BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 555|
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                                 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.  
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          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 

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             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 

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             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 

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             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 

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             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.

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             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.  

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             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 

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             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

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