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 Bill Summary: AB 2241 would revise the fees charged when a Williamson Act or Farmland Security Zone contract is rescinded to place the property into a solar-use easement contract, and specify that 50% of the rescission fees would be retained by the county and not transmitted to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 AB 2241 (Eggman) Page 1 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 AB 2241 (Eggman) Page 2 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 AB 2241 (Eggman) Page 3 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.