BILL NUMBER: AB 1883 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 14, 2014
PASSED THE ASSEMBLY AUGUST 19, 2014
AMENDED IN SENATE AUGUST 5, 2014
AMENDED IN SENATE JULY 1, 2014
AMENDED IN SENATE JUNE 18, 2014
AMENDED IN ASSEMBLY APRIL 29, 2014
AMENDED IN ASSEMBLY APRIL 10, 2014
INTRODUCED BY Assembly Member Skinner
(Coauthors: Assembly Members Ammiano, Buchanan, Chesbro, Garcia,
Gordon, and Ting)
FEBRUARY 19, 2014
An act to amend Sections 5898.12, 5898.24, 5898.28, 5898.30, and
5899.2 of, and to add Sections 5898.16 and 5898.33 to, the Streets
and Highways Code, relating to public improvements.
LEGISLATIVE COUNSEL'S DIGEST
AB 1883, Skinner. Public improvements: contractual assessments.
Existing law, the Improvement Act of 1911 (Improvement Act),
authorizes the legislative body of any public agency, as defined, to
determine that it would be convenient, advantageous, and in the
public interest to designate an area within the public agency, as
specified, within which authorized public agency officials and
property owners may enter into voluntary contractual assessments to
finance the installation of distributed generation renewable energy
sources or energy or water efficiency improvements that are
permanently fixed to real property, as specified.
Under existing law, for the purpose of financing the installation
of distributed generation renewable energy sources pursuant to the
Improvement Act, "permanently fixed" includes, but is not limited to,
systems attached to a residential, commercial, industrial,
agricultural, or other real property pursuant to a power purchase
agreement or lease between the owner of the system and the owner of
the assessed property, if the power purchase agreement or lease
contains certain provisions, including, but not limited to,
provisions intended to ensure that the property owner is guaranteed
the electric power from the system for the length of the lien. One of
the required provisions is that after installation, the power
purchase agreement or lease is paid in full using the funds from the
contractual assessment program.
The Mello-Roos Community Facilities Act of 1982 (Mello-Roos Act)
authorizes the establishment of community facilities districts and
the issuance of bonds and the levying of special taxes to finance
various types of facilities and services within the district.
This bill would revise the information included in the power
purchase agreement or lease to allow a system owner to include a
specified covenant and warranty in its contract with the property
owner, providing that the system will not be removed for the term of
the contract. The bill would specifically authorize either full or
partial payment for the power purchase agreement or lease to be made
after installation of the system. The bill would declare the intent
of the Legislature that the program finance prepaid service
contracts, as well as installation, of renewable energy sources and
energy efficiency improvements.
This bill would make various changes to the Improvement Act to
achieve cost reductions and to achieve consistency with similar
provisions of the Mello-Roos Act, including changes in recordation
requirements and authorizing the financing of facilities in
connection with the initial construction of a residential building
that is being undertaken by the intended owner or occupant.
This bill would authorize a public agency to transfer, as defined,
its right, title, and interest in any voluntary contractual
assessments if bonds have not been issued in that regard, subject to
an agreement identifying the specific period of time during which the
transfer will be operative, not to exceed 3 years. The bill would
state that this authorization shall not be construed to authorize the
transferee to initiate and prosecute a foreclosure action resulting
from a delinquency in the payment of the voluntary contractual
assessment, and that a foreclosure action remains the responsibility
of the public agency which would retain the sole right to enforce its
senior lien status.
This bill would revise various procedures pursuant to which a
public agency is authorized to issue bonds under the Improvement Act,
including authorizing the public agency to issue new bonds to
refinance outstanding bonds payable from contractual assessments
levied pursuant to the act, which may be subject to a variable
interest rate, under certain circumstances. The bill would authorize
a public agency owning property to levy a contractual assessment
under the act against a leasehold or possessory interest in that
property, as prescribed.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Energy efficiency, renewable energy, and water efficiency
upgrades to residential, commercial, industrial, and other properties
are integral to furthering the state's goals of reducing greenhouse
gas emissions, insulating the state from the impacts of dwindling
water resources, and helping Californians save money.
