Amended in Assembly April 11, 2016

Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2693

Introduced by Assembly Member Dababneh

February 19, 2016

An act begin insert to amend Section 53313.5 of the Government Code, end insert to amend Section 26054 of the Public Resources Code, and to amend Sections 5898.15, 5898.28, and 5898.30 of the Streets and Highways Code, relating to contractual assessments.

LEGISLATIVE COUNSEL’S DIGEST

AB 2693, as amended, Dababneh. Contractual assessments: financing requirements: property improvements.

Existing law defines “property assessed clean energy bond,” commonly known as a PACE bond, to mean a bond that is secured by a voluntary contractual assessment or by certain special taxes on property, as specified.

This bill would delete the reference to bonds secured by special taxes.

Existing law authorizes the legislative body of a public agency, as defined, to determine that it would be convenient, advantageous, and in the public interest to designate an area within which authorized public agency officials and property owners may enter into voluntary contractual assessments to finance certain improvements, including the installation of distributed generation renewable energy sources or energy or water efficiency improvements that are permanently fixed to real property, as specified. Existing law authorizes the public agency to issue bonds to be repaid by voluntary contractual assessments, and to enter into a relationship with an underwriter or financial institution that allows the sequential issuance of a series of bonds as the need arises. Existing law requires the interest rate on bonds to be fixed at the time each bond is issued, unless the bond is issued to finance improvements to nonresidential private property or residential private property with 4 or more units. Existing law also provides that certain provisions relating to redemption of bonds prior to their scheduled maturity date or refinance of outstanding bonds only apply to nonresidential private property or residential private property with 4 or more units.

This bill, with respect to residential private property, would instead require the interest rate on the bonds, when issued, to be fixed unless the property consists of 5 or more units. The bill would provide that the provisions relating to redemption of bonds prior to their scheduled maturity date, or refinance of outstanding bonds, with respect to residential private property, would apply to property that consists of 5 or more units.

Existing law provides that an assessment under these provisions, and any interest and penalties, until paid, constitute a lien against the property on which the assessment was made. Existing law provides that certain other provisions, including provisions relating to lien priority, apply to liens imposed relative to these assessments.

This bill begin delete would end delete begin insert would, except for nonresidential private property or residential private property with 5 or more units, end insert delete the reference to the other provisions relating to lien priority, and instead provide that an assessment under these provisions shall have the force, effect, and priority of a judgment lien as established by its date of recordation.

begin delete

Existing law, if bonds have not been issued by a public agency, authorizes the public agency to transfer its right, title, and interest to voluntary contractual assessments to another party, as specified. Existing law, however, provides that initiation and prosecution of a foreclosure action from a delinquency in the payment of voluntary contractual assessments remains the responsibility of the public agency, which shall retain the sole right to enforce its senior lien status.

end delete begin delete

This bill would delete the provision that the public agency shall retain the sole right to enforce its senior lien status, and would instead provide that a foreclosure action by the public agency shall have the force, effect, and priority of a judgment lien as established by the date of its recordation.

end delete

Existing law prohibits a public agency from permitting a property owner to participate in any program established pursuant to these provisions if the owner’s participation would result in the total amount of any annual property taxes and assessments exceeding 5% of the property’s market value, as determined at the time of approval of the owner’s contractual assessment.

This bill would begin delete also end delete begin insert also, except for situations involving bonds issued to improve nonresidential private property or residential private property with 5 or more units, end insert prohibit a public agency from permitting a property owner to participate in a program pursuant to these provisions unless the property owner has been provided with a Truth in Lending begin delete Act- Real end delete begin insert Act-Real end insert Estate Settlement Procedures Act Integrated Mortgage Disclosure for the obligation being incurred or if the total mortgage-related debt and contractual assessment-related debt on the underlying property exceeds the fair market value of the property at the time of the agreement.

begin delete

The

end delete

begin insert This end insert bill would provide that the failure of a public agency to comply with either of these 2 prohibitions voids the contractual obligations of the property owner for the contractual assessment.

