BILL ANALYSIS Ó
SB 1094
Page 1
SENATE THIRD READING
SB 1094 (Kehoe)
As Amended August 20, 2012
2/3 vote. Urgency
SENATE VOTE :38-0
LOCAL GOVERNMENT 8-1 APPROPRIATIONS 17-0
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|Ayes:|Smyth, Alejo, Bradford, |Ayes:|Gatto, Harkey, |
| |Campos, Davis, Gordon, | |Blumenfield, Bradford, |
| |Hueso, Knight | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Fuentes, |
| | | |Hall, Hill, Cedillo, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
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SUMMARY : Modifies provisions related to mitigation agreements
and the entities that may hold endowments dedicated to
mitigation lands, and expands the eligible entities authorized
to hold title, manage property, and hold endowments related to
mitigation lands. Specifically,
this bill :
1)Expands the entities authorized to hold title to and manage a
property pursuant to a mitigation agreement, as specified, to
include a governmental entity and a special district, as
defined. (Current law allows certain special districts,
nonprofit organizations, for-profit entities, a person, or
another entity to hold title to and manage that property).
2)Defines "governmental entity" to mean any state agency,
office, officer, department, division, bureau, board,
commission, public postsecondary educational institution,
city, county, or city and county, or a joint powers authority
formed pursuant to the Joint Exercise of Powers Act, that
meets either of the following requirements:
a) The joint powers authority was created for the principal
purpose and activity of the direct protection or
stewardship of land, water, or natural resources,
including, but not limited to, agricultural lands, wildlife
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habitat, wetlands, endangered species habitat, open-space
areas, and outdoor recreational areas; or,
b) The joint powers authority was created for the purpose
of constructing, maintaining, managing, controlling, and
operating transportation infrastructure, such as major
thoroughfares and bridges.
3)Expands the definition of "special districts" to include a
district organized or formed pursuant to the Metropolitan
Water District Act, a county water district, a special
district that provides water and wastewater treatment
services, a district organized or formed pursuant to the
County Water Authority Act, and a local flood control
district, as specified. (The current definition of "special
districts" includes a district formed as a regional park, park
and open-space, or open-space district, and a resource
conservation district).
4)Replaces the term "accompanying funds" with respect to
mitigation agreements in existing law with the term
"endowment" and revises that definition.
5)Expands the entities eligible to both hold title to and manage
a mitigation property and to hold the endowment dedicated to
that property to include a governmental entity, or special
district, as defined above. (Current law allows an endowment
to be held by the same special district or non-profit
organization that holds the property).
6)Allows a governmental entity, special district, or nonprofit
organization to contract with a community foundation or
congressionally chartered foundation at any time to hold,
manage, and invest the endowment for a mitigation property and
disburse payments from the endowment to the holder of the
mitigation property consistent with the fund agreement.
7)Specifies that a governmental entity, community foundation,
special district, nonprofit organization, or a congressionally
chartered foundation is qualified to be a holder of the
endowment for the purpose of obtaining any permit, clearance,
or mitigation approval from a state or local agency, as long
as it meets specified requirements.
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8)Defines "community foundation" to mean any community
foundation that meets all the following requirements:
a) Meets the requirements of a community trust in Title 26
of the Code of Federal Regulations;
b) Is exempt from taxation as an organization, as
specified;
c) Is qualified to do business in this state;
d) Is a qualified organization as defined in a specified
section of the Internal Revenue Code;
e) Has complied with National Standards for U.S. Community
Foundations as determined by the Community Foundations
National Standards Board, as specified; and,
f) Is registered with the Registry of Charitable Trusts
maintained by the Attorney General, as specified.
9)Defines "congressionally chartered foundation" to mean a
nonprofit organization that meets all of the following
requirements:
a) Is chartered by the United States Congress;
b) Is exempt from taxation as an organization as specified
in the Internal Revenue Code;
c) Is qualified to do business in this state;
d) Is registered with the Registry of Charitable Trusts
maintained by the Attorney General, as specified; and,
e) Has as a purpose the conservation and management of
fish, wildlife, plants, and other natural resources, which
includes, but is not limited to, the direct protection or
stewardship of land, water, or natural wildlife habitat,
wetlands, endangered species habitat, open-space areas, and
outdoor recreational areas.