(b) Not-for-profit entities and other third parties are
increasingly important partners with local governments in funding
Property Assessed Clean Energy (PACE) upgrades.
(c) The closing costs associated with bond issuance can make PACE
financing for small projects cost-prohibitive.
(d) By pooling small to medium size PACE projects into one bond,
the closing costs for each project can be drastically reduced.
(e) In order for a third party to pool projects, it is necessary
to enable local governments to assign the revenue from a PACE
assessment to an investor prior to the issuance of a bond.
(f) The right to foreclose on delinquent voluntary assessments,
and the senior lien status of those assessments, should remain with
the local government.
SEC. 2. Section 5898.12 of the Streets and Highways Code is
amended to read:
5898.12. (a) It is the intent of the Legislature that this
chapter should be used to finance public improvements to lots or
parcels that are developed and where the costs and time delays
involved in creating an assessment district pursuant to other
provisions of this division or any other law would be prohibitively
large relative to the cost of the public improvements to be financed.
(b) It is also the intent of the Legislature that this chapter
should be used to finance the installation or prepaid service
contract, or both, of distributed generation renewable energy sources
or energy efficiency improvements that are permanently fixed to
residential, commercial, industrial, agricultural, or other real
property.
(c) It is also the intent of the Legislature to address chronic
water needs throughout California by permitting voluntary individual
efforts to improve water efficiency. The Legislature further intends
that this chapter should be used to finance the installation of water
efficiency improvements that are permanently fixed to residential,
commercial, industrial, agricultural, or other real property,
including, but not limited to, recycled water connections, synthetic
turf, cisterns for stormwater recovery, and permeable pavement.
(d) It is also the intent of the Legislature that a public agency
in the process of establishing an assessment program, to the extent
feasible, use a good faith effort to provide advance notice of the
proposed program to water and electric service providers in the
relevant service area, as set forth in Section 5898.24, to allow the
most efficient coordination and collaboration between the public
agency and water and electric service providers.
(e) This chapter shall not be used to finance facilities for
parcels in connection with the initial construction of a residential
building, unless the initial construction is undertaken by the
intended owner or occupant.
(f) This chapter shall not be used to finance the purchase or
installation of appliances that are not permanently fixed to
residential, commercial, industrial, agricultural, or other real
property.
(g) Assessments may be levied pursuant to this chapter only with
the free and willing consent of the owner of each lot or parcel on
which an assessment is levied at the time the assessment is levied.
SEC. 3. Section 5898.16 is added to the Streets and Highways Code,
to read:
5898.16. All references to financing in this chapter shall be
deemed to also refer to refinancing, except that with respect to
refinancing, the legislative body shall conclude that providing the
refinancing will result in an increased adoption of the improvements
authorized to be financed by this chapter. This section does not
constitute a change in, but is declaratory and a clarification of
existing law.
SEC. 4. Section 5898.24 of the Streets and Highways Code is
amended to read:
5898.24. (a) A legislative body shall publish notice of a hearing
pursuant to Section 6066 of the Government Code, and the first
publication shall occur not later than 20 days before the date of the
hearing.
(b) A legislative body shall provide written notice of a proposed
contractual assessment program to all water or electric providers
within the boundaries of the area within which voluntary contractual
assessments may be entered into not less than 60 days prior to
adoption of any resolution pursuant to Section 5898.26.
(c) (1) A legislative body administering a voluntary contractual
assessment program shall designate an office, department, or bureau
of the local agency that shall be responsible for annually preparing
the current roll of assessment obligations by assessor's parcel
number on property subject to a voluntary contractual assessment.
(2) The designated office, department, or bureau shall establish
procedures to promptly respond to inquiries concerning current and
future estimated liability for a voluntary contractual assessment.
Neither the designated office, department, or bureau, nor the
legislative body, shall be liable if any estimate of future voluntary
contractual assessment liability is inaccurate, nor for any failure
of any seller to request notice pursuant to this chapter or to
provide the notice to a buyer.
