BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1020


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          Date of Hearing:  June 15, 2016


                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT


                           Susan Talamantes Eggman, Chair


          SB  
          1020 (Wieckowski) - As Amended April 19, 2016


          SENATE VOTE:  38-0


          SUBJECT:  Land use:  mitigation lands.


          SUMMARY:  Specifies an additional action that park and open  
          space districts may take in order to meet mitigation  
          obligations.  Specifically, this bill:  


          1)Adds to existing law, which provides that, if a state or local  
            agency, in the development of its own project, is required to  
            protect property to mitigate an adverse impact upon natural  
            resources, the agency may take any action that the agency  
            deems necessary in order to meet its mitigation obligations,  
            including, but not limited to, a number of items.  This bill  
            adds to this list of permissible activities, as follows: if  
            the local agency is a park, park and open space, or open space  
            district formed pursuant to Public Resources Code 5500, et al.  
            (5500 districts), it may possess budget reserves in excess of  
            the funds required to do all of the following:



             a)   Meet mitigation obligations;








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             b)   Retain permanent stewardship and maintenance staff to  
               manage the resource;



             c)   Maintain mitigation obligations consistent with permit  
               requirements; and,



             d)   Ensure that if the mitigations are not maintained, the  
               state will not incur any financial liabilities from the  
               lack of mitigation.



          2)Finds and declares all of the following:



             a)   The Department of Fish and Wildlife (DFW) construes  
               Sections 65966 and 65967 of the Government Code to require  
               all entities, including public entities and private  
               businesses and nonprofit corporations, to set aside  
               restricted endowments to guarantee the stewardship of lands  
               where conservation easements have been required;



             b)   In the case of the East Bay Regional Park District  
               (EBRPD), which is a nonenterprise, independent special  
               district with its own taxing authority and elected board of  
               directors, whose sole purpose is to acquire and manage land  
               for open space, public recreation, and natural resource  
               protection, endowment requirements need additional  
               consideration.  For the reasons set forth below, a special  








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               statute is necessary with respect to the EBRPD;



             c)   Requiring entities established pursuant to Section 5500  
               of the Public Resources Code, such as the EBRPD, which  
               employs permanent police, rangers, and stewardship staff,  
               to fund endowments effectively doubles the cost burden on  
               local taxpayers for managing specified habitat enhancements  
               or conservation lands;



             d)   Requiring this agency to mitigate for its own public  
               projects and permanently put local tax dollars in  
               restricted endowment accounts increases the costs and  
               taxpayer obligations by millions of dollars;



             e)   The EBRPD is specifically required to manage public  
               parklands consistent with its master plan, as well as state  
               and federal regulatory requirements;



             f)   Furthermore, the EBRPD's ability to manage land for the  
               benefit of protected species and habitat has been  
               recognized by DFW, which has authorized the EBRPD to hold  
               and manage mitigation lands for third parties and the  
               state;



             g)   Permanently obligating local taxpayer funding toward  
               endowment accounts will significantly reduce the funds  
               available to invest in stewardship staff and the  
               appropriate management of habitat sensitive public lands;









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             h)   Consistent with existing law, the Legislature affirms  
               the authority of DFW to require local agencies to establish  
               endowments for the ongoing care and maintenance of lands  
               and projects resulting from mitigation practices; and,



             i)   It is the intent of the Legislature that DFW, as part of  
               mitigation and resulting endowment practices, administer  
               Section 65967 of the Government Code so as not to  
               unnecessarily obligate public resources for activities  
               otherwise performed as part of an agency's ongoing  
               responsibilities and operations.



          EXISTING LAW:  


          1)Requires, pursuant to the California Endangered Species Act  
            (CESA) and DFW regulations implementing CESA, DFW to find that  
            the taking of an endangered species has been fully mitigated  
            before DFW issues an incidental take permit.  A permit  
            applicant must ensure adequate funding to implement the  
            mitigation measures required under the permit and to monitor  
            compliance with, and the effectiveness of, those measures.


