BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 692
                                                                  Page  1

          Date of Hearing:  June 12, 2013

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                           K.H. "Katcho" Achadjian, Chair
                    SB 692 (Hancock) - As Amended:  April 23, 2013

           SENATE VOTE  :  37-0
           
          SUBJECT  :  Local government: community facilities districts.

           SUMMARY  :  Expands powers of local agencies to use the Mello-Roos  
          Community Facilities Act of 1992 and the Marks-Roos Local Bond  
          Pooling Act of 1985.  Specifically,  this bill  :    

          1)Authorizes pursuant to the Mello-Roos Community Facilities Act  
            (Mello-Roos), a community facilities district (CFD) to finance  
            the maintenance and operation of any real property or other  
            tangible property with an estimated useful life of five or  
            more years that is owned by the local agency or by another  
            local agency through an agreement, as specified.

          2)Defines "maintenance" to include "replacement, and the  
            creation and funding of a reserve fund to pay for a  
            replacement."  

          3)Authorizes a joint powers authority (JPA) to lease 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 JPA determines is necessary  
            or convenient in order to finance a public capital improvement  
            pursuant to the Marks-Roos Local Bond Pooling Act  
            (Marks-Roos).  

          4)Authorizes the local agency by written consent and the  
            unanimous approval of affected parcel owners to eliminate  
            types of facilities and services in a CFD that initially  
            consists solely of territory proposed for annexation to the  
            CFD in the future, as authorized by current law.  States that  
            no additional hearing or procedures are required.  Requires  
            the unanimous approval to contain specified provisions if the  
            unanimous approval relates to the reduction of a special tax  
            rate and the special tax is being used to retire debt.  

          5)Authorizes a legislative body by ordinance, following the  
            creation of a CFD that includes territory proposed for  








                                                                  SB 692
                                                                  Page  2

            annexation in the future by unanimous approval as specified,  
            to levy special taxes on parcels that will be annexed to the  
            CFD at the rate to be approved unanimously by parcel owners  
            and for the apportionment and collection of the special taxes  
            in the manner specified in the resolution of formation.  

          6)Authorizes the local agency, in connection with the annexation  
            by unanimous approval to a CFD of a parcel included in  
            territory proposed for annexation in the future to the CFD as  
            specified, to designate parcels as an improvement area within  
            the CFD.  Requires the designation of parcels as an  
            improvement area to be specified and approved with unanimous  
            approval of parcel owners at the time that the parcels are  
            annexed to the CFD.  States that no additional hearings or  
            procedures are required.  Specifies, after the designation of  
            parcels as an improvement area that the following shall only  
            apply to the improvement hearing: 

             a)   All proceedings for approval of the appropriations  
               limit;  

             b)   The rate and method of apportionment and manner of  
               collection of special taxes; and,  

             c)   The authorization to incur bonded indebtedness for the  
               parcel or parcels.  

          7)Provides that a resolution of intention shall not be obligated  
            to specify the conditions under which a special tax obligation  
            may be prepaid and permanently satisfied if the prepayment  
            provision is included in the unanimous approval of the owner  
            of each parcel at the time the parcels are annexed to the CFD.  
             

          8)Provides that provisions in existing law that allow a CFD to  
            finance facilities owned or operated by a public agency other  
            than the agency that created the CFD pursuant to a joint  
            community facilities agreement or joint exercise of power  
            agreement shall not be construed to limit the ability of a JPA  
            to exercise powers authorized by the Joint Exercise of Powers  
            Act.  

          9)Authorizes a local agency, in connection with the issuance of  
            bonds where a property owner agrees to disclose certain  
            information through the Municipal Securities Rulemaking  








                                                                  SB 692
                                                                  Page  3

            Board's Electronic Municipal Market Access, to execute and  
            record in the county recorder's office a notice of the owner's  
            disclosure agreement for the purpose of providing a notice to  
            a subsequent transferee.  Requires the owner's written consent  
            to be attached to the notice.  Requires the county recorder's  
            office to accept the notice.  

