BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 692 HEARING: 4/17/13
AUTHOR: Hancock FISCAL: No
VERSION: 4/10/13 TAX LEVY: No
CONSULTANT: Weinberger
MELLO-ROOS COMMUNITY FACILITIES ACT
Amends numerous provisions of the Mello-Roos Community
Facilities Act.
Background
The Mello-Roos Community Facilities Act allows counties,
cities, special districts, and school districts to finance
public works projects and a limited list of public services
by levying special taxes (parcel taxes). A Mello-Roos
Community Facilities District (CFD) issues bonds against
these special taxes to finance the public works projects.
Like all special taxes, Mello-Roos Act special taxes
require 2/3 -voter approval. If there are fewer than 12
registered voters, the affected landowners vote.
The Mello-Roos Act is an important feature of the local
fiscal landscape, providing local officials with a key tool
for accumulating the public capital needed to pay for the
public works projects that make new residential development
possible. Since 1985, CFDs have issued over $18 billion in
long-term bonds, mostly for capital improvements. Without
access to Mello-Roos bond funding, many builders would have
to pay higher development impact fees and raise housing
prices. Based on nearly 30 years of experience,
practitioners want the Legislature to adjust several
statutory features of the Mello-Roos Community Facilities
Act.
Proposed Law
Senate Bill 692 makes the following changes to the
Mello-Roos Community Facilities Act and the Mark-Roos Bond
Pooling Act:
SB 692 -- 4/10/13 -- Page 2
Special taxes for maintenance . Mello-Roos Act special
taxes for services can pay for police protection services,
fire protection and suppression services, ambulance and
paramedic services, recreation program services, library
services, maintenance services for elementary and secondary
schoolsites and structures, operation and maintenance of
museums and cultural facilities, maintenance and lighting
of parks, parkways, streets, roads, and open space, flood
and storm protection services, and hazardous waste cleanup
services. Senate Bill 692 additionally allows Mello-Roos
Act special taxes to pay for maintenance and operation of
any real or other tangible property with an estimated
useful life of five years or longer that is owned by the
local agency or by another local agency through an
agreement entered into pursuant to a specified statute.
The bill defines "maintenance" as including replacement and
the creation and funding of a reserve to pay for
replacement.
Marks-Roos lease financing . The Joint Exercise of Powers
Act allows two or more public agencies to exercise their
common powers by signing joint powers agreements.
Sometimes an agreement creates a joint powers authority
(JPA). The Marks-Roos Local Bond Pooling Act allows public
agencies to use JPAs to finance infrastructure. These JPAs
issue Marks-Roos Act bonds and loan the capital to local
agencies for public works, for working capital, and for
insurance programs. The Marks-Roos Act allows a JPA to
take title to, and sell, lands, structures, real or
personal property, rights, rights-of-way, franchises,
easements, and other interests in lands that are located
within the state that the authority determines are
necessary or convenient for the financing of public capital
improvements. Senate Bill 692 adds leases to the list of
property interests that JPAs can use to finance public
capital improvements.
Joint exercise of powers . A CFD can finance facilities to
be owned or operated by a public agency other than the
agency that created the district pursuant to a joint
community facilities agreement or joint exercise of powers
agreement. Senate Bill 692 declares that specified
provisions in the Mello-Roos Act must not be construed to
limit a joint powers authority's ability to exercise powers
authorized by the Joint Powers Act.
SB 692 -- 4/10/13 -- Page 3
Special tax prepayment provisions . A local agency's
legislative body can form a CFD that initially consists
solely of territory proposed for future annexation to the
CFD, with the condition that a parcel or parcels within
that territory may be annexed to the CFD and subjected to
the special tax only with the unanimous approval of the
parcel owner or owners at the time of annexation (SB 555,
Hancock, 2011). Under this alternate CFD formation
procedure, the resolution of intention to form the CFD 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.
Senate Bill 692 similarly provides that a resolution of
intention need not specify the conditions under which a
special tax obligation may be prepaid and permanently
satisfied if the prepayment provisions are included in the
unanimous approval by parcel owners when they annex to the
CFD.
Eliminating facilities and services . A local agency's
legislative body, after conducting a public hearing, can
eliminate one or more types of facilities and services
specified in a CFD's resolution of formation. For a CFD
formed under the alternate procedure, consisting solely of
territory proposed for future annexation to the CFD, Senate
Bill 692 allows facilities and services to be eliminated
with the unanimous approval of affected parcel owners and
written consent of the local agency. No additional hearing
or procedures are required. The bill requires that the
unanimous approval must contain specified provisions if the
unanimous approval relates to the reduction of the special
tax rate and the special tax proceeds are being used to
retire debt.