(d) For purposes of enabling sellers of real property subject to a
voluntary contractual assessment to satisfy the notice requirements
of Section 1102.6b of the Civil Code, the legislative body shall
cause to be recorded in the office of the county recorder for the
county in which the real property is located, concurrently with the
instrument creating the voluntary contractual assessment, a separate
document that meets all of the following requirements:
(1) The title of the document shall be "Payment of Contractual
Assessment Required" in at least 14-point boldface type.
(2) The document shall include all of the following information:
(A) The names of all current owners of the real property subject
to the contractual assessment and the legal description and assessor'
s parcel number for the affected property.
(B) The annual amount of the contractual assessment.
(C) The date or circumstances under which the contractual
assessment expires, or a statement that the assessment is perpetual.
(D) The purpose for which the funds from the contractual
assessment will be used.
(E) The entity to which funds from the contractual assessment will
be paid and specific contact information for that entity.
(F) The signature of the authorized representative of the
legislative body to which funds from the contractual assessment will
be paid.
(e) The recorder shall only be responsible for examining the
document required by subdivision (d) and determining that it contains
the information required by subparagraphs (A), (E), and (F) of
paragraph (2) of subdivision (d). The recorder shall index the
document under the names of the persons and entities identified in
subparagraphs (A) and (E) of paragraph (2) of subdivision (d). The
recorder shall not examine any other information contained in the
document required by subdivision (d).
(f) In order to reduce the costs associated with contractual
assessments, a legislative body may authorize the document described
in subdivision (d) to be combined with the notice required by Section
5898.32, and recorded as a single document.
SEC. 5. Section 5898.28 of the Streets and Highways Code is
amended to read:
5898.28. (a) A public agency may issue bonds pursuant to this
chapter, the principal and interest for which would be repaid by
voluntary contractual assessments. A public agency may advance its
own funds to finance work to be repaid through voluntary contractual
assessments, and may from time to time sell bonds to reimburse itself
for those advances. A public agency may enter into a relationship
with an underwriter or financial institution that would allow the
sequential issuance of a series of bonds, each bond being issued as
the need arose to finance work to be repaid through voluntary
contractual assessments. The interest rate of each bond may be
determined by an appropriate index, but shall be fixed at the time
each bond is issued unless the bond is issued to finance improvements
to nonresidential private property or residential private property
with four or more units. Bond proceeds may be used to establish a
reserve fund for debt service or paying the costs of foreclosure on
properties participating in the program, to fund capitalized interest
for a period up to two years from the date of issuance of the bonds,
to fund the administrative fee required for participation in the
PACE Reserve Program established pursuant to Chapter 4 (commencing
with Section 26050) of Division 16 of the Public Resources Code, and
to pay for expenses incidental to the issuance and sale of the bonds.
Division 10 (commencing with Section 8500) shall apply to any bonds
issued pursuant to this section, insofar as that division is not in
conflict with this chapter.
(b) (1) Notwithstanding any provision of this division or the
Improvement Act of 1915 (Division 10 (commencing with Section 8500)),
a public agency may transfer its right, title, and interest in and
to any voluntary contractual assessments, if bonds have not been
issued pursuant to subdivision (a). The public agency and the
transferee shall enter into an agreement that, among other things,
identifies the specific period of time during which the transfer of
voluntary contractual assessments will be operative, not to exceed
three years. Except as provided in paragraph (2), a transfer of any
voluntary contractual assessments under this subdivision shall be
treated as a true and absolute transfer of the asset so transferred
for the period of the transfer and not as a pledge or grant of a
security interest by the public agency for any borrowing. The
characterization of the transfer of any of those assets as an
absolute transfer by the public agency shall not be negated or
adversely affected by the fact that only a portion of any voluntary
contractual assessment is transferred, nor by any characterization of
the transferee for purposes of accounting, taxation, or securities
regulation, nor by any other factor whatsoever. As used in this
section, "transfer" means sale, assignment, or other transfer.