begin insert

The Mello-Roos Community Facilities Act of 1982 specifies the requirements for the establishment of a community facilities district, including, among other things, a petition, a hearing, the establishment of the boundaries of the community facilities district, and an election on the question. A community facilities district formed pursuant to that law is authorized to, among other things, finance and refinance the acquisition, installation, and improvement of energy efficiency, water conservation, and renewable energy improvements to or on real property and in buildings, as specified.

end insert

begin insert This bill would require that an assessment levied or a delinquency collected in connection with those improvements be collected using the procedures described above. end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 53313.5 of the end insert begin insert Government Code end insert begin insert is
amended to read: end insert

53313.5.  

A community facilities district may also finance the
purchase, construction, expansion, improvement, or rehabilitation
of any real or other tangible property with an estimated useful life
of five years or longer or may finance planning and design work
that is directly related to the purchase, construction, expansion, or
rehabilitation of any real or tangible property. The facilities need
not be physically located within the district. A district may not
lease out facilities that it has financed except pursuant to a lease
agreement or annexation agreement entered into prior to January
1, 1988. A district may only finance the purchase of facilities
whose construction has been completed, as determined by the
legislative body, before the resolution of formation to establish
the district is adopted pursuant to Section 53325.1, except that a
district may finance the purchase of facilities completed after the
adoption of the resolution of formation if the facility was
constructed as if it had been constructed under the direction and
supervision, or under the authority of, the local agency that will
own or operate the facility. For example, a community facilities
district may finance facilities, including, but not limited to, the
following:

(a) Local park, recreation, parkway, and open-space facilities.

(b) Elementary and secondary schoolsites and structures
provided that the facilities meet the building area and cost standards
established by the State Allocation Board.

(c) Libraries.

(d) Child care facilities, including costs of insuring the facilities
against loss, liability insurance in connection with the operation
of the facility, and other insurance costs relating to the operation
of the facilities, but excluding all other operational costs. However,
the proceeds of bonds issued pursuant to this chapter shall not be
used to pay these insurance costs.

(e) The district may also finance the construction or
undergrounding of water transmission and distribution facilities,
natural gas pipeline facilities, telephone lines, facilities for the
transmission or distribution of electrical energy, and cable
television lines to provide access to those services to customers
who do not have access to those services or to mitigate existing
visual blight. The district may enter into an agreement with a public
utility to utilize those facilities to provide a particular service and
for the conveyance of those facilities to the public utility. “Public
utility” shall include all utilities, whether public and regulated by
the Public Utilities Commission, or municipal. If the facilities are
conveyed to the public utility, the agreement shall provide that the
cost or a portion of the cost of the facilities that are the
responsibility of the utility shall be refunded by the public utility
to the district or improvement area thereof, to the extent that
refunds are applicable pursuant to (1) the Public Utilities Code or
rules of the Public Utilities Commission, as to utilities regulated
by the commission, or (2) other laws regulating public utilities.
Any reimbursement made to the district shall be utilized to reduce
or minimize the special tax levied within the district or
improvement area, or to construct or acquire additional facilities
within the district or improvement area, as specified in the
resolution of formation.

(f) The district may also finance the acquisition, improvement,
rehabilitation, or maintenance of any real or other tangible property,
whether privately or publicly owned, for flood and storm protection
services, including, but not limited to, storm drainage and treatment
systems and sandstorm protection systems.

(g) The district may also pay in full all amounts necessary to
eliminate any fixed special assessment liens or to pay, repay, or
defease any obligation to pay or any indebtedness secured by any
tax, fee, charge, or assessment levied within the area of a
community facilities district or may pay debt service on that
indebtedness. When the amount financed by the district is to pay
a tax, fee, charge, or assessment imposed by a public agency other
than the one conducting the proceedings, and if the amount
provided to the other public agency will not be entirely used to
pay off or prepay an assessment lien or special tax obligation
pursuant to the property owner’s legal right to do so, the written
consent of the other public agency is required. In addition, tax
revenues of a district may be used to make lease or debt service
payments on any lease, lease-purchase contract, or certificate of
participation used to finance facilities authorized to be financed
by the district.

