BILL ANALYSIS Ó SB 692 Page 1 SENATE THIRD READING SB 692 (Hancock) As Amended April 23, 2013 Majority vote SENATE VOTE :37-0 LOCAL GOVERNMENT 9-0 ----------------------------------------------------------------- |Ayes:|Achadjian, Levine, Alejo, | | | | |Bradford, Gordon, | | | | |Melendez, Mullin, Rendon, | | | | |Waldron | | | ----------------------------------------------------------------- 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 SB 692 Page 2 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 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 SB 692 Page 3 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 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. FISCAL EFFECT : None COMMENTS : 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. 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 SB 692 Page 4 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. 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. SB 555 authorized a separate procedure for establishing a CFD that initially contains no parcels of land, but consists only of territory from which parcels may subsequently be annexed to the CFD with the unanimous approval of parcel owners. 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. 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 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 provide for the planning, design, purchase, construction, expansion or rehabilitation of any real or other tangible SB 692 Page 5 property with an estimated useful life of at least five years. The Legislature 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. 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. 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 Legislature may wish to ask the author 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. The provision in this bill amending the Marks-Roos Act is in conflict with AB 850 (Nazarian) of the current legislative session. The author may wish to consider chaptering-out amendments to resolve the conflict. 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 taxes should not pay for these new services and that funding for regular maintenance programs should come out of existing funds. SB 692 Page 6 Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916) 319-3958 FN: 0001151