Special tax rate ordinances . Senate Bill 692 allows a
local agency's legislative body, after creating a CFD that
includes territory proposed for annexation in the future by
SB 692 -- 4/10/13 -- Page 4
unanimous approval, to provide by ordinance for the levy
of special taxes on parcels that will be annexed to the CFD
at the rate or rates to be approved unanimously by parcel
owners and for apportionment and collection of the special
taxes in the manner specified in the resolution of
formation.
Improvement areas . Current law allows a local agency's
legislative body to designate, by resolution, a portion or
portions of a CFD as one or more improvement areas. After
the designation of an improvement area, all proceedings for
purposes of a bond election and for the purpose of levying
special taxes for payment of the bonds, or for any other
specified changes apply only to the improvement area.
Senate Bill 692, in connection with the annexation by
unanimous approval to a community facilities district of a
parcel that was included in territory proposed for
annexation in the future to the community facilities
district, allows a local agency to designate a parcel or
parcels as an improvement area within the CFD. The bill
specifies that an agency can designate the improvement area
without additional hearings or procedures. After the
designation of a parcel or parcels as an improvement area,
all proceedings for approval of the appropriations limit,
the rate and method of apportionment and manner of
collection of special taxes, and the authorization to incur
bonded indebtedness for the parcel or parcels apply only to
the improvement area.
Continuing disclosure notice . Federal law requires some
property owners in a CFD to disclose certain information on
a continuous basis through an information clearinghouse
established by the Municipal Securities Rulemaking Board
(MSRB). Senate Bill 692 allows a local agency to execute
and record in a County Recorder's office a notice of the
owner's disclosure agreement for the purpose of providing
notice to a subsequent transferee. The owner's written
consent must be attached to the notice. The County
Recorder's office must accept the notice. Senate Bill 692
requires a subsequent transferee of the property to be
subject to the disclosure obligation. Upon the termination
of the disclosure obligation, the bill allows a local
agency to record a notice of termination with the office of
the county recorder in which the original notice was
recorded. The County Recorder's office must accept the
notice of termination.
SB 692 -- 4/10/13 -- Page 5
Bond refunding requirements . A certified public accountant
must certify that proceeds and investment kept in a fund
for a CFD's refunding bonds are sufficient to meet
specified statutory requirements. Senate Bill 629 provides
that an accountant's certification is not required if:
The proceeds and any other cash in the refunding
fund are held uninvested, or shall be invested, in
noncallable obligations of, or obligations guaranteed
as to principal and interest by, the U.S. government
or any agency or instrumentality thereof, when those
obligations are backed by the full faith and credit of
the U.S. government.
The amount invested is sufficient to pay the
principal, interest, and redemption premiums, if any,
on the refunded bonds as they become due or at
designated dates prior to maturity.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Mello-Roos districts are the main
mechanism used by local governments to finance new
infrastructure and services to support new residential
development. In recent years, practitioners have
identified a number of improvements that need to be made to
the Act. SB 692 compiles these improvements into a single
piece of legislation. The bill clarifies ambiguous
statutory provisions, eliminates unnecessary procedural
requirements for some CFD actions that receive unanimous
approval of parcel owners, and allows CFD special taxes to
provide a much-needed source of funding for maintenance and
operation of public facilities. These changes will make
the Mello-Roos Act an even more effective tool for local
finance in the years ahead.
2. Widening disparities ? By adding operations and
maintenance to the list of services that may be financed
through Mello-Roos special taxes, SB 692 allows communities
to finance those services through a single mechanism.
Under current law, communities commonly go through a
SB 692 -- 4/10/13 -- Page 6
separate process to superimpose an assessment district for
maintenance on top of a CFD. Critics say that Mello-Roos
special taxes should not pay for these new services and
that funding for regular maintenance programs should come
out of existing funds. For example, a city may use its
general fund to pay for street maintenance in the older
parts of town, but insist that builders accept Mello-Roos
Act special taxes for street maintenance as a condition of
approving a new subdivision. SB 692 may widen disparities
between the services supported by tax revenues from
property owners within CFDs and those not in CFDs.
3. Improvement areas . SB 692 allows a local agency's
legislative body to avoid a public hearing and other
procedural requirements when designating an improvement
area comprised of parcels that annex to the CFD with the
parcel owner's unanimous consent. It is unclear whether
this provision requires the agency to designate the
improvement area at the same time as the annexation and
whether the unanimous approval for the annexation must
specify unanimous approval for creating the improvement
area, as well. The Committee may wish to consider amending
SB 692 to clarify the time and conditions under which a CFD
can designate, without a hearing, an improvement area
comprised of annexed parcels.
Support and Opposition (4/11/13)
Support : Unknown.
Opposition : Unknown.