          2)Provides that, if a state or local agency requires a project  
            proponent to transfer property to mitigate any adverse impact  
            upon natural resources caused by permitting the development of  
            a project or facility, the agency may authorize a governmental  
            entity, special district, a nonprofit organization, a  
            for-profit entity, a person, or another entity to hold title  
            to and manage that property.










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          3)Defines "endowment" to mean the funds that are conveyed solely  
            for the long-term stewardship of a mitigation property.


          4)Requires a mitigation agreement to govern the long-term  
            stewardship of the property and the endowment.


          5)Requires any conservation easement created as a component of  
            satisfying a local or state mitigation requirement to be  
            perpetual in duration, as specified.




          6)Requires, if an endowment is conveyed or secured at the time  
            the property is protected, all of the following to apply:


             a)   The endowment shall be held, managed, invested, and  
               disbursed solely for, and permanently restricted to, the  
               long-term stewardship of the specific property for which  
               the funds were set aside;


             b)   The endowment shall be calculated to include a principal  
               amount that, when managed and invested, is reasonably  
               anticipated to cover the annual stewardship costs of the  
               property in perpetuity; and,


             c)   The endowment shall be held, managed, invested,  
               disbursed, and governed, as specified, and consistent with  
               the Uniform Prudent Management of Institutional Funds Act.


          7)Requires, if a local agency holds the endowment, the local  
            agency to do all of the following:









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             a)   Hold, manage, and invest the endowment, as specified;


             b)   Disburse funds on a timely basis to meet the stewardship  
               expenses of the entity holding the property; and,


             c)   Utilize accounting standards consistent with standards  
               promulgated by the Governmental Accounting Standards Board  
               or any successor entity.


          8)Provides, if a state or local agency, in the development of  
            its own project, is required to protect property to mitigate  
            an adverse impact upon natural resources, the agency may take  
            any action that the agency deems necessary in order to meet  
            its mitigation obligations, including, but not limited to, the  
            following:


             a)   Transfer the interest, or obligation to restore and  
               enhance property, to a governmental entity, special  
               district, or nonprofit organization that meets specified  
               requirements;


             b)   Provide funds to a governmental entity, nonprofit  
               organization, a special district, a for-profit entity, a  
               person, or other entity to acquire land or easements, or to  
               implement a restoration or enhancement project, that  
               satisfies the agency's mitigation obligations; and,


             c)   Hold an endowment in an account administered by an  
               elected official provided that the state or local agency is  
               protecting, restoring, or enhancing its own property. 










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          FISCAL EFFECT:  None 


          COMMENTS:  


          1)Bill Summary.  This bill attempts to create an alternative to  
            endowments that EBRPB can use as a financial security to meet  
            its requirements when development on its lands requires  
            environmental mitigation.  The bill adds to an existing code  
            section that states that, if a state or local agency, in the  
            development of its own project, is required to protect  
            property to mitigate an adverse impact upon natural resources,  
            the agency may take any action that the 



          agency deems necessary in order to meet its mitigation  
            obligations, including, but not limited to, a number of items.  
             This bill adds to this list of permissible activities,  
            providing that, if the local agency is a park and open space  
            district (5500 district), it may possess budget reserves in  
            excess of the funds required to do all of the following:



             a)   Meet mitigation obligations;



             b)   Retain permanent stewardship and maintenance staff to  
               manage the resource;



             c)   Maintain mitigation obligations consistent with permit  
               requirements; and,










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             d)   Ensure that if the mitigations are not maintained, the  
               state will not incur any financial liabilities from the  
               lack of mitigation.



            The bill makes a number of findings and declarations regarding  
            the impact of endowment requirements on EBRPD and declares the  
            intent of the Legislature that DFW, as part of mitigation and  
            resulting endowment practices, administer existing law  
            governing mitigation requirements so as not to unnecessarily  
            obligate public resources for activities otherwise performed  
            as part of an agency's ongoing responsibilities and  
            operations.  This bill is sponsored by EBRPB.





