BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1233 |Hearing |4/27/16 |
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|Author: |McGuire |Tax Levy: |No |
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|Version: |4/14/16 |Fiscal: |No |
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|Consultant|Weinberger |
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Joint powers authorities: Water Bill Savings Act
Enacts the Water Bill Savings Act, which allows joint powers
authorities to finance water conservation improvements to
private property paid for by charges collected through water
bills.
Background
Property assessed clean energy (PACE) financing programs offer
government loans to private property owners to cover the initial
costs of renewable energy, energy efficiency, and water
efficiency improvements. Property owners repay the loans
through voluntary annual assessments or parcel taxes, which are
secured by priority liens, on their property tax bills. With
the free and willing consent of affected property owners, state
law lets public agencies use voluntary contractual assessments
or parcel taxes to finance water efficiency improvements that
are permanently fixed to real property (AB 474, Blumenfield,
2009 and SB 555, Hancock, 2011).
The Joint Exercise of Powers Act allows two or more public
agencies to exercise their common powers by signing joint powers
agreements. Sometimes an agreement creates a joint powers
authority (JPA). The Marks-Roos Local Bond Pooling Act allows
public agencies to use JPAs to finance infrastructure. These
JPAs issue Marks-Roos Act bonds and loan the capital to local
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agencies for public works, for working capital, and for
insurance programs.
Building upon the precedent set by PACE financing programs, some
local officials want to be able to use charges that appear on a
water customer's water bill to help finance renewable water
efficiency improvements on private property. They want the
Legislature to authorize a process by which water customers can
voluntarily use public financing to install water efficiency
improvements that will be repaid through water efficiency charge
on their water bills. They also want the legislature to
authorize JPAs to issue bonds, pursuant to the Marks-Roos Act,
to finance water efficiency improvements by pooling the
voluntary water efficiency charges collected from participating
water customers.
Proposed Law
Senate Bill 1233 enacts the Water Bill Savings Act which,
notwithstanding any other law, allows a joint powers authority
(JPA) that meets specified requirements to provide funding for a
customer of a local agency or its publicly owned utility to
acquire, install, or repair a water efficiency improvement on a
customer property served by the local agency or its publicly
owned utility.
I. Establishing a financing program . To establish or extend a
program to provide funding for a customer of a local agency or
its publicly owned utility to acquire, install, or repair a
water efficiency improvement on a customer property served by
the local agency or its publicly owned utility, SB 1233 requires
a JPA to adopt a resolution that:
Identifies the geographic area in the state in which the
authority intends to operate the program.
Approves a standardized servicing agreement.
Authorizes one or more designated officials of the
authority to execute and deliver the servicing agreement on
behalf of the authority.
SB 1233 allows a JPA to make a final and conclusive
determination that its proceedings to establish or extend a
SB 1233 (McGuire) 4/14/16 Page 3
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program were valid and in conformity with specified requirements
enacted by the bill.
SB 1233 allows the legislative body of a local agency to provide
funding for its customers through a program established by a JPA
by adopting a resolution of intention, conducting a noticed
public hearing, and adopting a resolution to authorize the
program. The resolution of intention must contain specified
information about the public hearing and must make a specified
declaration if the local agency wishes to pledge its water
enterprise revenue as security for the payment of the bonds
issued by a JPA in the event that efficiency charges are
insufficient for those purposes. The resolution authorizing the
establishment or extension of a program within a local agency's
boundaries must:
Declare that the operation of the program by the JPA in
the local agency's geographic boundaries would provide
significant public benefits in accordance with specified
statutory criteria.
Approve the standardized servicing agreement and
authorize one or more designated officials of the local
agency to execute and deliver the servicing agreement with
the authority.
Approve, if applicable, the pledge of water enterprise
revenue as security for the payment of the principal of,
and interest and redemption premium on, bonds issued by the
authority in the event that efficiency charges are
insufficient.
Authorize, if applicable, execution and delivery of one
or more pledge agreements to evidence a pledge.
SB 1233 allows a local legislative body, in the resolution, to
make a final and conclusive determination that its proceedings
to establish or extend a program were valid and in conformity
with specified requirements enacted by the bill.
II. Efficiency charges . Senate Bill 1233 requires a customer
to repay the JPA for the costs of water efficiency improvements
through an efficiency charge on the customer's water bill that
is established and collected by the local agency or its publicly
owned utility. The duty to pay the efficiency charge must arise
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from and be evidenced by a written agreement among the customer,
the JPA, and the local agency or its publicly owned utility.
