BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 2241 (Eggman) - Local government: agricultural land.
          
          Amended: May 23, 2014           Policy Vote: G&F 10-0
          Urgency: No                     Mandate: No
          Hearing Date: June 30, 2014                             
          Consultant: Mark McKenzie       
          
          This bill meets the criteria for referral to the Suspense File. 

          
          Bill Summary: AB 2241 would revise the fees charged when a  
          Williamson Act or Farmland Security Zone contract is rescinded  
          to place the property into a solar-use easement contract, and  
          specify that 50% of the rescission fees would be retained by the  
          county and not transmitted to the General Fund.  The bill would  
          sunset on January 1, 2020, at which time rescission fees would  
          return to the levels in current law and all fees would be  
          deposited into the General Fund.

          Fiscal Impact: 
              Unknown overall impact on rescission fee revenues since the  
              bill increases the fees related to Williamson Act contract  
              conversions to solar-use easement contracts and decreases  
              the rescission fees for FSZ conversions.

              Unknown, potentially significant revenue decreases to the  
              General Fund and Soil Conservation Fund, and corresponding  
              increases to counties, related to counties retaining 50% of  
              rescission fees.  However, to the extent the bill  
              incentivizes the conversion of more Williamson Act and FSZ  
              contracts to solar-use easement contracts, and the mix of  
              those conversions, the bill could result in an overall  
              increase in rescission fees, which could mitigate some of  
              the losses of state revenues.  (See Staff Comments)

              Negligible impact on the Department of Conservation. 

          Background: Existing law, the California Land Conservation Act  
          of 1965 (Williamson Act), authorizes landowners to sign ten-year  
          contracts with counties, agreeing to restrict a property's use  
          to agriculture, open space, or compatible uses.  In return for  
          the agreement to keep the land out of development, the landowner  








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          benefits from reduced property tax assessments based on the  
          property's use rather than its market value.  These contracts  
          renew automatically each year, unless the contract is ended  
          through nonrenewal, cancellation, or termination.  Under  
          nonrenewal, either the landowner or the county may provide  
          notice to not renew the contract.  When the term of the contract  
          runs out after nine years, the property is reassessed at its  
          market value and land restrictions end.  County officials can  
          cancel a Williamson Act contract at a landowner's request if the  
          board of supervisors finds that cancellation is consistent with  
          the Act's purpose or in the public interest.  A contract ends  
          immediately upon cancellation and payment of cancellation fees  
          by the landowner to the state in an amount equal to 12.5% of the  
          property's unrestricted value.  A contract can be rescinded when  
          a board of supervisors cancels a Williamson Act contract and the  
          landowner simultaneously enters into an agricultural  
          conservation easement on other land of an equal or greater  
          value.

          Existing law also allows for a Farmland Security Zone contract,  
          which operates in the same manner as a Williamson Act contract,  
          except the term of the contract is a minimum of 20 years and the  
          cancellation fees are 25% of the fair market value of the  
          property.

          Existing law, SB 618 (Wolk), Chap. 596/2011, authorizes a  
          property owner and city or county to mutually agree to rescind a  
          Williamson Act or FSZ contract on "marginally productive" or  
          "physically impaired" land, as determined by the Department of  
          Food and Agriculture, and simultaneously enter into a solar-use  
          easement contract. In order to encourage solar generation to  
          meet California's Renewable Standards goals, SB 618 provides for  
          a lower rescission fee for conversions of Williamson Act and FSZ  
          contracts to solar-use easement contracts.  Those rescission  
          fees are reduced by half when compared to standard cancellation  
          fees: from 12% to 6.25% for Williamson Act conversions, and from  
          25% to 12.5% for FSZ contract conversions.

          Under current law, cancellation and rescission fees are  
          collected by the county treasurer and transferred to the General  
          Fund.  Approximately $2.5 million in cancellation fees are  
          transferred to the Soil Conservation Fund each year to cover the  
          Department of Conservation's costs to administer the Williamson  
          Act.  Cancellation and rescission fee revenues can fluctuate  








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          dramatically from year to year.  For example, the state received  
          only $106,812 in the 2010-11 fiscal year, but over $26 million  
          in 2005-06.  On average, the state has collected approximately  
          $7.8 million annually between fiscal years 1999-00 and 2012-13. 

          Proposed Law: AB 2241 would revise the fees to rescind a  
          Williamson Act or FSZ contract when the property is  
          simultaneously placed under a solar-use easement contract.   
          Specifically, this bill would:
           Increase the rescission fees when a Williamson Act contract is  
            converted to a solar-use easement contract from 6.25% to 10%  
            of the fair market value of the property.
           Decrease the rescission fees when a FSZ contract is converted  
            to a solar-use easement contract from 12.5% to 10% of the fair  
            market value of the property.
           Reduce the amount of rescission fees transferred to the State  
            General Fund from 100% to 50%. 

          The changes imposed by AB 2241 would sunset on January 1, 2020.

          Staff Comments: The Department of Conservation indicates that  
          there have only been three conversions from Williamson Act and  
          FSZ contracts to solar-use easement contracts as a result of SB  
          618 to date.  The author's office indicates that the bill is  
          intended to provide an incentivize for more counties to rescind  
          current contracts on marginally productive or physically  
          impaired lands by allowing counties to retain 50% of rescission  
          fee revenues.

          The overall impact on rescission fees in general, and the state  
          impacts on the General Fund and Soil Conservation in particular,  
          are impossible to quantify and depend on a number of factors.   
          For instance, counties will have the incentive to convert more  
          contracts to solar-use easement contracts because they can  
          retain 50% of rescission fees, and property owners with FSZ  
          contracts would benefit from a lower rescission fee of 10%,  
          rather than 12.5% of market value.  However, property owners  
          with Williamson Act contracts would pay a higher rescission fee  
          of 10% to convert to a solar-use easement contracts, up from  
          6.25% of market value.  It is unclear what these potentially  
          competing incentives would have on the overall volume of  
          contract conversions.

          Without accounting for the change in the volume and mix of  








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          contract conversions, and whether the bill incentivizes more  
          conversions, the following examples can illustrate the potential  
          impacts on state and county revenues:

                 For the conversion of a Williamson Act contract to a  
               solar-use easement contract on property valued at $1  
               million, current law would generate a rescission fee of  
               $62,500 (6.25%) for the General Fund and Soil Conservation  
               Fund.  Under AB 2241, the rescission fee would increase to  
               $100,000 (10%) and be shared evenly between the county and  
               state funds.  This would reduce state revenues by $12,500  
               for each $1 million of assessed valuation that is  
               converted.  Counties would gain $50,000.
              
                  For the conversion of a FSZ contract to a solar-use  
               easement contract on property valued at $1 million, current  
               law would generate a rescission fee of $125,000 (12.5%) for  
               the General Fund and Soil Conservation Fund.  Under AB  
               2241, the rescission fee would decrease to $100,000 (10%)  
               and be shared evenly between the county and state funds.   
               This would reduce state revenues by $75,000 for each $1  
               million of assessed valuation that is converted.  Counties  
               would gain $50,000.