BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 555 HEARING: 5/4/11
AUTHOR: Hancock FISCAL: No
VERSION: 4/26/11 TAX LEVY: No
CONSULTANT: Weinberger
MELLO-ROOS ACT FOR RENEWABLE ENERGY AND WATER EFFICIENCY
Authorizes Mello-Roos community facilities districts to
finance renewable energy, energy efficiency, and water
efficiency improvements on private property.
Background and Existing Law
The Mello-Roos Community Facilities Act allows counties,
cities, special districts, and school districts to levy
special taxes (parcel taxes) to finance a wide variety of
public works, including parks, recreation centers, schools,
libraries, child care facilities, and utility
infrastructure. A Mello-Roos Community Facilities District
(CFD) issues bonds against these special taxes to finance
the public works projects. Like all special taxes,
Mello-Roos Act special taxes require 2/3-voter approval.
If there are fewer than 12 registered voters, the affected
landowners vote.
In addition to financing public or governmental capital
facilities, Mello-Roos Act special taxes can fund a limited
list of public services: police services, fire protection,
recreation programs, library services, museum operations,
park maintenance, flood protection, hazardous waste
cleanup, street and road maintenance, lighting of parks,
parkways, streets, roads, and open space, plowing and
removal of snow, and graffiti management and removal.
Property assessed clean energy (PACE) financing programs
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.
With the free and willing consent of affected property
owners, state law lets public agencies use voluntary
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contractual assessments to finance:
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).
Local officials want to be able to use Mello-Roos taxes to
help finance renewable energy, energy efficiency, and water
efficiency improvements on private property. To simplify
the process by which property owners can voluntarily use
Mello-Roos financing, local officials want to be able to
create CFDs that initially contain no parcels of land, but
consist only of territory from which parcels may
subsequently be annexed to the CFD with the unanimous
approval of parcel owners.
Proposed Law
I. Facilities . In addition to financing public works such
as park, school, and library facilities, CFDs can pay for
the following improvements on privately owned buildings or
real property:
Work deemed necessary to bring buildings or real
property into compliance with seismic safety standards
and regulations.
The repair and abatement of damage to buildings
caused by soil deterioration.
The removal or remediation of any hazardous
substance on real or other tangible property.
Senate Bill 555 adds the acquisition, installation, and
improvement of energy efficiency, water conservation, and
renewable energy improvements to the types of facilities
that a CFD may finance, or refinance, regardless of whether
the buildings or property are privately or publicly owned.
SB 555 requires that energy efficiency, water conservation,
and renewable energy improvements financed by a CFD must be
affixed, as specified in statute, to or on real property.
SB 555 requires that energy efficiency, water conservation,
and renewable energy improvements financed by a district
must be installed on a privately owned building and on
privately owned real property only with the prior written
SB 555 -- 4/26/11 -- Page 3
consent of the owner or owners of the building or real
property.
SB 555 prohibits a CFD from financing energy efficiency,
water conservation, and renewable energy improvements on a
privately owned building or on privately owned real
property in connection with the initial construction of a
residential building unless the initial construction is
undertaken by the intended owner or occupant.
CFDs can use tax revenues to make lease or debt-service
payments on any lease, lease-purchase contract, or
certificate of participation used to finance authorized
district facilities. SB 555 authorizes the use of tax
revenues to make lease or debt-service payments on any
lease, lease-purchase contract, or certificate of
participation used to finance "facilities authorized to be
financed by the district."
SB 555 declares that any improvement on private property
authorized to be financed by a CFD constitutes a "public
facility" for purposes of the Mello-Roos Act, and a "public
improvement" for purposes of specified statutes, whether
the improvement is owned by a private entity, if the
legislative body has determined that the improvement
provides a public benefit, or the improvement is owned by a
public agency.
II. CFD formation and annexation . To initiate the
formation of a CFD, a local agency's legislative body must
adopt a resolution of intention to establish the district,
which must:
Describe the district's boundaries.
Describe the facilities and services proposed to be
financed.
State that a special tax, secured by a lien against
real property, will be annually levied.
Specify, in detail, the rate, method of
apportionment, and manner of collection of the special
tax.
Fix a time and place for a public hearing.