          2)Author's Statement.  According to the author, "In recent  
            years, open space and parks districts have been required to  
            set aside endowment funds for the long-term management of  
            mitigation lands.  Endowment funds are secured in a 'lock-box'  
            and essentially serve as a guarantee that land will be  
            permanently protected.  Requiring these districts to spend  
            general fund monies to steward and operate public lands in  
            addition to setting aside permanent endowment funds is  
            inefficient and does not further the purpose of preserving  
            open space and is duplicative of the districts' sole purpose  
            for existing.



            "In cases such as the East Bay Regional Park District, which  
            has an over 80 year history 


            of responsible fiscal and environmental governance and a  








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            dedication policy to steward parklands in perpetuity, it is  
            unreasonable to require districts to set aside mitigation  
            funds which could be better used for staffing to actually  
            manage protected land."



          3)Background.  Under existing law, public agencies that conduct  
            or approve projects that have significant environmental  
            impacts are required to obtain permits from various government  
            agencies.  As a condition of receiving the permits, the public  
            agency is required to mitigate for the environmental impacts.   
            The mitigation may take the form of setting aside other  
            resource conservation lands.  When lands are set aside in  
            mitigation, the law requires that the mitigation lands be  
            protected in perpetuity.  



            An endowment provides a means of ensuring that funding will be  
            available to provide for the long-term stewardship of the  
            mitigation lands in perpetuity.  Typically, the interest on  
            the principle is used to fund the annual management costs. 





            If an entity fails to meet its mitigation obligations, the  
            land and the cost of maintaining it revert to the state.




          4)DFW and Incidental Take Permits (ITPs).  Existing law grants  
            DFW the authority to issue ITPs for species listed under CESA  
            that will be affected by a development project only if certain  
            criteria are met.  These criteria include, among others, that  
            the impacts of the authorized take are minimized and fully  








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            mitigated; and, that adequate funding is provided to implement  
            the required minimization and mitigation measures and to  
            monitor compliance with and the effectiveness of the measures.  
             Existing law grants DFW the authority to determine the terms  
            and conditions of the permit, which must ensure that the  
            criteria for issuing ITPs are met.



            Measures to minimize the take of species covered by an ITP and  
            to mitigate the impacts caused by the take will be set forth  
            in one or more attachments to the ITP.  This attachment will  
            generally be a mitigation plan prepared and submitted by the  
            permittee in coordination with DFW staff.  The mitigation plan  
            should identify measures to avoid and minimize the take of  
            CESA-listed species and to fully mitigate the impact of that  
            take. 





            These measures vary from project to project, and often include  
            endowments for management of the lands in perpetuity.  While  
            applicants may propose alternative strategies for minimizing  
            and fully mitigating impacts, DFW must be able to conclude  
            that the project's impacts are fully mitigated and the  
            measures, when taken in aggregate, meet the full mitigation  
            standard.





            If all mitigation and monitoring will not be completed prior  
            to the start of activities that will affect CESA-listed  
            species, a trust account or other form of security acceptable  
            to DFW must be established to ensure that funding is available  
            to carry out mitigation measures and monitoring requirements  








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            in the event the applicant fails to complete these activities.  
             DFW generally requires that the performance security be in  
            the form of an irrevocable letter of credit, surety bond, a  
            bank trust (or escrow) account, or another form of security  
            approved in writing in advance by DFW's Office of General  
            Counsel. 





          5)Recently-Listed Species and Impact to EBRPD.  Approximately  
            five years ago, a species of salamander (the California tiger  
            salamander) was added to CESA's listing of threatened species.  
             Last year, DFW issued an ITP for that species (and the  
            Alameda whipsnake) for a project that will restore ponds and  
            construct recreational facilities in the district's Vargas  
            Plateau Regional Park.  To mitigate this take, the permit  
            allows EBRPD to either purchase covered species credits from a  
            DFW-approved mitigation or conservation bank, or to  
            permanently protect and manage habitat management lands.  The  
            latter option requires EBRPD to establish an endowment fund.