(2) Nothing in this subdivision shall be construed to authorize
the transferee to initiate and prosecute a foreclosure action
resulting from a delinquency in the payment of the voluntary
contractual assessment. Initiation and prosecution of a foreclosure
action shall remain the responsibility of the public agency, which
shall retain the sole right to enforce its senior lien status.
(c) Division 10 (commencing with Section 8500) shall apply to any
bonds issued pursuant to this section, insofar as that division is
not in conflict with this chapter. Notwithstanding Part 16
(commencing with Section 8880) of Division 10, if any reserve fund is
established in whole or in part with legally available moneys of one
or more public agencies other than bond proceeds, the public agency
or agencies may provide that a property owner who prepays all or a
portion of the assessment shall not be credited with the public
agency moneys in the reserve fund and there shall be no reduction in
the assessment pursuant to Sections 8884 or 8881, and the public
agency moneys in the reserve account shall not be used to redeem
bonds pursuant to Section 8885 and any public agency moneys remaining
in the reserve fund at the maturity of the bonds shall be disbursed
to the public agency free and clear of the lien of the issuing
instrument. Any excess bond proceeds may be used to pay principal of
and interest on the bonds in addition to any other use permitted by
Division 10 (commencing with Section 8500).
(d) Notwithstanding any other law, the public agency may conclude
that it is in the public interest for bonds issued by the public
agency pursuant to this chapter to not be subject to redemption prior
to their scheduled maturity date except as a result of the
prepayment in whole or in part of contractual assessments.
Notwithstanding any other limitations set forth in law, and with
respect to bonds issued to finance improvements to nonresidential
property or residential property with four or more units, the
redemption premium associated with a redemption of bonds as a result
of a contractual assessment prepayment shall be determined by
agreement of the public agency issuing the bonds, the property owner,
and the initial purchaser of the bonds.
(e) (1) Without the prior written approval of the property owner,
and notwithstanding any other law, a public agency may issue bonds
pursuant to this chapter to refinance outstanding bonds payable from
contractual assessments levied pursuant to this chapter if all of the
following are true:
(A) The total interest cost to maturity on the refunding bonds is
less than the total interest cost to maturity on the bonds to be
refunded.
(B) The final maturity date of the refunding bonds is not later
than the final maturity date of the refunded bonds, except that if
the bonds to be refunded are variable rate bonds, the final maturity
date of the refunding bonds may extend to, but not beyond, the useful
life of the financed improvements.
(C) The total interest component of the scheduled contractual
assessment installments to maturity, after issuance of the refunding
bonds, is less than the total interest component of the scheduled
contractual assessment installments to maturity prior to issuance of
the refunding bonds.
(2) For purposes of this section, in connection with the issuance
of fixed rate bonds to refinance variable rate bonds, the interest
rate on the refunded bonds for purpose of demonstrating compliance
with this section may be assumed to be the maximum possible interest
rate on the bonds to be refunded as long as the legislative body
concludes that the public interest will be served by issuing fixed
rate bonds to refinance the outstanding variable rate bonds. In
connection with an issuance of refunding bonds under this chapter,
the legislative body may direct that an amendment to the document
required by subdivision (d) of Section 5898.24 be recorded to reflect
the revised contractual assessment installment schedule.
(f) With the prior written approval of the owner of nonresidential
property or residential property with four or more units, and
notwithstanding any other law, a public agency may issue bonds
pursuant to this chapter to refinance outstanding bonds payable from
contractual assessments levied pursuant to this chapter without
complying with subdivision (e). The final maturity date of the
refunding bonds issued pursuant to this subdivision may be later than
the final maturity date of the bonds being refunded as long as the
final maturity date of the refunding bonds does not extend beyond the
useful life of the financed improvements.