(h) Any other governmental facilities that the legislative body
creating the community facilities district is authorized by law to
contribute revenue to, or construct, own, or operate. However, the
district shall not operate or maintain or, except as otherwise
provided in subdivisions (e) and (k), have any ownership interest
in any facilities for the transmission or distribution of natural gas,
telephone service, or electrical energy.

(i) (1) A district may also pay for the following:

(A) Work deemed necessary to bring buildings or real property,
including privately owned buildings or real property, into
compliance with seismic safety standards or regulations. Only
work certified as necessary to comply with seismic safety standards
or regulations by local building officials may be financed. No
project involving the dismantling of an existing building and its
replacement by a new building, nor the construction of a new or
substantially new building may be financed pursuant to this
subparagraph. Work on qualified historical buildings or structures
shall be done in accordance with the State Historical Building
Code (Part 2.7 (commencing with Section 18950) of Division 13
of the Health and Safety Code).

(B) In addition, within any county or area designated by the
President of the United States or by the Governor as a disaster area
or for which the Governor has proclaimed the existence of a state
of emergency because of earthquake damage, a district may also
pay for any work deemed necessary to repair any damage to real
property directly or indirectly caused by the occurrence of an
earthquake cited in the President’s or the Governor’s designation
or proclamation, or by aftershocks associated with that earthquake,
including work to reconstruct, repair, shore up, or replace any
building damaged or destroyed by the earthquake, and specifically
including, but not limited to, work on any building damaged or
destroyed in the Loma Prieta earthquake that occurred on October
17, 1989, or by its aftershocks. Work may be financed pursuant
to this subparagraph only on property or buildings identified in a
resolution of intention to establish a community facilities district
adopted within seven years of the date on which the county or area
is designated as a disaster area by the President or by the Governor
or on which the Governor proclaims for the area the existence of
a state of emergency.

(2) Work on privately owned property, including reconstruction
or replacement of privately owned buildings pursuant to
subparagraph (B) of paragraph (1), may only be financed by a tax
levy if all of the votes cast on the question of levying the tax, vote
in favor of levying the tax, or with the prior written consent to the
tax of the owners of all property that may be subject to the tax, in
that case the prior written consent shall be deemed to constitute a
vote in favor of the tax and any associated bond issue. Any district
created to finance seismic safety work on privately owned
buildings, including repair, reconstruction, or replacement of
privately owned buildings pursuant to this subdivision, shall consist
only of lots or parcels that the legislative body finds have buildings
that were damaged or destroyed by the earthquake cited pursuant
to subparagraph (B) of paragraph (1) or by the aftershocks of that
earthquake.

(j) A district may also pay for the following:

(1) Work deemed necessary to repair and abate damage caused
to privately owned buildings and structures by soil deterioration.
“Soil deterioration” means a chemical reaction by soils that causes
structural damage or defects in construction materials including
concrete, steel, and ductile or cast iron. Only work certified as
necessary by local building officials may be financed. No project
involving the dismantling of an existing building or structure and
its replacement by a new building or structure, nor the construction
of a new or substantially new building or structure may be financed
pursuant to this paragraph.

(2) Work on privately owned buildings and structures pursuant
to this subdivision, including reconstruction, repair, and abatement
of damage caused by soil deterioration, may only be financed by
a tax levy if all of the votes cast on the question of levying the tax
vote in favor of levying the tax. Any district created to finance the
work on privately owned buildings or structures, including
reconstruction, repair, and abatement of damage caused by soil
deterioration, shall consist only of lots or parcels on which the
legislative body finds that the buildings or structures to be worked
on pursuant to this subdivision suffer from soil deterioration.

(k) A district may also finance the acquisition, improvement,
rehabilitation, or maintenance of any real or other tangible property,
whether privately or publicly owned, for the purposes of removal
or remedial action for the cleanup of any hazardous substance
released or threatened to be released into the environment. As used
in this subdivision, “remedial action” and “removal” shall have
the meaning set forth in Sections 25322 and 25323, respectively,
of the Health and Safety Code, and “hazardous substance” shall
have the meaning set forth in Section 25281 of the Health and
Safety Code.