            There is an apparent disagreement between DFW and EBRPD  
            regarding the necessary amount for this particular endowment,  
            which the ITP estimates at approximately $47,700, but EBRPD  
            estimates at $600,000.  According to EBRPD, the amount is  
            still being negotiated between the parties and an endowment  
            has not been established to date.





            In addition, there is dispute regarding EBRPD's anticipated  
            endowment requirements during the next five years, which the  
            district has calculated at $9.75 million for 16 projects  








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            (including the Vargas Plateau project).







          6)Policy Considerations.  The Committee may wish to consider the  
            following:



             a)   Ongoing Discussions.  According to the sponsor and  
               opponents, discussions are ongoing between them and DFW to  
               determine an alternative funding mechanism that is  
               agreeable to all parties.  A coalition letter from the  
               California Council of Land Trusts, the Center for Natural  
               Lands Management, Defenders of Wildlife, the Nature  
               Conservancy, and the Wildlife Heritage Foundation dated  
               June 10 states, "DFW made a commitment (last month) to  
               convene a working group to consider and develop a  
               longer-term solution while working with the sponsors to  
               resolve their specific issue.  It is our understanding DFW  
               has recently taken steps to fulfill these commitments?(A)  
               number of concepts exist that would directly address the  
               issue raised by the proponents.  



               "The endowment issue is complex in terms of financial  
               tools, assurances, legalities, enforcement, criteria,  
               eligibility, authorities of different types of entities,  
               short- and long-term resources, how to bind future  
               governing bodies of an agency, and how enforcement of legal  
               defense are funded in the absence of endowments.  These  
               complexities cannot be addressed within the few remaining  
               months of this legislative session.  In a further  
               expression of faith on this issue, DFW committed to a  








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               short-term commitment to annual management funding (instead  
               of an endowment) for the sponsor for up to a two-year  
               period to provide the parties sufficient time to secure a  
               longer-term fix."  Given these ongoing discussions, the  
               Committee may wish to consider whether this bill should  
               proceed concurrently, or whether it is premature to enact  
               legislation on this issue.





             b)   Endowments and Alternatives.  The purpose of endowments  
               is to ensure guaranteed funding for the perpetual  
               stewardship of mitigation lands.  Endowments are generally  
               accepted as the most conservative, secure funding source  
               when compared to other funding sources for mitigation  
               lands.  The Committee may wish to consider whether  
               alternatives to endowments provide adequate financial  
               protections to ensure that mitigation requirements will be  
               fulfilled in perpetuity and not become responsibilities 
             of the state.



             c)   Slippery Slope.  The proponents of this bill argue that  
               parks and open space districts, because of their mission  
               and goals, should not be required to set aside endowments.   
               The Committee may wish to consider whether an exemption  
               from endowment requirements for park and open space  
               districts is merited, and whether it will invite other  
               agencies to seek similar or identical exemptions.



             d)   Drafting Questions.  This bill adds language to an  
               existing section in the Government Code that states  
               (emphasis added): 









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               "If a state or local agency, in the development of its own  
               project, is required to protect property to mitigate an  
               adverse impact upon natural resources, the agency may take  
               any action that the agency deems necessary in order to meet  
               its mitigation obligations, including, but not limited to,  
               the following:





               i)     Transfer the interest, or obligation to restore and  
                 enhance property, to a governmental entity, special  
                 district, or nonprofit organization that meets specified  
                 requirements;



               ii)    Provide funds to a governmental entity, nonprofit  
                 organization, a special district, a for-profit entity, a  
                 person, or other entity to acquire land or easements, or  
                 to implement a restoration or enhancement project, that  
                 satisfies the agency's mitigation obligations; and,



               iii)   Hold an endowment in an account administered by an  
                 elected official provided that the state or local agency  
                 is protecting, restoring, or enhancing its own property.