          10)Provides that a subsequent transferee of the property shall  
            be subject to the disclosure obligation.  Allows the local  
            agency, upon termination of the disclosure obligation, to  
            cause a notice of termination to be recorded with the county  
            recorder's office where the original notice was recorded.   
            Requires the county recorder's office to accept the  
            termination.  

          11)Makes technical and non-substantive changes.  

           EXISTING LAW  :

          1)Authorizes, under the Mello-Roos Community Facilities Act of  
            1992, a local agency to establish a CFD to finance public  
            facilities and certain public services through the imposition  
            of special taxes and the issuance of bonds.

          2)Authorizes a CFD to finance the purchase, construction,  
            expansion, improvement, or rehabilitation of certain  
            facilities, including, among others, child care facilities,  
            undergrounding of water transmission and distribution  
            facilities, and the cleanup of hazardous materials.  

          3)Specifies the requirements for the establishment of a CFD,  
            including, among other things, a petition, a hearing,  
            establishment of the boundaries of the CFD, and an election on  
            the question of establishment.

          4)Authorizes, under the Marks-Roos Local Bond Pooling Act of  
            1985, a joint exercise of powers authority to issue or  
            purchase bonds to assist local agencies in financing public  
            capital improvements, working capital, liability, or other  
            insurance needs, or projects whenever there are significant  
            public benefits for taking that action.  
           FISCAL EFFECT  :   None

           COMMENTS  :   









                                                                  SB 692
                                                                  Page  4

          1)The Mello-Roos Community Facilities Act allows counties,  
            cities, special districts, and school districts to levy  
            special taxes (parcel taxes) to finance a wide variety of  
            public works, including parks, recreation centers, schools,  
            libraries, child care facilities, and utility infrastructure.   
            A Mello-Roos CFD issues bonds against these special taxes to  
            finance the public works projects.  

            Mello-Roos 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.  
             

            In addition to financing public works such as park, school,  
            and library facilities, CFDs can pay for improvements on  
            privately owned buildings or real property.  For example, CFDs  
            may pay for work deemed necessary to bring buildings or real  
            property, whether privately or publicly owned, into compliance  
            with seismic safety standard and regulations.  

            To initiate the formation of a CFD, a local agency's  
            legislative body must adopt a resolution of intention to  
            establish the district, which must do all of the following:  
            describe the district's boundaries; describe the facilities  
            and services proposed to be financed; state that a special  
            tax, secured by a lien against real property, will be annually  
            levied; specify, in detail, the rate, method of apportionment,  
            and manner of collections of the special tax; and, fix a time  
            and place for public hearing.

            After holding the hearing and considering protests, the  
            legislative body, to establish the CFD, must adopt a  
            resolution of formation containing all of the information  
            provided in the resolution of intention; and, if a special tax  
            is to be levied, include additional information about the tax  
            levy.

          2)SB 555 (Hancock), Chapter 493, Statutes of 2011, authorized  
            the use of Mello-Roos taxes to help finance renewable energy,  
            water conservation, and energy efficiency improvements on  
            private property.  Supporters of SB 555 sought to simplify the  
            process by which property owners can voluntarily use  
            Mello-Roos financing, to create a CFD that initially contains  
            no parcels of land, but consists only of territory from which  








                                                                  SB 692
                                                                  Page  5

            parcels may subsequently be annexed to the CFD with the  
            unanimous approval of parcel owners.  

            SB 555 (Hancock) authorized a separate procedure for  
            establishing a CFD where the district initially consists  
            solely of territory proposed for annexation to the community  
            facilities district in the future, as specified, and provides  
            an alternate procedure for incurring bonded indebtedness for  
            community facility districts established in this manner.   
            Under this separate procedure, a resolution of intention to  
            form a CFD does not have to specify the rate or rates of a  
            special tax subject to specified requirements.  