(l) A district may also finance and refinance the acquisition,
installation, and improvement of energy efficiency, water
conservation, and renewable energy improvements that are affixed,
as specified in Section 660 of the Civil Code, to or on real property
and in buildings, whether the real property or buildings are
privately or publicly owned. Energy efficiency, water conservation,
and renewable energy improvements financed by a district may
only be installed on a privately owned building and on privately
owned real property with the prior written consent of the owner
or owners of the building or real property. This chapter shall not
be used to finance installation of energy efficiency, water
conservation, and renewable energy improvements on a privately
owned building or on privately owned real property in connection
with the initial construction of a residential building unless the
initial construction is undertaken by the intended owner or
occupant. begin insert An assessment levied or a delinquency collected pursuant
to this subdivision shall be collected using the procedures set out
in Section 26054 of the Public Resource Code and in Sections
5898.15 and 5898.30 of the Streets and Highways Code. end insert

(m) Any improvement on private property authorized to be
financed by this section shall constitute a “public facility” for
purposes of this chapter and a “public improvement” for purposes
of Part 1 (commencing with Section 3100) and Part 2 (commencing
with Section 3110) of Division 4.5 of the Streets and Highways
Code, whether the improvement is owned by a private entity, if
the legislative body has determined that the improvement provides
a public benefit, or the improvement is owned by a public agency.

begin delete SECTION 1. end delete

begin insert SEC. 2. end insert   

Section 26054 of the Public Resources Code is
amended to read:

26054.  

“Property Assessed Clean Energy bond” or “PACE
bond” means a bond that is secured by either of the following:

(a) A voluntary contractual assessment on property authorized
pursuant to paragraph (2) of subdivision (a) of Section 5898.20 of
the Streets and Highways Code.

(b) A voluntary contractual assessment on property to finance
the installation of distributed generation renewable energy sources,
electric vehicle charging infrastructure, or energy or water
efficiency improvements.

begin delete SEC. 2. end delete

begin insert SEC. 3. end insert   

Section 5898.15 of the Streets and Highways Code is
amended to read:

5898.15.  

(a) A public agency shall not permit a property owner
to participate in any program established pursuant to this chapter
if the owner’s participation would result in the total amount of any
annual property taxes and assessments exceeding 5 percent of the
property’s market value, as determined at the time of approval of
the owner’s contractual assessment.

(b) (1)  begin delete A end delete begin insert Except as otherwise provided in subdivision (c), a end insert
public agency shall not permit a property owner to participate in
a program pursuant to this chapter unless the property owner has
been provided with a federal Truth in Lending Act-Real Estate
Settlement Procedures Act Integrated Mortgage Disclosure for the
obligation being incurred that is required for mortgages by the
federal Consumer Financial Protection Bureau.

(2)  begin delete A end delete begin insert Except as otherwise provided in subdivision (c), a end insert public
agency shall not permit the total mortgage-related debt and
contractual assessment-related debt on the underlying property to
exceed the fair market value of the property at the time of the
agreement.

(3) Failure to comply with the requirements of either paragraph
(1) or (2) voids the contractual obligations of a property owner for
a contractual assessment entered into pursuant to this chapter.

begin insert

(c) Subdivision (b) does not apply to bonds issued to improve
nonresidential private property or residential private property
with five or more units pursuant to Section 5898.28.

end insert begin delete

(c)

end delete

begin insert ( end insert begin insert d) end insert  Except as provided in subdivision (b), nothing in this chapter
shall be construed to void or otherwise release a property owner
from the contractual obligations incurred by a contractual
assessment on a begin delete property end delete begin insert property. end insert

begin delete SEC. 3. end delete

begin insert SEC. 4. end insert   

Section 5898.28 of the Streets and Highways Code is
amended to read:

5898.28.  

