BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 555| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 555 Author: Hancock (D) Amended: 4/26/11 Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 5/4/11 AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu NOES: Huff, Fuller, La Malfa SUBJECT : Local government: community facilities districts SOURCE : Author DIGEST : This bill authorizes Mello-Roos community facilities districts (CFDs) to finance renewable energy, energy efficiency, and water efficiency improvements on private property. ANALYSIS : 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 CFD issues bonds against these special taxes to finance the public works projects. Like all special taxes, Mello-Roos Act special taxes require two-thirds voter approval. If there are fewer than 12 registered voters, the affected landowners vote. CONTINUED SB 555 Page 2 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 contractual assessments to finance: Renewable energy sources or energy efficiency improvements that are permanently fixed to real property (AB 811 ÝLevine], Chapter 159, Statutes of 2008). Water efficiency improvements that are permanently fixed to real property (AB 474 ÝBlumenfield], Chapter 444, Statutes of 2009). Electric vehicle charging infrastructure (SB 1340 ÝKehoe], Chapter 649, Statutes of 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. Specifics of SB 555 I. Facilities . In addition to financing public works such CONTINUED SB 555 Page 3 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. This bill 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. this bill 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. This bill 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 consent of the owner or owners of the building or real property. This bill 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. This bill authorizes the use of tax revenues to make lease or debt-service payments on CONTINUED SB 555 Page 4 any lease, lease-purchase contract, or certificate of participation used to finance "facilities authorized to be financed by the district." This bill 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 about the tax levy. This bill 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 CONTINUED SB 555 Page 5 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. This bill 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 percent 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, and establish the CFD's appropriations CONTINUED SB 555 Page 6 limit. Under the alternate procedure established by this bill, 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. This 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. This bill 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. This bill 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. This bill 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. CONTINUED SB 555 Page 7 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 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 this bill, 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. This bill 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. This bill 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. This bill 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 two-thirds vote is required to approve the issuance of bonds by a CFD. CONTINUED SB 555 Page 8 Under the alternative CFD formation process authorized by this bill, the parcel owners approve the proposition to authorize bonded indebtedness when their parcels annex to the CFD. This bill 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. This bill 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. This bill 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. This bill 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. This bill 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 ÝPavley], Chapter 15, Statutes of 2010). This bill adds CFD bonds authorized through the bill's alternate CFD formation and annexation process to CONTINUED SB 555 Page 9 the definition of PACE bonds that are eligible for CAEATFA's bond reserve program. Comments 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 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. Prior Legislation . This bill is similar to SB 279 (Hancock, 2009), which Governor Schwarzenegger vetoed, citing his concerns about the use of Mello-Roos taxes to finance energy efficiency improvements. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 5/5/11) American Federation of State, County and Municipal Employees California Association of Realtors East Bay Municipal Utility District United States Green Building Council AGB:mw 5/5/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED SB 555 Page 10 CONTINUED