10)Requires, unless the mitigation agreement provides otherwise
that another person or entity shall prepare the annual fiscal
report, a governmental entity, community foundation, special
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district, a congressionally chartered foundation, or a
nonprofit organization that holds funds, including an
endowment of moneys for initial stewardship costs, to provide
the local or state agency that required the endowment with an
annual fiscal report that contains at least the following
elements with respect to each individual endowment dedicated
and held by that entity:
a) The balance of each individual endowment at the
beginning of the reporting period;
b) The amount of any contribution to the endowment during
the reporting period including, but not limited to, gifts,
grants, and contributions received;
c) The net amounts of investment earnings, gains, and
losses during the reporting period, including both realized
and unrealized amounts;
d) The amounts distributed during the reporting period that
accomplish the purpose for which the endowment was
established;
e) The administrative expenses charged to the endowment
from internal or third-party sources during the reporting
period;
f) The balance of the endowment or other fund at the end of
the reporting period;
g) The specific asset allocation percentages including, but
not limited to, cash, fixed income, equities, and
alternative investments; and,
h) The most recent financial statements for the
organization audited by an independent auditor who is, at a
minimum, a certified public accountant.
11)Specifies that if an entity is required to submit an
identical annual fiscal report to the Department of Fish and
Game (DFG) and any other state or local agency, then that
report shall be provided only to DFG, and in that instance,
requires DFG to provide a copy of that annual fiscal report on
its Internet Web site for a minimum of five years.
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12)Specifies, if a state or local agency authorizes a
governmental entity, special district, or nonprofit
organization to hold property in connection with a development
project, that the agency may require a proponent to pay a
one-time fee that does not exceed the reasonable costs of the
agency in reviewing qualifications of potential holders of the
property and approving those holders.
13)Provides that the one-time fee shall be collected only if the
agency can demonstrate its actual review of qualifications,
approval of holders.
14)Allows a local agency to contract with or designate a
qualified third party to review the qualifications of a
governmental entity, community foundation, or nonprofit
organization, as specified.
15)Prohibits the mitigation agreement from including any
provision to waive or exempt the parties from any requirement
of the bill's provisions, unless expressly authorized, as
specified.
16)Clarifies that specified provisions in the bill shall not
apply to funds, including funds from mitigation fees, held for
the long-term management and stewardship of property pursuant
either an interim or approved habitat conservation plan, or an
interim or approved natural community conservation plan, if,
in the interim or approved plan documents, the permitting
agency determines the endowment to be established with those
funds will be adequate and provides a schedule for funding the
endowment.
17)Allows a state or local agency, in the development of its own
project for which that state or local agency is required to
protect property to mitigate an adverse impact upon natural
resources, to hold an endowment in an account administered by
an elected official provided that the state or local agency is
protecting, restoring, or enhancing its own property.
18)Revises the term "mitigation agreement" to mean either of the
following:
a) A written agreement between the project proponent and
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the entity qualified to hold the property and the
endowment, which is submitted to the state or local agency
for the purpose of obtaining any permit, clearance, or
mitigation approval from that state or local agency; or,
b) A written agreement between the project proponent and
the entity qualified to hold the property, including any
agreement with an entity qualified to hold the endowment,
which is submitted to the state or local agency for the
purpose of obtaining any permit, clearance, or mitigation
approval from that state or local agency.
19)Revises and clarifies, with respect to any local or state
agency that requires property to be protected pursuant to
existing law, that if an endowment is conveyed or secured at
the time the property is protected, all of the following
applies:
a) The endowment shall be held, managed, invested, and
disbursed solely for, and permanently restricted to, the
long-term stewardship for the specific property for which
the funds were set aside;
b) The endowment shall be calculated to include a principal
amount that, when managed and invested, is reasonably
anticipated to cover the annual stewardship costs of the
property in perpetuity; and,
c) The endowment shall be held, managed, invested,
disbursed, and governed as specified, consistent with the
Uniform Prudent Management of Institutional Funds Act.
20)Requires a nonprofit corporation to utilize generally
accepted accounting practices that are promulgated by the
Financial Accounting Standards Board or any successor entity,
if a nonprofit corporation holds the endowment.
21)Revises requirements that allow another entity (other than a
special district or nonprofit) to hold an endowment in certain
instances, as follows:
a) Requires, for an entity (other than a special district
or nonprofit) that holds endowment funds pursuant to a
natural community conservation plan or a safe harbor
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agreement that is executed on or before January 1, 2012,
the following:
i) Prior to setting aside any endowments, the
implementation agreement that is a part of the recognized
natural community conservation plan or safe harbor
agreement shall specifically address the arrangements for
the endowment including, but not limited to,
qualifications of the endowment holder, capitalization
rate, return objectives, and the spending rule and
disbursement policies.
22)Adds additional exceptions to the requirement that a special
district or nonprofit hold the endowment, to include the
following situations:
a) If the project proponents and the holder of the
mitigation property or conservation easement agree that a
community foundation or a congressionally chartered
foundation shall hold the endowment;
b) If the mitigation property is held or managed by a
federal agency; and,
c) If any of the same mitigation property is required to be
conveyed pursuant to both a federal and state governmental
approval, and under the federal governmental approval the
federal agency does not approve one of the entities as
chosen to hold the endowment by the agreement of the
project proponent and the holder of the mitigation property
or conservation easement.
