BILL ANALYSIS                                                                                                                                                                                                    

                            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               


          Amends numerous provisions of the Mello-Roos Community  
          Facilities Act. 


          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  

                                   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  

           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  
                 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  

           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  

           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.


          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.