After holding the hearing and considering protests, if the
legislative body determines to establish the CFD, it must
adopt a resolution of formation containing all of the
information provided in the resolution of intention and, if
a special tax is to be levied, some additional information
SB 555 -- 4/26/11 -- Page 4
about the tax levy.
Senate Bill 555 authorizes an alternate procedure for
forming a CFD that initially consists solely of territory
proposed for annexation to the CFD in the future, with the
condition that a parcel or parcels within that territory
may be annexed to the CFD and subjected to the special tax
only with the unanimous approval of the parcel owner or
owners at the time of annexation.
Under this alternate CFD formation procedure, the
resolution of intention or the resolution of formation need
not specify the rate or rates of special tax, provided
that:
The resolution of intention and the resolution of
formation include a statement that the rate must be
established in an amount required to finance or
refinance the authorized improvements and to pay the
district's administrative expenses.
The maximum rate of special tax applicable to a
parcel or parcels must be specified in the unanimous
approval provided by parcel owners when they annex to
the CFD.
A majority protest to a proposed CFD halts formation
proceedings for one year from the date of the protest
decision. A majority protest occurs if 50% or more of the
registered voters, or six registered voters, whichever is
more, residing within the territory proposed to be included
in the district, or if the owners of one-half or more of
the area of the land in the territory proposed to be
included in the district and not exempt from the special
tax, file written protests against the establishment of the
district. SB 555 provides that this definition of majority
protest does not apply to the alternate CFD formation
process. Instead, under the alternate CFD formation
process, a majority protest occurs if 50% or more of the
registered voters, or six registered voters, whichever is
more, residing within the territory proposed to be annexed
to the CFD in the future, or the owners of one-half or more
of the area of the land proposed to be annexed in the
future and not exempt from the special tax, file written
protests against the establishment of the district.
After the adoption of the resolution of formation, voters
must approve the special tax levy, authorize indebtedness,
SB 555 -- 4/26/11 -- Page 5
and establish the CFD's appropriations limit. Under the
alternate procedure established by SB 555, the
appropriations limit for the CFD, the applicable rate of
the special tax and the method of apportionment and manner
of collection of that tax, and the authorization to incur
bonded indebtedness must be specified and be approved by
the unanimous approval of the owner or owners of each
parcel or parcels at the time that the parcel or parcels
annex the CFD. The bill states that no additional hearings
or procedures are required, and the unanimous approval
shall be deemed to constitute a unanimous vote in favor of
the appropriations limit for the CFD, the authorization to
levy the special tax on the parcel or parcels, and the
authorization to incur bonded indebtedness.
SB 555 allows a local agency to designate a parcel or
parcels annexed to a CFD under the alternate process as an
improvement area within the district. After the
designation of an improvement area, all proceedings for
approval of the appropriations limit, the rate and method
of apportionment and manner of collection of special tax
and the authorization to incur bonded indebtedness for the
designated parcel or parcels apply only to the improvement
area.
SB 555 prohibits a local legislative body from recording a
notice of tax lien against any parcel or parcels within a
CFD formed using the alternative process until the parcel
owner or owners have given unanimous approval of the parcel
or parcels' annexation to the CFD, at which time the
special tax lien shall be recorded.
SB 555 states that, for CFDs created to finance energy
efficiency and renewable energy improvements, the refusal
of a person to undertake acts, including:
the formation of, or annexation to, a community
facilities district,
voting to levy a special tax, or,
authorizing another to vote to levy a special tax.
shall not be a factor when considering the approval of
specified legislative or adjudicative acts, or both.
III. Special taxes . A resolution of intention to form a
CFD must specify the rate, method of apportionment, and
manner of collection of the special tax that is to be
levied in sufficient detail to allow each landowner or
SB 555 -- 4/26/11 -- Page 6
resident within the proposed district to estimate the
maximum amount that he or she will have to pay. After a
CFD has been created and authorized to levy special taxes,
the legislative body may approve an ordinance to levy the
special taxes at the rate, and in the manner, described in
the resolution of intention.
Under the alternate CFD formation process authorized by
Senate Bill 555, a legislative body adopts an ordinance
providing for the levy of the special taxes on parcels that
will annex to the CFD at the rate or rates to be approved
unanimously by the parcel owner or owners. The ordinance
providing for the levy of special taxes must also provide
for the apportionment and collection of special taxes in
the manner specified in the resolution of formation. SB
555 specifies that no further ordinance shall be required
even though no parcels may have annexed to the CFD.