23)Clarifies that nothing in the bill's provisions shall be
construed as otherwise precluding other methods of funding for
the long-term stewardship of the property.
24)Provides that this act is an urgency statute and shall go
into immediate effect, in order to ensure that mitigation
projects are approved in a timely manner.
EXISTING LAW :
1)Allows, if a state or local agency requires a project
proponent to transfer property to mitigate any adverse impact
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upon natural resources caused by permitting the development of
a project of facility, the agency to authorize a special
district, a nonprofit organization, a for-profit entity, a
person, or another entity to hold title to and mange that
property.
2)Allows, if a state or local agency, in the development of its
own project, is required to protect property to mitigate an
adverse impact upon natural resources, the agency to take any
action that the agency deems necessary in order to meet its
mitigation obligations, including, but not limited to, the
following:
a) Transfer the interest to a special district or to a
nonprofit organization, as specified; or,
b) Provide funds to a nonprofit organization, a special
district, a for-profit entity, a person, or other entity to
acquire land or easements that satisfy the agency's
mitigation obligations.
3)Requires, if a state or local agency authorizes a nonprofit
organization to hold title to and manage the property, the
nonprofit organization to meet specified requirements.
4)Requires a state or local agency to exercise due diligence in
reviewing the qualifications of a special district or
nonprofit organization to effectively manage and steward land,
water, or natural resources, as well as the accompanying
funds, as specified.
5)Allows the state or local agency to require the special
district or nonprofit organization to submit a report not more
than once every 12 months, as specified.
6)Allows, if accompanying funds are conveyed as specified for a
mitigation property, the accompanying funds to be held by the
same special district or nonprofit organization that holds the
property.
7)Allows for several exceptions for the requirement that the
accompanying funds must be held by the agency that requires
the mitigation or by the special district or nonprofit
organization that holds the property.
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8)Requires any conservation easement created as a component of
satisfying a local or state mitigation requirement to be
perpetual in duration, as specified.
9)Provides that any local or state agency that requires property
to be protected, as specified, may identify how the funding
needs of the long-term stewardship of the property will be
met, and provides that if accompanying funds are conveyed at
the time the property is protected, all of the following shall
apply:
a) The accompanying funds shall be held, managed, invested,
and disbursed solely for the long-term stewardship of the
specific property for which the funds were set aside;
b) The accompanying funds shall be calculated to include a
principal amount that, when managed and invested, will
produce revenues that are reasonably sufficient to cover
the annual stewardship costs of the property in perpetuity;
c) The principal amount shall be defined and managed as
permanently restricted funds;
d) Any one-time payment, as defined, and earnings from the
principal shall be managed as temporarily restricted funds;
and,
e) The accompanying funds shall be held, managed, invested,
and disbursed consistent with the Uniform Prudent
Management of Institutional Funds Act.
10)Requires, if a local agency holds the accompanying funds, the
local agency to do all of the following:
a) Hold, manage, and invest the accompanying funds, as
specified, to the extent allowed by law;
b) Disburse funds on a timely basis to meet the stewardship
expenses of the entity holding the property; and,
c) Utilize accounting standards consistent with standards
promulgated by the Governmental Accounting Standards Board.
11)Requires a special district or a nonprofit organization that
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holds funds, as specified, to provide the local or state
agency with an annual fiscal report that contains at least the
same information as required by the IRS Form 990 regarding the
funds.
12)Specifies that if a state or local agency authorizes a
special district or nonprofit organization to hold property,
as specified, the agency may require an administrative
endowment from the project proponent, as a one-time payment
for reasonable costs associated with reviewing qualifications,
approving holders, and regular oversight of compliance and
performance, and
requires the administrative endowment to be held, managed, and
invested to produce an annual revenue sufficient to cover the
costs of reviewing qualifications, approving holders, and
ongoing oversight.
13)Specifies that a local agency may require a project proponent
to provide a one-time payment that will provide for the
initial stewardship costs for up to three years while the
endowment begins to accumulate investment earnings, as
specified.
14)Allows a local agency to contract with or designate a
qualified third party to do any of the following:
a) Review the qualifications of a special district or
nonprofit organization to effectively manage and steward
natural land or resources, as specified;
b) Review the qualifications of a nonprofit to hold and
manage the accompanying funds that are set aside for
long-term stewardship of the property; or,
c) Review reports or other performance indicators to
evaluate the stewardship of lands, natural resources, or
funds, and compliance with the mitigation agreement.
15)Provides that if a property is condemned, the net proceeds
from the condemnation of the real property interest set aside
for mitigation purposes shall be used for the purchase of
property that replaces the natural resource characteristics
the original mitigation was intended to protect, as specified.