          3)According to the author, following the passage of SB 555  
            (Hancock), "A question has arisen about whether eligible  
            projects include maintenance operations.  Additionally, some  
            have wondered about the wisdom of requiring that a public  
            hearing be held in order to make certain changes to CFD  
            parameters, even if there is unanimous approval of the  
            affected property owners."  

          4)This bill makes several changes to allow a local agency's  
            legislative body to avoid public hearings or other procedural  
            requirements when using the separate procedure for  
            establishing a CFD with the unanimous approval of parcel  
            owners pursuant to SB 555 (Hancock).  This bill allows  
            facilities and services to be eliminated in a CFD, allows a  
            local agency to designate parcels as an improvement area, and  
            allows a local agency to levy special taxes on parcel that  
            will be annexed to the CFD upon the unanimous approval of  
            affected parcel owners.  This bill also provides that a  
            resolution of intention does not need to specify the  
            conditions when a special tax obligation can be prepaid or  
            permanently satisfied if the prepayment provisions are  
            included in the unanimous approval by parcel owners when they  
            annex the CFD.  This bill is author-sponsored.  

            This bill expands on the types of facilities that a CFD may  
            finance to include the maintenance and operation of any real  
            property or other tangible property with an estimated useful  
            life of five or more years that is owned by the local agency  
            or by another local agency through an agreement, as specified.  
             This bill defines maintenance to also include replacement,  
            and the creation and funding of a reserve fund to pay for a  
            replacement.  Current law authorizes a CFD to issue bonds to  








                                                                  SB 692
                                                                  Page  6

            provide for the planning, design, purchase, construction,  
            expansion or rehabilitation of any real or other tangible  
            property with an estimated useful life of at least five years.  
             The Committee may wish to consider if it is appropriate to  
            add maintenance and operation to the extensive list in current  
            law that a CFD can finance when it may be more appropriate to  
            use existing funds for these purposes.  

          5)The Marks-Roos Act authorizes two or more public agencies to  
            exercise their common powers by signing joint powers  
            agreements.  This agreement can create a JPA which allows  
            local agencies to use JPAs to finance infrastructure.  The  
            Marks-Roos Act authorizes JPAs to issue bonds and loan the  
            capital to local agencies to finance public capital  
            improvements, working capital, liability, insurance needs, or  
            other projects.  Bonds issued under Marks-Roos are secured by  
            a variety of repayment sources, including lease agreements.   
            For example, a JPA can issue a Marks-Roos bond and loan  
            proceeds under lease agreements.  Additionally, JPAs may lease  
            the public capital improvements being financed to a local  
            agency, and charge and collect rent as repayment of Marks-Roos  
            bonds.  

            This bill allows JPAs to lease lands, structures, and real or  
            personal property that they deem necessary or convenient for  
            the financing of public capital improvements.  Current law  
            allows JPAs to take title to or sell these types of interests.  
             

            The Committee may wish to ask the author to discuss why JPAs  
            need to be granted additional authority to lease land or real  
            property and to provide examples as to why existing powers are  
            not sufficient.  

          6)The provision in this bill amending the Marks-Roos Act is in  
            conflict with AB 850 (Nazarian).  The author may wish to  
            consider chaptering-out amendments to resolve the conflict.  

           7)Support arguments  :  Supporters argue that this bill makes  
            clarifications to existing law that governs the use of CFDs to  
            finance energy efficiency and water conservation projects.  

             Opposition arguments  :  Opposition could argue that this  
            measure adds operations and maintenance to the laundry list of  
            services that can be financed by Mello-Roos and that special  








                                                                  SB 692
                                                                  Page  7

            taxes should not pay for these new services and that funding  
            for regular maintenance programs should come out of existing  
            funds.  

           REGISTERED SUPPORT / OPPOSITION  :

          Support 
           
          None on file
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Misa Yokoi-Shelton / L. GOV. / (916)  
          319-3958