               It is not clear that existing law, or this bill, abrogates  
               any permittee from its "mitigation obligations" as required  
               by a permitting agency.  If existing law does allow an  
               agency to meet its mitigation requirements by taking "any  
               action that the agency deems necessary...including, but not  








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               limited to" the three existing options, this bill is  
               unnecessary.  On the other hand, if existing law allows  
               these listed items to be pursued only if they meet the  
               agency's mitigation obligations, this bill would not  
               nullify an agency's obligations to meet the requirements of  
               a permit.  The Committee may wish to consider whether this  
               bill, as drafted, achieves the intent of the proponents.





          7)Previous Legislation.  AB 1799 (Gordon) of 2014, would have  
            exempted a governmental entity or special district from the  
            requirement to provide an endowment for long-term stewardship  
            of mitigation lands if the entity provided evidence that it  
            possessed an investment-grade credit rating and provided a  
            resolution or contractual agreement to enforce the mitigation  
            requirements.  AB 1799 was held in the Assembly Appropriations  
            Committee.



            SB 1094 (Kehoe), Chapter 705, Statutes of 2012, as a technical  
            clean-up to SB 436, modified provisions related to mitigation  
            agreements and the entities that may hold endowments dedicated  
            to mitigation lands, and expanded the eligible entities  
                                               authorized to hold title, manage property, and hold endowments  
            related to mitigation lands.





            SB 436 (Kehoe), Chapter 590, Statutes of 2011, authorized a  
            state or local agency to allow a qualified and approved  
            nonprofit organization or special district to hold property  
            and long-term stewardship funds to mitigate adverse impacts to  
            natural resources caused by a permitted development project.








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            AB 484 (Alejo) of 2011, was substantially similar to AB 444  
            (Caballero) and passed this Committee on a 9-0 vote.  AB 484  
            was subsequently amended to address a different subject.





            AB 444 (Caballero) of 2009, would have clarified that funds  
            set aside for long-term management of mitigation lands  
            conveyed to a nonprofit organization may also be conveyed to  
            the nonprofit, and would have authorized the nonprofit to  
            hold, manage, invest, and disburse the funds for management  
            and stewardship of the land or easement for which the funds  
            were set aside.  AB 444 was vetoed by Governor Schwarzenegger  
            because of the lack of adequate fiscal assurances.





            AB 2746 (Blakeslee), Chapter 577, Statues of 2006, and AB 1246  
            (Blakeslee), Chapter 330, Statutes of 2007, clarified the  
            authority of state and local agencies to allow nonprofit land  
            trusts to accept and hold mitigation lands.  





            SB 1011 (Hollingsworth) of 2007, would have allowed DFG to  
            authorize a local public entity or a nonprofit to hold and  
            manage mitigation endowment funds, subject to specified  
            conditions.  SB 1011 was held in the Senate Appropriations  








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            Committee. 





            AB 2916 (Water, Parks and Wildlife Committee) of 2006, would  
            have authorized the Department of Fish and Game (DFG - now  
            named DFW) to enter into agreements with eligible nonprofit  
            organizations to hold and manage endowment accounts, subject  
            to specified standards.  AB 2916 was held in the Senate  
            Appropriations Committee.





          8)Arguments in Support.  The East Bay Regional Park District,  
            sponsor of this measure, states, "Mitigation for habitat  
            impacts and endowments are important tools for ensuring proper  
            stewardship of California's natural resources.  For 82 years,  
            EBRPD has been trusted with the responsibility to manage  
            habitat and parklands for the benefit of the public.  EBRPD  
            has been a strong partner with the state in ensuring proper  
            mitigation, and actually holds endowments for projects in the  
            East Bay.



            "EBRPD's ability to manage land for the benefit of protected  
            species and habitat has been recognized by the CDFW, which has  
            authorized EBRPD to hold and manage mitigation lands for third  
            parties and the state.  CDFW asserts, however, that when EBRPD  
            implements a project on its own land (i.e. a three acre  
            staging area) it must mitigate, manage the mitigation AND lock  
            up general fund operational dollars in an endowment.