(a) A public agency may issue bonds pursuant to this
chapter, the principal and interest for which would be repaid by
voluntary contractual assessments. A public agency may advance
its own funds to finance work to be repaid through voluntary
contractual assessments, and may from time to time sell bonds to
reimburse itself for those advances. A public agency may enter
into a relationship with an underwriter or financial institution that
would allow the sequential issuance of a series of bonds, each bond
being issued as the need arose to finance work to be repaid through
voluntary contractual assessments. The interest rate of each bond
may be determined by an appropriate index, but shall be fixed at
the time each bond is issued unless the bond is issued to finance
improvements to nonresidential private property or residential
private property with five or more units. Bond proceeds may be
used to establish a reserve fund for debt service or paying the costs
of foreclosure on properties participating in the program, to fund
capitalized interest for a period up to two years from the date of
issuance of the bonds, to fund the administrative fee required for
participation in the PACE Reserve Program established pursuant
to Chapter 4 (commencing with Section 26050) of Division 16 of
the Public Resources Code, and to pay for expenses incidental to
the issuance and sale of the bonds. Division 10 (commencing with
Section 8500) shall apply to any bonds issued pursuant to this
section, insofar as that division is not in conflict with this chapter.

(b) (1) Notwithstanding any provision of this division or the
Improvement Act of 1915 (Division 10 (commencing with Section
8500)), a public agency may transfer its right, title, and interest in
and to any voluntary contractual assessments, if bonds have not
been issued pursuant to subdivision (a). The public agency and
the transferee shall enter into an agreement that, among other
things, identifies the specific period of time during which the
transfer of voluntary contractual assessments will be operative,
not to exceed three years. Except as provided in paragraph (2), a
transfer of any voluntary contractual assessments under this
subdivision shall be treated as a true and absolute transfer of the
asset so transferred for the period of the transfer and not as a pledge
or grant of a security interest by the public agency for any
borrowing. The characterization of the transfer of any of those
assets as an absolute transfer by the public agency shall not be
negated or adversely affected by the fact that only a portion of any
voluntary contractual assessment is transferred, nor by any
characterization of the transferee for purposes of accounting,
taxation, or securities regulation, nor by any other factor
whatsoever. As used in this section, “transfer” means sale,
assignment, or other transfer.

(2) Nothing in this subdivision shall be construed to authorize
the transferee to initiate and prosecute a foreclosure action resulting
from a delinquency in the payment of the voluntary contractual
assessment. Initiation and prosecution of a foreclosure action shall
remain the responsibility of the public agency, which shall begin delete have
the force, effect, and priority of a judgment lien as established by
the date of its recordation. end delete begin insert retain end insert begin insert the sole right to enforce its senior
lien status. end insert

(c) Division 10 (commencing with Section 8500) shall apply to
any bonds issued pursuant to this section, insofar as that division
is not in conflict with this chapter. Notwithstanding Part 16
(commencing with Section 8880) of Division 10, if any reserve
fund is established in whole or in part with legally available
moneys of one or more public agencies other than bond proceeds,
the public agency or agencies may provide that a property owner
who prepays all or a portion of the assessment shall not be credited
with the public agency moneys in the reserve fund and there shall
be no reduction in the assessment pursuant to Sections begin delete 8884 or
8881, end delete begin insert 8881 or 8884, end insert and the public agency moneys in the reserve
account shall not be used to redeem bonds pursuant to Section
8885 and any public agency moneys remaining in the reserve fund
at the maturity of the bonds shall be disbursed to the public agency
free and clear of the lien of the issuing instrument. Any excess
bond proceeds may be used to pay principal of and interest on the
bonds in addition to any other use permitted by Division 10
(commencing with Section 8500).

(d) Notwithstanding any other law, the public agency may
conclude that it is in the public interest for bonds issued by the
public agency pursuant to this chapter to not be subject to
redemption prior to their scheduled maturity date except as a result
of the prepayment in whole or in part of contractual assessments.
Notwithstanding any other limitations set forth in law, and with
respect to bonds issued to finance improvements to nonresidential
property or residential property with five or more units, the
redemption premium associated with a redemption of bonds as a
result of a contractual assessment prepayment shall be determined
by agreement of the public agency issuing the bonds, the property
owner, and the initial purchaser of the bonds.

