BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 561                      HEARING:  6/22/11
          AUTHOR:  Gorell                       FISCAL:  No
          VERSION:  6/7/11                      TAX LEVY:  No
          CONSULTANT:  Lui                      

              VENTURA COUNTY WATERSHED PROTECTION DISTRICT'S DEBT
          

          Increases Ventura County Watershed Protection District's 
          securitized limited obligation note limit.  Allows the 
          District to participate in state and federal loan programs. 



                           Background and Existing Law  

          Before counties, cities, or school districts can create 
          multi-year general obligation debt, the California 
          Constitution requires that counties and cities receive 
          2/3-voter approval and 55% voter-approval for school 
          district bonds.  Because the Constitution doesn't mention 
          special districts, the Legislature has allowed some 
          districts to borrow money without voter approval by issuing 
          "promissory notes," loans that are backed only by the 
          promise to repay. 

          Local officials have several fiscal tools to create public 
          capital needed to pay for public works projects.  
                 General obligation (G.O.) bonds are funded through 
               ad valorem tax revenues, outside of Proposition 13's 
               (1978) 1% tax rate.  

                 Limited obligation bonds are securitized by a local 
               government's existing revenues.  Limited obligation 
               bonds require 2/3-voter approval. 

                 Revenue bonds, which are funded by rates and user 
               charges, need majority-voter approval. 

                 Mello-Roos Act bonds allow counties, cities, 
               special districts, and school districts to levy 
               special taxes (parcel taxes) to finance a wide variety 
               of public works with 2/3-voter approval. 





          AB 561 - 6-7-11 -- Page 2



                 Benefit assessment bonds allow property owners to 
               pay for public improvements.  The amount of the 
               assessment is directly related to the amount of the 
               benefit that the property receives.  Benefit 
               assessments require property owners' approval in 
               weighted ballot elections.

                 Special districts may issue securitized limited 
               obligation notes (SLONs), which must be secured by 
               pledging a dedicated revenue stream.  Though SLONs 
               don't require voter approval, they need a 4/5-vote of 
               a district's governing board.  Special districts can 
               borrow up to $2 million to be paid back from 
               designated revenues, over 10 years.  The authority for 
               special districts to issue SLONs sunsets on December 
               31, 2014 (SB 1770, Senate Local Government Committee, 
               2004). 



          In 1987, the federal Clean Water Act created the Clean 
          Water State Revolving Fund (CWSRF) loan program, which 
          provides low-cost financing to state and tribal lands for 
          water quality projects.  The American Recovery and 
          Reinvestment Act of 2009 granted the CWSRF $4 billion to 
          fund high priority wastewater infrastructure projects.  


          In 1944, the Legislature created the Ventura County Flood 
          Control District, now called the Ventura County Watershed 
          Protection District (AB 2320, Strickland, 2002).  The 
          District controls and conserves flood, storm waters, and 
          watersheds to protect life, property, and public 
          infrastructure.  The Ventura County Board of Supervisors 
          governs the District. 

          The District funds its activities through property taxes, 
          benefit assessments, and land development fees.  In 
          addition, the District can borrow money, but first:
                 The Board of Supervisors must declare the existence 
               of an emergency, or the board must form a special 
               zone,  and  
                 2/3 of the voters must approve the borrowing in a 
               special election. 

          After Hurricane Katrina in 2005, the Federal Emergency 





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          Management Agency (FEMA) and the United States Army Corps 
          of Engineers reviewed the nation's flood protection 
          infrastructure.  Levees built on a flood plain that has 1% 
          annual chance of flooding must meet Federal Levee 
          Certification Requirements.  If a levee fails to meet these 
          requirements, FEMA de-accredits the levee system, and flood 
          insurance rate maps (FIRMs) show them as insufficient flood 
          protection.  As a result of FEMA's and the Army Corps' 
          joint re-evaluation, the District identified around $209 
          million of flood protection capital projects which need to 
          be designed, certified, or rehabilitated, and 7, 076 new 
          parcels have been added to FIRMs.  The District prioritizes 
          two projects--along Highway 101 and the Calleguas 
          Creek--that would cost an estimated $13 million in 
          improvements. 

          District revenues may not be enough to start the identified 
          infrastructure projects.  To expedite levee improvements 
          and future capital projects, the District wants to increase 
          its SLON limit.  The District also wants to apply for state 
          and federal revolving loan programs. 


                                   Proposed Law  

          Assembly Bill 561 authorizes the Ventura County Watershed 
          Protection District to participate in state and federal 
          revolving loan funds for the purposes of flood and storm 
          water control, water conservation, erosion protection, 
          beach and shoreline restoration, water reclamation, water 
          storage, technical investigations, and capital works 
          projects.  
          AB 561 increases the District's promissory note borrowing 
          capacity from $2 million to $20 million. 


                               State Revenue Impact
           
          No estimate.


                                     Comments  

          1.   Purpose of the bill  .  During stressed fiscal times, 
          local governments have fewer resources to allocate to 
          critical infrastructure improvements.  In 2009, 11 District 





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          levees failed to meet Federal Levee Certification 
          requirements and must be retrofitted or enhanced.  The 
          District's levees protect more than $8 billion of property 
          and improvements of parcels, and the estimated costs of 
          prevented flood damages are roughly $526 million.  Despite 
          possible fiscal and safety incentives to improve levee 
          systems, the District's steady revenue streams of 
          assessments, property taxes, and land development fees 
          aren't enough.  AB 561 lets the District participate in 
          state and federal revolving loans, rather than wait for 
          lengthy borrowing procedures.  Moreover, AB 561 raises the 
          cap on the District's SLONs.  By giving the District more 
          access to additional borrowing, the bill helps the District 
          prevent damage and stabilize flood insurance rates, rather 
          than wait until a disaster wreaks costlier havoc. 

          2.   For the people, by the people  ?  The California 
          Constitution's stringent rules for incurring local debt 
          reflect the voters' desire to have direct control over 
          fiscal decisions related to public debt.  If the District 
          wants to finance projects by pledging existing revenues to 
          SLONs, it incurs long-term debt without the voters' 
          consent.  The Committee may wish to consider if the bill's 
          $18 million increase in the SLON cap runs counter to the 
          voters' wishes. 

          3.   How much is too much  ?  The District's enabling Act 
          already provides an extensive array of financing 
          mechanisms: loans, bonds, notes, and assessments.  
          Nevertheless, the District wants to raise its SLON capacity 
          from $2 million to $20 million.  That's more than the $13 
          million that the District says it needs for priority 
          repairs to its levees.  It's also more than the $12 million 
          SLON cap that the Legislature set for the San Bernardino 
          Flood Control District (SB 1561, Soto, 2002).  The 
          Committee may wish to consider amending AB 561 to reset the 
          District's SLON limit at $13 million. 


                                 Assembly Actions  

          Assembly Local Government Committee: 7-0
          Assembly Floor:                         73-0
                         Support and Opposition  (6/16/11)

           Support  :  Calleguas Municipal Water District; Ventura 





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          County Board of Supervisors. 

           Opposition  :  Unknown.