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16)Defines "accompanying funds" to mean the funds that may be
conveyed solely for the long-term stewardship of a property,
and specifies that these funds are held and managed consistent
with existing law and with the Uniform Prudent Management of
Institution Funds Act.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill contains likely ongoing costs of $200,000
to $300,000 from the Fish and Game Preservation Fund beginning
in 2012-13 for the oversight and tracking of endowments. This
bill expands the number of entities that can hold endowment
accounts; DFG will also have to expand its review and oversight,
including review of annual fiscal reports.
COMMENTS : Under current law, lands that are required to be set
aside as mitigation can be transferred to a nonprofit
organization for management. This policy came about as a result
of AB 2746 (Blakeslee), Chapter 577, Statutes of 2006. Prior to
2012, the law lacked clarity as to whether the endowment funds
for that long-term management could also be conveyed to the
nonprofit. While it had been common practice in the past for
many public agencies to allow the nonprofit to manage the funds,
there was no existing statute providing explicit affirmation of
this practice.
The Assembly Water, Parks and Wildlife Committee asked for a
written opinion on this topic in 2006. Legislative Counsel
opined that existing law already allowed the state to authorize
nonprofit organizations to hold and manage funds set aside for
the purpose of long-term management of mitigation lands.
Legislative Counsel opined that existing law already allows a
state agency, including DFG, to enter into an agreement
authorizing a nonprofit
organization to hold and manage mitigation funds set aside for
the long-term management of the property. The lack of express
authorization in the statute (prior to 2012) and the lack of
clarity in existing codes led to the reluctance on the part of
some state agencies, most notably DFG, to allow third parties to
hold and manage mitigation funds.
There were several bills that attempted to clarify this
practice, including AB 2916 (Assembly Water, Parks and Wildlife
Committee of 2006), and SB 1011 (Hollingsworth of 2007).
Another bill with similar intent, AB 444 (Caballero of 2009),
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was vetoed by Governor Schwarzenegger. The Governor's veto
message states:
"Although I am in support of this bill's efforts to allow
non-governmental entities to manage funds set aside for the
long-term management of lands and easements, authorizing them to
hold funds without adequate fiscal assurances, as this bill
would provide, is unacceptable.
"I am directing the Department of Fish and Game to work with the
author and interested parties toward developing an alternative
that provides sufficient protections for the financial and
environmental resources subject to third-party agreements."
Since AB 444 was vetoed, DFG proposed the implementation of a
pilot project that would have given applicants two options for
the management of endowment funds required under a California
Endangered Species Act (CESA) incidental take permit. That
pilot program, known as the "Local Government Endowment
Alternative Pilot Program" was never formally implemented.
The issue of clarifying which entities can hold endowments was
finally resolved when Governor Brown signed SB 436 (Kehoe),
Chapter 590, Statutes of 2011. SB 436 authorizes a state or
local agency to allow a qualified and approved nonprofit
organization or special district to hold property and long-term
endowments to mitigate adverse impacts to natural resources
caused by a permitted development project. Additionally the
bill specified a set of standards that endowment holders must
meet, specified requirements for holding, managing, and
investing of the endowment as well as disbursing payments,
assured that endowment management is consistent with other state
laws, and identified certain exceptions for eligibility for
holding the endowments.
However, after SB 436 was signed, several issues surfaced that
necessitate clean-up legislation. First, several other types of
entities asked to be included in the list of eligible entities
authorized to hold endowments, including governmental entities,
community foundations, and some water districts and utility
commissions. Also, when federal and state agencies share
mitigation lands, federal agencies and the nonprofit or entity
it appoints to manage the endowment are now subject to the
provisions of SB 436 which include additional reporting and
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accountability provisions. And, the U.S. Fish and Wildlife
Service and the National Fish and Wildlife Foundation (NFWF)
have asked for the flexibility to separate the endowment holder
from the owner of the land or easement.
This bill makes technical amendments and other modifications to
SB 436. The bill expands the list of eligible entities that can
hold endowments to include "governmental entities," as defined,
and expands the types of special districts that can hold
endowments. The bill also allows community foundations and
congressionally chartered foundations to hold mitigation
endowments in certain circumstances. Additionally the bill adds
an exemption to address situations in which a federal agency
holds or manages mitigation land, and adds in other exceptions
to the requirement that only special districts and nonprofits
can hold endowment funds. Because of the need for follow-up
legislation to SB 436, the bill contains an urgency clause and
specifies that the urgency is essential "in order to ensure that
mitigation projects are approved in a timely manner."
This bill is sponsored by the California Council of Land Trusts
(CCLT).
Support arguments: Supporters argue that this is a much-needed
bill to address several outstanding issues after SB 436 was
signed, and is urgently needed in order to ensure that
mitigation projects are approved in a timely manner.
Opposition arguments: None on file.
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN:
0005048