BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 436
                                                                  Page  1

          Date of Hearing:   August 17, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                     SB 436 (Kehoe) - As Amended:  July 13, 2011 

          Policy Committee:                              Natural 
          ResourcesVote:7-0
                        Local Government                      7-0

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              No

           SUMMARY  

          This bill allows a nonprofit organization or some types of 
          special districts to hold title to and manage mitigation lands 
          and to hold related management funds.  

           FISCAL EFFECT  

          1)Potentially significant shift in the formal management and 
            disposition of potentially tens to hundreds of millions of 
            dollars from the state treasury to individual nonprofit 
            organizations and certain special districts, to the extent 
            that state agencies convey such funds in response to this 
            bill.  This shift may increase the amount of money earned on 
            such funds; it also may expose the state to more risk of loss 
            of those funds.

          2)One-time costs ranging from $150,000 to $200,000 during 
            2011-12 and 2012-13 to the Department of Fish and Game (DFG) 
            to develop regulations and standards.  (Fish and Game 
            Preservation Fund.) 

            (DFG estimates startup costs to be $481,000 in the first 18 
            months following passage the bill.  DFG, however, has been 
            developing a pilot program for the management of mitigation 
            funds by nonprofits.  The work DFG has already put in 
            developing the pilot program should limit the costs DFG 
            realizes to develop regulations and standards for this bill.) 

          3)One-time costs of an unknown amount, but likely ranging from 
            the tens of thousands to hundreds of thousands of dollars, in 








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            2012-13 to DFG to review the qualifications of nonprofits and 
            special districts applying to hold and manage mitigation lands 
            and related funds (Fish and Game Preservation Fund). 

            (Actual costs will depend upon the number of entities applying 
            to DFG and the complexity of the review required for each 
            applicant.  DFG estimates these costs at $511,000 during the 
            second year of the program.  As is the case with DFG's other 
            startup costs, the costs of review applicants should be 
            limited by the work DFG has already performed in development 
            of its pilot project.)  

          4)Ongoing annual costs of an unknown amount, but likely in the 
            hundreds of thousands of dollars, beginning in 2012-13 to DFG 
            to review, process and, if accepted, administer requests to 
            hold and manage mitigation lands and related funds  (Fish and 
            Game Preservation Fund).

          5)Potential ongoing annual GF costs in the tens of thousands of 
            dollars to the State Controller to oversee nonprofit 
            organizations and special districts that hold funds for the 
            management of mitigation lands.  

          6)Potential revenue, in the form of one-time stewardship 
            payments and administrative endowments, of an unknown amount 
            but presumably sufficient to cover most of DFG's and the 
            controller's ongoing costs.

           SUMMARY (continued)

           Specifically, this bill:

          1)Requires a local or state agency that requires the protection 
            of land as mitigation for a proposed project to identify how 
            the long-term stewardship of the land will be met, including 
            by ensuring that funds set aside for the management of the 
            land will generate revenue sufficient to cover annual 
            stewardship costs of the land.

          2)Authorizes a state or local agency to allow a nonprofit 
            organization or limited categories of special districts to 
            hold title to and manage land acquired as mitigation for a 
            project and to hold funds dedicated for the long-term 
            management of those lands.  









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          3)Requires a public agency to review the qualifications of a 
            nonprofit or special district that may hold lands and funds.

          4)Authorizes a public agency to contract with an independent 
            third-party to review the qualifications of nonprofits and 
            special districts and evaluate stewardship and management of 
            mitigation lands and related funds.

          5)Authorizes DFG to contract with the Controller for the 
            evaluation of the qualifications of nonprofits and special 
            districts. 

          6)Requires a nonprofit or special district that is to hold title 
            to and manage mitigation lands and related funds on behalf of 
            DFG to be certified by DFG as meeting certain qualifications 
            and limits to 10 the number of such entities that DFG may 
            certify.

          7)Authorizes the Controller to oversee nonprofits and special 
            districts that hold funds for the management of mitigation 
            lands.

          8)Authorizes a public agency (a) to require a nonprofit or 
            special district that will hold mitigation land to establish 
            an administrative endowment from project proponents to cover 
            the costs of review of nonprofit or special district 
            qualifications and oversight of management of lands and funds 
            and (b) to require project proponents to provide a one-time 
            payment to the holder of mitigation funds to cover stewardship 
            costs for five years, while the endowment matures. 

          9)Requires funds to be returned to the public agency if the 
            funds are misused or if the recipient ceases to exist or 
            operate according to agreement.

          10)Sunsets the bill's provisions as of January 1, 2022.