SEC. 6. Section 5898.30 of the Streets and Highways Code is
amended to read:
5898.30. Assessments levied pursuant to this chapter, and the
interest and any penalties thereon shall constitute a lien against
the lots and parcels of land on which they are made, until they are
paid. Division 10 (commencing with Section 8500), insofar as those
provisions are not in conflict with this chapter, Article 13
(commencing with Section 53930) of, and Article 13.5 (commencing with
Section 53938) of, Chapter 4 of Part 1 of Division 2 of Title 5 of
the Government Code apply to the imposition and collection of
assessments contracted for pursuant to this chapter, including, but
not limited to, provisions related to lien priority, the collection
of assessments in the same manner and at the same time as the general
taxes of the city or county on real property, unless another
procedure has been authorized by the legislative body or by statute,
and any penalties and remedies in the event of delinquency and
default.
SEC. 7. Section 5898.33 is added to the Streets and Highways Code,
to read:
5898.33. (a) If a public agency owning property, including
property held in trust for any beneficiary, grants a leasehold or
other possessory interest in the property, the contractual assessment
may be levied on the leasehold or possessory interest and shall be
payable by the owner of the leasehold or possessory interest. The
assessment contract shall be entered into by the public agency that
established the program and the lessee, and the public agency owning
the property shall provide prior written consent to the contractual
assessment.
(b) At the time the assessment contract is executed, the term of
the leasehold interest shall be at least as long as the term of the
assessment contract.
(c) If the contractual assessment on any possessory interest
levied pursuant to subdivision (a) is unpaid when due, the tax
collector may use those collection procedures that are available for
the collection of assessments on the unsecured roll.
SEC. 8. Section 5899.2 of the Streets and Highways Code is amended
to read:
5899.2. For the purpose of financing the installation of
distributed generation renewable energy sources pursuant to this
chapter, "permanently fixed" includes, but is not limited to, systems
attached to a residential, commercial, industrial, agricultural, or
other real property pursuant to a power purchase agreement or lease
between the owner of the system and the owner of the assessed
property, if the power purchase agreement or lease contains all of
the following provisions:
(a) The attached system is an eligible renewable energy resource
pursuant to the California Renewables Portfolio Standard Program
(Article 16 (commencing with Section 399.11) of Chapter 2.3 of Part 1
of Division 1 of the Public Utilities Code).
(b) The term of the power purchase agreement or lease is at least
as long as the term of the related assessment contract.
(c) The owner of the attached system agrees to install, maintain,
and monitor the system for the entire term of the power purchase
agreement or lease.
(d) The owner of the attached system is not permitted to remove
the system prior to completion of the term of the contractual
assessment lien.
(e) After installation, the power purchase agreement or lease is
paid, either partially or in full, using the funds from the
contractual assessment program.
(f) The right to receive the electricity from the system, through
a power purchase agreement or lease or the right to the system
itself, is tied to the ownership of the assessed real property and is
required to be automatically transferred with the title to the real
property whether the title is transferred by voluntary sale, judicial
or nonjudicial foreclosure, or by any other means.
(g) The power purchase agreement or lease identifies the public
agency that is a party to the assessment contract on the real
property as a third-party beneficiary of the power purchase agreement
or lease until the assessment lien on the property has been fully
paid and, only until that time, prohibits amendments to the power
purchase agreement or lease without the consent of the public agency.
(h) In order to ensure that the property owner is guaranteed the
electric power from the system for the length of the lien, the system
shall not be removed if the owner of the attached system is not
performing its obligations under the contract, and one of the
following is true:
(1) The owner of the attached system does both of the following:
(A) Covenants in its contract with the property owner that neither
the owner of the attached system nor any successor in interest will
remove or permanently decommission the attached system during the
term of the contract.
(B) Warrants in the contract with the property owner that no
assignee, creditor, partner, or owner of the attached system's owner
has, as of the date of the contract or during the remaining term of
the contract, the right to remove or permanently decommission the
attached system.
(2) The owner of the attached system must be a bankruptcy remote
special purpose entity that is bankruptcy remote and meets all of the
following conditions:
(A) It does not engage in any business other than owning the
attached systems and entering into electricity contracts with the
homeowner.
(B) It has no material debt.
(C) Its contracts are either entered into with unrelated third
parties or have terms negotiated at arms length.