where contractual assessments may
be used.
Describes the proposed financing arrangements,
including criteria for determining the creditworthiness
of a property owner.
States the time and place for a public hearing.
Directs an official to prepare a detailed report
about the contractual assessment program and consult
with the county auditor and county controller regarding
fees.
The report on the proposed assessment program must contain:
A map of the area where contractual assessments will
be offered.
A draft contract specifying the terms and conditions.
A list of the types of facilities and improvements
which may be financed.
The official authorized to enter into contractual
assessments on behalf of the county or city.
The maximum aggregate dollar amount of contractual
assessments.
A method for prioritizing requests from property
owners for financing.
A plan for raising a capital amount required to pay
for work performed pursuant to contractual assessments.
Information about the county auditor's and county
controller's fees.
The legislative body must give written notice to all water
or electricity providers within a proposed area where
voluntary contractual assessments will be offered. After
holding a public hearing, the legislative body may adopt a
resolution confirming the program as detailed in the
report, may confirm a modified version of the report, or
may abandon the proceedings.
The legislative body must designate an office to:
Prepare the annual roll of assessment obligations on
property subject to a voluntary contractual assessment.
Establish procedures for responding to inquiries
concerning estimated voluntary contractual assessment
liabilities.
AB 184 -- 1/25/11 -- Page 3
The legislative body must provide for documents to be
recorded with the county recorder, providing notice of a
contractual assessment on real property. A property owner
may not participate in a contractual assessment program if
the owner's participation would result in the total amount
of any annual property taxes and assessments exceeding 5
percent of the property's market value, as determined at
the time of approval of the owner's contractual assessment.
Local officials can help private property owners pay for
seismic safety improvements with loans and grants from
several sources:
Municipal Improvement Act of 1913 assessments (AB
1700, Farr, 1992).
General obligation bonds (AB 1001, Brown, 1991).
Mello-Roos Act special taxes (SBx 27, Mello, 1990).
Redevelopment Agency funds (AB 3556, Cortese, 1990).
Local revenue bonds (AB 604, Rosenthal, 1982).
Local officials want to add seismic strengthening
improvements to the types of improvements that can be
financed with voluntary contractual assessments.
Proposed Law
Assembly Bill 184 authorizes the use of contractual
assessments to finance the installation of seismic
strengthening improvements that are permanently fixed to
residential, commercial, industrial, agricultural, or other
real property.
AB 184 specifies that, for financing the installation of
seismic strengthening improvements, "public agency" means a
city, county, or city and county.
AB 184 requires that a resolution of intention adopted by
the legislative body of a public agency to establish a
voluntary contractual assessment program relating to
seismic strengthening improvements must identify the kinds
of seismic strengthening improvements that may be financed.
The bill also requires the resolution of intention to
direct an appropriate public agency official to prepare a
report on the proposed assessment program and requires that
report to identify the types of seismic strengthening
improvements that may be financed through the use of
contractual assessments.
AB 184 -- 1/25/11 -- Page 4
AB 184 authorizes, upon written consent of an authorized
public agency official, the proposed seismic strengthening
financing program to allow a property owner to purchase
seismic strengthening-related equipment and materials
directly and to contract directly for the installation of
seismic strengthening improvements.
The bill contains legislative findings and declarations
regarding the need to finance seismic strengthening
improvements using contractual assessments.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 184 builds upon a substantial
body of state law that lets local officials use public
financing to help private property owners pay for seismic
improvements. Unreinforced masonry buildings and "soft
story" buildings with large open spaces on the ground floor
are serious earthquake hazards. The Association of Bay
Area Governments says that 26,000 of Oakland's 163,000
housing units will become uninhabitable when the Hayward
Fault has a major earthquake. Because commercial loans for
earthquake improvements can be expensive, local officials
want to accelerate retrofit work on vulnerable buildings by
loaning money to private property owners at below-market
rates. AB 184 provides local officials with another tool
to help property owners pay for structural upgrades that
save lives, protect rescue workers, and reduce economic
disruption after a major earthquake.
2. It's not your business . Despite the Legislature's
approval of the Levine and Blumenfield bills, some critics
still say that local governments should not be in the
business of providing public financing for seismic projects
on private property. If private property owners want to
finance the large up-front costs of structural
improvements, they ought to rely on private sector lenders,
just as they would finance roofs, decks, other types of
property improvements. Tax-exempt financing, backed by
priority government liens, to pay for seismic improvements
AB 184 -- 1/25/11 -- Page 5
that primarily benefit private property, is inconsistent
with the fundamental purpose of issuing government debt.
3. Too much, too soon ? Many communities are just
beginning to use voluntary contractual assessments for the
energy and water improvements authorized by the Levine and
Blumenfield bills. Last year, legislators considered four
proposals to expand local governments' authority to use
these types of financing mechanisms: SB 1340 (Kehoe, 2010),
AB 44 (Blakeslee, 2010), AB 1755 (Swanson, 2010), and AB
2182 (Huffman, 2010). Governor Schwarzenegger signed the
Kehoe and Blakeslee bills, but vetoed the Swanson and
Huffman measures. Legislators can anticipate additional
proposals to expand voluntary property-assessed financing
in the future. Fire safety improvements or improvements to
access for people with disabilities, for example, could
also provide sufficient public benefits to justify
financing using voluntary property-assessed financing. The
Committee may wish to consider waiting to evaluate local
governments' experience using current statutes before
further expanding the list of improvements that property
owners can finance with voluntary contractual assessments.
4. PACE update . The financing authorized by AB 184 works
just like so-called property assessed clean energy (PACE)
financing programs, which offer government loans to private
property owners to cover the initial costs of renewable
energy, energy efficiency, and water efficiency
improvements. Property owners repay the loans through
voluntary annual assessments, which are secured by priority
liens, on their property tax bills. Last year, federal
housing finance regulators expressed concerns that PACE
programs may overburden property owners with debt, raising
risks of default. Mortgage lenders and regulators are
concerned because PACE financing is secured with a tax lien
that has superior priority over first mortgages. These
concerns have led to the suspension of most residential
PACE lending programs. It is unlikely that PACE programs
will be available to most residential property owners
unless Congress or a court overrides federal regulators'
objections. As a result, the PACE programs that remain
active are focused on commercial properties, which are not
affected by the obstacles at the federal level. Placer
County, Sonoma County, and the City of Palm Desert provide
PACE financing for improvements to some commercial
properties. Other local governments, including the City
AB 184 -- 1/25/11 -- Page 6
and County of San Francisco and the Community Redevelopment
Agency of the City of Los Angeles, are developing PACE
financing programs for commercial properties. Without
changes to federal law, legislators can expect that cities
and counties will make the seismic financing authorized by
AB 184 available mostly to commercial properties.
5. Try again . SB 184 replicates AB 1755 (Swanson, 2010)
which the Senate Local Government Committee approved with a
4-1 vote. Governor Schwarzenegger vetoed that bill,
stating that he did not support expanding contractual
assessment programs to include seismic improvements.
Assembly Actions
Assembly Local Government Committee: 8-1
Assembly Floor: 49-10
Support and Opposition (5/12/11)
Support : City of Oakland; American Federation of State,
County and Municipal Employees; Apartment Association -
California Southern Cities; California Apartment
Association; California's Assessors Association; and
Oakland Mayor Jean Quan.
Opposition : Unknown.