BILL ANALYSIS
AB 770
Page 1
Date of Hearing: January 18, 2006
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 770 (Mullin) - As Amended: April 25, 2005
Policy Committee: Housing
Vote: 5-1
Business and Professions 6-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a state ombudsperson for common interest
developments (CIDs) within the Department of Consumer Affairs
(DCA). Specifically, this bill:
1)Establishes a biennial fee to be charged to each CID
homeowner, and be paid by each homeowners' association at the
time the association pays its existing biennial registration
fee to the Secretary of State.
2)Establishes the initial biennial fee at $10, and requires the
ombudsperson to decrease or increase (to a $20 maximum) the
fee every two years as needed to cover operating costs for the
following two years.
3)Places the fee revenue in a new, continuously-appropriated
fund solely to cover the ombudsperson's responsibilities.
4)Requires the ombudsperson to:
a) Maintain a toll-free telephone number to provide
information and assistance on CID matters.
b) Maintain an Internet website containing specified
information.
c) Offer training materials and courses to CID directors
and officers-at fees sufficient to cover costs.
d) Report specified information annually to the Legislature
regarding workload and performance.
e) Provide assistance, upon request and within the limits
of available office resources, in resolving disputes
AB 770
Page 2
involving CID law. The assistance includes offering
mediating services, or contacting for mediation services,
at a fee of up to $25 per mediation.
5)Sunsets all of the above on January 1, 2011.
FISCAL EFFECT
1)Revenues . According to the Secretary of State, about 21,000 of
the state's 26,000 CIDs, representing about 80% of all CID
units are registered. Based on the $10 biennial fee, initial
revenues would be $12 million annually and would increase as
more existing CID units are registered and more new CIDs are
constructed.
2)Costs . The DCA estimates the following costs:
a) $600,000 annually for the ombudsman, three
administrative support staff, and two legal support staff.
b) $450,000 annually for data collection system, website
maintenance, and the toll-free phone number; and $150,000
in one-time start-up costs for these functions.
c) Informal dispute resolution and mediation-staffing will
depend on demand for these services. DCA assumes annual
complaints from 1% of CID units (30,000), which would
require 119 staff at an annual cost of $9.2 million plus $1
million for mediation contracts.
d) Additional costs for education and training, including
course materials, will be offset by charges to users of
these services.
COMMENTS
1)Background . CIDs include condominiums, community apartment
projects, and housing cooperatives and planned unit
developments. They are characterized by a separate ownership
of dwelling space coupled with an undivided interest in a
common property, restricted by covenants and conditions that
limit the use of common area, by the separate ownership
interests and the management of common property, and by
enforcement of restrictions by a community association.
Except when CIDs are first developed, no state agency provides
ongoing oversight to these communities.
According to the Public Policy Institute of California (PPIC),
AB 770
Page 3
the state has over 36,000 CIDs-ranging in size from three to
27,000 units. CIDs make up over 3 million total housing units
that represent approximately one quarter of the state's
housing stock. PPIC notes that, in the 1990s, over 60% of all
residential construction starts in the state were CIDs.
2)Purpose . According to the sponsor, the California Law Revision
Commission (CLRC), CIDs are governed by volunteers who often
make mistakes and violate procedures for conducting hearings,
adopting budgets, establishing reserves, enforcing rules and
restrictions and collecting assessments because of the
complexity of CID law. CLRC maintains that many homeowners do
not understand CID law and their rights under the governing
documents and that, as a result, conflicts arise between the
association and homeowners. CLRC notes that the only remedy
available to resolve disputes between a homeowner and an
association or between homeowners is private litigation. This
process can be both expensive and lead to animosity that can
degrade the quality of life of a community and lead to future
disputes. In addition, homeowners that sue their association
are ultimately suing themselves and their neighbors as the
cost of litigation is borne by the community.
CLRC states that the ombudsperson proposed in AB 770 would
educate volunteer homeowner board directors and homeowners
through a toll-free number, website, and training materials
and courses. The ombudsperson would provide information and
advice to those who do not understand their legal rights and
responsibilities and offer assistance by informally resolving
disputes. Other states, including Florida, Nevada and Hawaii,
provide similar services to CID associations.
3)Issues .
a) Continuous Appropriation . The bill creates a significant
new state entity whose revenue is continuously
appropriated, and authorizes the ombudsman to adjust fees
as needed within a specified limit. This new state function
should instead be subject to annual legislative oversight
through the budget process.
b) Fee Level . It is unclear at what level the initial fee
should be set, because demand for the ombudsman's services,
and therefore appropriate staffing levels, are unknown. In
addition, it would take time, following a budget
AB 770
Page 4
appropriation in 2007-08, to hire and train staff. Finally,
the $25 charge for mediation services seems unduly low, and
would therefore result in deep subsidies being paid from
the ombudsman's budget (from fees paid by all CID
homeowners) as a benefit only for those who uses this
service. (According to the sponsor, the Hawaii and Florida
ombudsman each charge $50 for mediation.) For these
reasons, an initial fee less than $5 per year might be
reasonable.
Concern has been expressed about the burden placed on some
CID homeowners by the $10 biennial fee. This fee, which
translates to a cost of about 42 cents per month, would be
small when compared to the monthly assessments charged by
most homeowners associations. According to the PPIC report,
while there is a wide fluctuation in CID monthly
assessments, in 2002 three-fourths of all planned
developments charge at least $68 per month, and the median
charge was $112. For condominiums, three-fourths charged at
least $138 per month, and the median charge was $186 per
month. Presumably, current assessments are somewhat higher.
4)Related Legislation . SB 551 (Lowenthal), which is identical to
this bill except it does not include the dispute resolution
and mediation provisions, is pending in the Senate
Appropriations Committee.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081