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            "Requiring Public Resource code 5500 entities - such as the  
            EPRPD, which employs permanent police, rangers and stewardship  
            staff - to fund endowments would effectively double the cost  
            to local tax payers for managing specified habitat  
            enhancements or conservation lands.  It would increase tax  
            payer obligations by millions of dollars AND significantly  
            reduce the funds available to actually carry out proper  
            stewardship and appropriate management of the very sensitive  
            habitats we are all seeking to protect.  Permanently  
            restricting funds in endowments also limits the District's  
            overall ability to fund critical infrastructure projects and  
            open space acquisitions.  It is the fiduciary equivalent of  
            robbing Peter to pay Paul.  





            "EPRPD is looking forward to working with committee, staff and  
            members of the Legislature to explore solutions which  
            encourage the CDFW, as part of mitigation and resulting  
            endowment practices, to exercise discretion and creativity in  
            administering this section of law.  As stewards of the  
            public's financial resources, the Legislature has an  
            obligation to ensure tax dollars are wisely used by Public  
            Resource Code districts to fulfill their ongoing  
            responsibilities and operations."





          9)Arguments in Opposition.  The California Council of Land  
            Trusts, Center for Natural Lands Management, Defenders of  
            Wildlife, Sequoia Riverlands Trust, Sierra Foothill  
            Conservancy, Solano Land Trust, the Nature Conservancy, and  
            the Wildlife Heritage Foundation, in opposition, write,"?our  








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            strong objection to this bill is that it inevitably opens the  
            door to a myriad of exceptions for every agency not wishing to  
            meet mitigation endowment requirements - a policy that has  
            been rejected on three previous occasions in both houses of  
            the California Legislature.  







            "Decades of state policy have resulted in the basic principle  
            of mitigating the loss of, or damage to natural resources when  
            a project is developed.  One typical result is the setting  
            aside of land that is equivalent in size and natural resources  
            quality as the land being lost or damaged.  The issuance of a  
            building or other permit is based on the mitigation being  
            performed and continuing to exist in perpetuity.  In order to  
            provide the funds necessary for the longterm stewardship of  
            that mitigation land, the project proponent can be required by  
            the permitting agency requiring the mitigation to convey funds  
            that are managed as an endowment...

            "SB 1020 will inevitably exempt public agencies, including  
            special districts such as water or parks districts, from  
            permitting agencies imposing obligations to ensure the ongoing  
            management of mitigation lands.  Annual budgets by entities  
            within these categories can, and do, vary dramatically from  
            yeartoyear.  Additionally, statutorily providing this  
            exemption creates an unlevel playing field in which one class  
            of project proponents is treated differently from other  
            project proponents.  





            "Government Code Section 65966(b), which was enacted into law  








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            four years ago by SB 1094 (Chapter 705, Statutes of 2012),  
            expressly provides that other methods of funding for the  
            longterm stewardship of the property shall not be precluded as  
            funding options (such as performance bonds, for example) for  
            the longterm stewardship of the mitigation property.  Yet, SB  
            1020 jumps completely past other funding mechanism options to  
            completely exempt selected public parties from any form of  
            dedicated financial assurance for mitigation lands."





          10)Double-Referral.  This bill is double-referred to the Water,  
            Parks and Wildlife Committee.



          REGISTERED SUPPORT / OPPOSITION:




          Support


          East Bay Regional Park District [SPONSOR]


          Santa Clara Valley Water District


          Save Mount Diablo




          Opposition









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          California Council of Land Trusts


          Center for Natural Lands Management


          Defenders of Wildlife


          Sequoia Riverlands Trust


          Sierra Foothill Conservancy


          Solano Land Trust


          The Nature Conservancy 


          Wildlife Heritage Foundation




          Analysis Prepared by:Angela Mapp / L. GOV. / (916)  
          319-3958