(e) (1) Without the prior written approval of the property owner,
and notwithstanding any other law, a public agency may issue
bonds pursuant to this chapter to refinance outstanding bonds
payable from contractual assessments levied pursuant to this
chapter if all of the following are true:

(A) The total interest cost to maturity on the refunding bonds
is less than the total interest cost to maturity on the bonds to be
refunded.

(B) The final maturity date of the refunding bonds is not later
than the final maturity date of the refunded bonds, except that if
the bonds to be refunded are variable rate bonds, the final maturity
date of the refunding bonds may extend to, but not beyond, the
useful life of the financed improvements.

(C) The total interest component of the scheduled contractual
assessment installments to maturity, after issuance of the refunding
bonds, is less than the total interest component of the scheduled
contractual assessment installments to maturity prior to issuance
of the refunding bonds.

(2) For purposes of this section, in connection with the issuance
of fixed rate bonds to refinance variable rate bonds, the interest
rate on the refunded bonds for purpose of demonstrating
compliance with this section may be assumed to be the maximum
possible interest rate on the bonds to be refunded as long as the
legislative body concludes that the public interest will be served
by issuing fixed rate bonds to refinance the outstanding variable
rate bonds. In connection with an issuance of refunding bonds
under this chapter, the legislative body may direct that an
amendment to the document required by subdivision (d) of Section
5898.24 be recorded to reflect the revised contractual assessment
installment schedule.

(f) With the prior written approval of the owner of nonresidential
property or residential property with five or more units, and
notwithstanding any other law, a public agency may issue bonds
pursuant to this chapter to refinance outstanding bonds payable
from contractual assessments levied pursuant to this chapter
without complying with subdivision (e). The final maturity date
of the refunding bonds issued pursuant to this subdivision may be
later than the final maturity date of the bonds being refunded as
long as the final maturity date of the refunding bonds does not
extend beyond the useful life of the financed improvements.

begin delete SEC. 4. end delete

begin insert SEC. 5. end insert   

Section 5898.30 of the Streets and Highways Code is
amended to read:

5898.30.  

begin delete Assessments end delete begin insert (a) end insert begin insert   end insert begin insert Notwithstanding Section 5898.28
and except as otherwise provided in subdivision (b), assessments end insert
levied pursuant to this chapter, and the interest and any penalties
thereon shall constitute a lien against the lots and parcels of land
on which they are made, until they are paid. Division 10
(commencing with Section 8500), insofar as those provisions are
not in conflict with this chapter, Article 13 (commencing with
Section 53930) of, and Article 13.5 (commencing with Section
53938) of, Chapter 4 of Part 1 of Division 2 of Title 5 of the
Government Code shall only apply to the collection of assessments
contracted for pursuant to this chapter, which may be collected in
the same manner and at the same time as the general taxes of the
city or county on real property. Any assessment levied pursuant
to this chapter shall have the force, effect, and priority of a
judgment lien as established by the date of its recordation.

begin insert

(b) Assessments levied pursuant to Section 5898.28 against
nonresidential private property or residential private property
with five or more units and the interest and any penalties thereon
shall constitute a lien against the lots and parcels of land on which
they are made, until they are paid. Division 10 (commencing with
Section 8500), insofar as those provisions are not in conflict with
this chapter, Article 13 (commencing with Section 53930) of, and
Article 13.5 (commencing with Section 53938) of, Chapter 4 of
Part 1 of Division 2 of Title 5 of the Government Code apply to
the imposition and collection of assessments contracted for
pursuant to this chapter, including, but not limited to, provisions
related to lien priority, the collection of assessments in the same
manner and at the same time as the general taxes of the city or
county on real property, unless another procedure has been
authorized by the legislative body or by statute, and any penalties
and remedies in the event of delinquency and default.

end insert