SB 1233 requires that the written agreement must include:
An agreement by the customer to pay an efficiency charge
for the period and in the amount specified in the agreement
unless the efficiency charge is prepaid in the manner set
forth in the agreement. The period designated for
repayment must not exceed the estimated useful life of the
funded efficiency improvements.
A description of the financial calculation, formula, or
other method that the authority used to determine the
efficiency charge. The efficiency charge may include a
component for reasonable administrative expenses incurred
by the local agency or its publicly owned utility and the
authority in connection with the program and the funding.
A description of the efficiency improvement funded with
the efficiency charge. A determination in the agreement
that an improvement is an efficiency improvement must be
final and conclusive.
A representation by the customer that the customer
intends to acquire, install, or repair and use the
efficiency improvement on the customer's property for the
useful life of the efficiency improvement. Any failure by
the customer to acquire, install, or repair and use the
efficiency improvement on the customer's property for the
useful life of the efficiency improvement must not affect
the customer's obligation to pay the efficiency charge as
set forth in the agreement.
SB 1233:
Specifies that the timely and complete payment of an
efficiency charge by a customer that has agreed to pay an
efficiency charge may be a condition of receiving water
service from the local agency or its publicly owned
utility.
A local agency and its publicly owned utility are
authorized to use their established collection policies and
all rights and remedies provided by law to enforce payment
and collection of the efficiency charge.
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A person liable for an efficiency charge is prohibited
from withholding payment, in whole or in part, of the
efficiency charge for any reason.
Requires that a customer's obligation to pay the
efficiency charge must run with title to the customer
property on which the efficiency improvement is located
until repaid in full.
Requires a local agency or its publicly owned utility to
record a notice of an efficiency charge in the records of
the county recorder of the county in which the customer's
property is located.
Specifies that any failure by the local agency or its
publicly owned utility to record that notice must not
excuse an owner of the customer property on which the
funded improvement is located from the obligation to pay
the efficiency charge.
Because the efficiency charge will be made pursuant to a written
agreement between the customer, the authority, and the local
agency or its publicly owned utility, SB 1233 contains a
legislative finding and declaration that efficiency charges
levied under the bill's provisions are not taxes, assessments,
fees, or charges for the purposes of Articles XIII C and XIII D
of the California Constitution and therefore the provisions of
Articles XIII C and XIII D and Article 4.6 (commencing with
Section 53750) of Chapter 4 of Part 1 of Division 2 of Title 5
are not applicable to those efficiency charges.
III. Bond issuance . SB 1233 allows a JPA to issue bonds for the
purpose of providing funds for the acquisition, installation,
and repair of an efficiency improvement on customer property
pursuant to the bill's provisions. The bill:
Specifies information that a JPA issuing a bond must
include in its preliminary notice and final report for the
bonds submitted to the California Debt and Investment
Advisory Commission.
Allows a JPA to pledge one or more efficiency charges as
security for the bonds.
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Allows a local agency to pledge water enterprise revenue
as security for the payment of the principal of, and
interest and redemption premium on, bonds issued by the JPA
if the efficiency charges are insufficient for that
purpose. The local agency may execute one or more pledge
agreements, pursuant to state law, for the benefit of the
JPA or for the exclusive benefit of the persons entitled to
the financing costs to be paid from the efficiency charges.
SB 1233 requires a JPA and a local agency or its publicly owned
utility to enter into a servicing agreement for the collection
of one or more efficiency charges and requires the local agency
or its publicly owned utility to act as a servicing agent for
purposes of collecting the efficiency charge. The bill imposes
requirements on the handling of funds collected by a servicing
agent and specifies provisions that must be included in a
servicing agreement to help ensure the collection of efficiency
charges and repayment of JPA debts.
IV. Other provisions . SB 1233 specifies the manner in which
its provisions will continue to be enforced if a local agency
for which bonds have been issued and remain outstanding ceases
to operate a water utility, either directly or through its
publicly owned utility.
SB 1233 defines numerous terms that are used throughout the
bill.
If a local agency, its publicly owned utility, and the JPA have
complied with procedures specified in the bill, SB 1233 exempts
them from complying with existing statutes that would otherwise
prohibit a JPA from authorizing bonds to construct, acquire, or
finance a public capital improvement unless:
The authority reasonably expects that the public capital
improvement is to be located within the geographic
boundaries of one or more local agencies of the authority
that is not itself an authority.