A lawsuit to test the validity of a CFD's special taxes
must be filed within 30 days after voters approve the
special tax. SB 555 requires a validation lawsuit
regarding the special taxes levied against a parcel by a
CFD formed under the alternative process to be filed within
15 days after the notice of special tax lien is recorded
against the parcel. SB 555 also authorizes the local
agency to file a validation lawsuit to determine the
validity of any CFD special taxes created through the
alternative CFD formation process.
IV. Bonds . For a CFD to issue bonds, the local
legislative body must adopt a resolution proposing to incur
bonded indebtedness, hold a hearing on the proposed debt
authorization, and submit the proposition to voters. A 2/3
vote is required to approve the issuance of bonds by a CFD.
Under the alternative CFD formation process authorized by
Senate Bill 555, the parcel owners approve the proposition
to authorize bonded indebtedness when their parcels annex
to the CFD. SB 555 provides that no additional hearings or
procedures are needed, and unanimous approval constitutes a
unanimous vote in favor of the proposition to authorize
bonded indebtedness.
A lawsuit to test the validity of a CFD's bonds must be
filed within 30 days after voters approve the bonds. SB
SB 555 -- 4/26/11 -- Page 7
555 requires that a validation lawsuit over bonds issued by
a CFD formed under the alternative process must be filed
within 30 days after the effective date of the local
legislative body's resolution to approve bonded
indebtedness. SB 555 also authorizes the local agency to
file a lawsuit to determine the validity of any CFD bonds.
V. Other provisions . The California Constitution requires
that appropriations limits, special taxes, and some local
governments' bonded indebtedness must be approved by a vote
of qualified electors. Senate Bill 555 declares that
property owners' unanimous approval of special taxes,
bonded indebtedness, an appropriations limit, and
annexation to a CFD under the alternate CFD formation
process constitutes the vote of the qualified elector in
favor for purposes of the California Constitution. SB 555
also contains legislative findings and a declaration that a
public purpose will be served by allowing local governments
to use Mello-Roos special taxes to finance the installation
of renewable energy, energy efficiency, and water
efficiency improvements to residential, commercial,
industrial, or other property.
The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) must create a
Property Assessed Clean Energy (PACE) bond reserve program
to assist local jurisdictions in financing the installation
of distributed generation of renewable energy sources or
energy or water efficiency improvements (SB 77, Pavley,
2010). Senate Bill 555 adds CFD bonds authorized through
the bill's alternate CFD formation and annexation process
to the definition of PACE bonds that are eligible for
CAEATFA's bond reserve program.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . In response to rising energy
costs and concerns about climate change, local governments
want to promote energy efficiency and renewable energy
generation. The initial installation costs can deter
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property owners from installing solar panels, or making
energy efficiency improvements. Using Mello-Roos taxes,
counties and cities can help to finance these investments
at low interest rates. Property owners who voluntarily
agree to pay Mello-Ross special taxes to finance energy
improvements will realize immediate savings on their
utility bills while paying off their costs over time on
their property tax bills. By lowering energy costs,
reducing energy demand, and expanding generation from
renewable energy sources, the voluntary Mello-Roos taxes
authorized by SB 555 will benefit residents throughout
California.
2. It's not your business . Local governments should not
be in the business of providing public financing for the
purchase of solar panels or efficient heating or air
conditioning systems that are to be installed on private
property. If private property owners want to finance the
large up-front costs of energy or water projects, they
ought to rely on private sector lenders, just as they would
finance other types of property improvements. Providing
tax-exempt financing, backed by a priority government lien,
to pay for energy and water projects that primarily
benefit private citizens and businesses, 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 types of financing that property
owners can use to pay for energy or water improvements.
SB 555 -- 4/26/11 -- Page 9
4. PACE update . 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
and County of San Francisco and the Community Redevelopment
Agency of the City of Los Angeles, are developing PACE
financing programs for commercial properties.
5. Try again . SB 555 is similar to SB 279 (Hancock,
2009), which the Senate Local Government Committee passed
unanimously. Governor Schwarzenegger vetoed the bill,
citing his concerns about the use of Mello-Roos taxes to
finance energy efficiency improvements.
Support and Opposition (4/28/11)
Support : California Association of Realtors, East Bay
Municipal Utility District.
Opposition : Unknown.