           COMMENTS  

           1)Rationale.   Existing law clearly allows a state or local 
            agency to transfer land or conservation easements to a 
            nonprofit agency for management of the land or easement.  
            Existing law however, does not explicitly state that a state 
            or local agency also may transfer to the nonprofit funds, 
            known as endowment funds, that are dedicated to the management 








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            of the property or easement.  According to the author, because 
            of this statutory silence, some state and local agencies are 
            reluctant to transfer endowment funds to a nonprofit, even 
            though doing so would simplify and streamline management of 
            the land or easement.  The author and the California Council 
            of Land Trusts-the sponsor of this bill-contend that this bill 
            would clarify state and local government authority, thereby 
            resulting in greater transfer of endowments to nonprofits.

           2)Background.   State and local governments have the authority to 
            issue permits to allow the development of land within their 
            respective jurisdictions.  In some cases, the state or local 
            agency issuing the land development permit requires the 
            applicant to transfer to the agency an interest in real 
            property to mitigate any adverse impact upon natural resources 
            caused by permitting the development.  In many cases, the 
            state or local agency does not want to hold or manage the 
            mitigation property.  State law expressly allows such a state 
            or local agency to authorize certain categories of nonprofit 
            organizations to hold title to and manage those mitigation 
            properties.

            State law, however, does not explicitly authorize a state or 
            local agency to transfer to a nonprofit agency endowment funds 
            for the management of mitigation property, even if the state 
            or local agency has transferred to the nonprofit the 
            mitigation lands to which the endowment funds are dedicated.  
            Despite this lack of explicit statutory authorization, 
            Legislative Counsel concluded in 2006 that existing statute 
            allows a state agency to authorize nonprofit organizations to 
            hold and manage funds set aside for the purpose of long-term 
            management of mitigation lands.  Indeed, the bill's sponsor 
            reports that it is common practice among some public agencies 
            to transfer endowment funds to nonprofit agencies for the 
            management of mitigation properties.  

            DFG currently is developing a pilot program to allow a 
            nonprofit to hold funds dedicated to the long-term management 
            of mitigation lands also held and managed by the nonprofit.

           3)Fish and Game Mitigation Accounts.   Existing law requires 
            funds received by DFG for management of mitigation lands to be 
            deposited in the Fish and Game Mitigation and Protection 
            Endowment Account or the Fish and Game Mitigation Expendable 
            Funds Account, which are held in the State Special Deposit 








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            Fund.  Interest generated on endowment funds deposited in the 
            former account is to be made available to DFG, upon 
            appropriation by the Legislature, to fund long-term management 
            of habitat lands.  Funds other than endowment funds received 
            by DFG and deposited in the latter account are continuously 
            appropriated to DFG for expenditure for management of lands 
            set aside for mitigation.

            Recently, the endowment funds have produced a low rate of 
            return, though the funds have been managed with very little 
            risk.  Some contend third parties, such as nonprofits and 
            special districts, are free of restrictions faced by state 
            agencies that limit their ability to manage the endowment 
            funds and, therefore, could manage the endowment funds to 
            generate more revenue than could the state.  

            Such concern is accentuated by the case of Environmental 
            Trust, an organization holding endowments for state and 
            federal mitigation.  As a result of financial mismanagement, 
            the organization filed for bankruptcy and DFG was forced to 
            accept 11 mitigation properties with insufficient endowment 
            funds for continued land management.  Bill proponents counter 
            that existing law provides the Attorney General and DFG 
            sufficient authority to ensure such mismanagement does not 
            occur and that this bill enhances that authority.

           4)Some Special Districts More Special Than Others.   The bill 
            refers to existing sections of code to define the types of 
            special districts that may hold and manage mitigation lands 
            and related funds.  Based on the bill's code references, the 
            special districts affected by this bill are any regional park 
            district, regional park and open-space district or regional 
            open-space district or a specific special district in Santa 
            Clara County.  However, there are other types of special 
            districts, such as resource conservation districts, that 
            manage mitigation lands.  Should the bill treat all special 
            districts equally?  
             
           5)Fourth Time's the Charm?   Several bills have tried, 
            unsuccessfully, to codify the mitigation land fund management 
            provisions envisioned by this bill.  AB 2916 (Assembly Water, 
            Parks and Wildlife Committee, 2006) and SB 1011 
            (Hollingsworth, 2007) were held in Senate Appropriations.

             AB 444 (Caballero, 2009) was vetoed, the governor expressed 








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            concern with what he characterized as insufficient protections 
            for the state's financial and environmental resources.

            AB 484 (Alejo), which contains provisions similar to SB 436, 
            passed the Assembly 75-1 and appears to be a two-year bill.

           6)Support  .  This bill is supported by the California Council of 
            Land Trusts (sponsor), some conservation groups, and a long 
            list of nonprofits of that type that this bill would authorize 
            to hold and mange mitigation lands and related funds.

           7)There is no formal opposition registered to this bill.
           
           Analysis Prepared by  :    Jay Dickenson / APPR. / (916) 319-2081