A local agency that is not itself an authority, within
whose boundaries the public capital improvement is to be
located, has approved the financing of the public capital
improvement and made a finding of significant public
benefit in accordance with the criteria specified state law
after a public hearing held by that local agency within
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each county or city and county where the public capital
improvement is to be located after notice of the hearing is
published once at least five days prior to the hearing in a
newspaper of general circulation in each affected county or
city and county.
A notice is sent by certified mail at least five
business days prior to the hearing to the Attorney General
and to the California Debt and Investment Advisory
Commission, containing specified information.
SB 1233 declares that is provisions are severable.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . In response to the recent drought and
growing concerns about the effects of climate change on
California's long-term water supply, local governments are
looking for ways to help their residents use less water. The
initial installation costs of some types of water efficiency
improvements like high-efficiency toilets or drip irrigation
systems can deter property owners from making those
improvements. The Legislature recently authorized so-called
PACE programs, which allow local governments to offer property
owner financing for water-efficiency improvements which are
repaid through voluntary charges on their property tax bills.
SB 1233 builds on this precedent by providing local governments
with a new tool to help promote the widespread installation of
water efficiency improvements on private property. The bill
would allow JPAs to offer consumers competitive financing costs
for these improvements by pooling the revenues generated by
voluntary water efficiency charges paid by participating
property owners. This new tool could help JPAs pay for regional
responses to California's water supply challenges through the
installation of improvements that will significantly reduce
individual consumers' water use.
2. Voluntary ? SB 1233's provisions explicitly assert that the
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water efficiency charges authorized by the bill are established
voluntarily through an agreement among a water customer, a
public agency, and the JPA providing financing for water
efficiency improvements. However, the bill appears to allow a
water customer who is not the owner of the property where the
improvements are being financed to enter into a water financing
agreement without the approval of the property owner. As a
result, the efficiency charge remains the obligation of any
customers receiving water service at that property even after
the customer who entered into the agreement no longer resides
there. To ensure that the water efficiency charges authorized
by SB 1233 are truly voluntary, the Committee may wish to
consider amending the bill to require that a local government
must must obtain the consent of a property owner, in addition to
that of a customer, before a water efficiency improvements can
be financed with a water efficiency charge collected from
customers.
3. Permanent improvements ? The statutes authorizing local
governments to finance water efficiency improvements through a
PACE program, specifically limit the types of improvements that
can be financed to improvements that are "affixed" to real
property. This requirement guarantees that the improvements are
of a substantially permanent nature. SB 1233 does not contain a
similar requirement, thereby allowing local government to
finance improvements that may be less permanent, like shower
heads or drip-irrigation systems. It is unclear whether it
makes sense to provide long-term financing for projects that may
not continue to provide water savings over the full life of the
obligation to repay the financing. For example, if low flow
shower heads are removed from a property, or a drip irrigation
system is not properly maintained, the customer receiving water
at that property will remain obligated to pay the water
efficiency charges for those improvements, even if they are not
producing any actual water savings. The Committee may wish to
consider amending SB 1233 to require that improvements financed
under the bill's provisions must be "affixed" to real property,
just like state law requires for PACE financing programs.
4. Notice and compliance . Although SB 1233 says that a local
government must record a notice of an efficiency charge in the
land records maintained by a county recorder, the bill also
specifies that the obligation to pay the efficiency charge
remains enforceable even if no notice is filed with the
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recorder. The bill also provides no enforcement mechanism for
verifying that the improvements financed under SB 1233's
provisions are installed properly or whether they were completed
at all. Advocates for the title insurance industry suggest that
the lack of strict notice and enforcement provisions will
provide insufficient information to new property purchasers
about financial obligations that are attached to the property.
This lack of information, in turn, could expose new buyers and
real estate agents to unanticipated financial obligations and
have a chilling effect on some real estate transactions. To
avoid unintended consequences for property owners and parties to
real estate transactions, the Committee may wish to consider
amending SB 1233 to:
Impose stronger requirements for recording a notice of
an efficiency charge, and
Verifying that the financed improvements are installed
and functioning properly.
Support and
Opposition (4/21/16)
Support : Association of Bay Area Governments; Bay Area Regional
Energy Network; California Apartment Association; California
Association of Realtors; California Building Industry
Association; California Business Properties Association;
California Chamber of Commerce; Center for Climate Protection;
Mayors Councilmembers' Association of Sonoma County; Nexus
eWater, Inc.; School Project for Utility Rate Reduction; Sierra
Club California; Sonoma County Water Agency; Sonoma Regional
Climate Protection Authority; StopWaste; Town of Windsor.
Opposition : California Land Title Association.
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