BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1246
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Jones
VERSION: 6/16/09
Analysis by: Mark Stivers FISCAL: No
Hearing date: June 23, 2009
SUBJECT:
Housing cooperatives
DESCRIPTION:
This bill provides for a new type of limited-equity housing
cooperative known as a "workforce housing cooperative trust" and
establishes new procedures and standards for the dissolution of
both limited-equity housing cooperatives and workforce housing
cooperatives.
ANALYSIS:
In the United States, more than 1.2 million families of all
income levels live in homes owned and operated through
cooperative associations. Cooperative members own a share in a
corporation that owns or controls the building(s) and/or
property in which they live. Each shareholder is entitled to
occupy a specific unit and has a vote in the corporation. Every
month, shareholders pay an amount that covers their
proportionate share of the expense of operating the entire
cooperative, which typically includes underlying mortgage
payments, property taxes, management, maintenance, insurance,
utilities, and contributions to reserve funds.
Limited-equity co-ops limit the resale value of shares.
Generally targeted at low- and moderate-income people (in the
80-120% of median-income range), the purpose of limited-equity
cooperatives is to prevent speculation, encourage long-term
residency, and preserve the affordable character of the
cooperative for a wide variety of future residents.
Community Redevelopment Law
AB 1246 (JONES) Page 2
Though limited-equity cooperatives have no direct relation to
redevelopment in California, they are defined in the Community
Redevelopment Law as a corporation organized on a cooperative
basis that takes one of the following forms:
Is a nonprofit public benefit corporation.
Holds title to real property as the beneficiary of a trust
providing for distribution for public or charitable purposes
upon termination of the trust.
Holds title to real property subject to conditions that will
result in reversion to a public or charitable entity upon
dissolution of the corporation.
Holds a leasehold interest of at least 20 years duration
conditioned on the corporation's continued existence as a
limited-equity cooperative and providing for reversion to a
public entity or charitable corporation.
Limited-equity cooperatives must comply with all of the
following requirements:
Require a resident who ceases to be a permanent resident to
sell his or her share at the "transfer value" provided for in
the governing documents, which may not exceed the aggregate of
the original sale price of the unit, the value of improvements
made by the resident, and a pre-determined inflation factor
that does not exceed 10 percent.
Require the cooperative to sell stock or membership interests
to new residents at a price that does not exceed the "transfer
value" paid for the unit.
Restrict the use of corporate equity while any encumbrance
remains outstanding to expenditures that benefit the
corporation or the improvement of the real property, that
expand the corporation, or that provide public or charitable
benefit.
Restrict the use of corporate equity upon sale of the property
or dissolution of the corporation to paying out or
transferring title to the property for the transfer value or
for use for a public or charitable purpose.
AB 1246 (JONES) Page 3
Require a 2/3 vote of cooperative members to amend the bylaws
and articles of incorporation.
Subdivided Lands Law
The Subdivided Lands Law generally requires the subdivider of a
property to obtain a public report from the Department of Real
Estate before lots or units may initially be marketed. This law
is intended to ensure that prospective buyers receive disclosure
of pertinent information about the subdivision and that
improvements have been completed or that adequate financial
arrangements have been made for their completion.
Limited-equity cooperatives that meet the following additional
criteria are exempt from the Subdivided Lands Law:
A federal, state, or local public entity directly finances or
subsidizes at least 50% of the total construction or
development cost or $100,000, whichever is less, or the
Department of Transportation has sold the property subject to
a agreement regulating affordability.
Purchasers provide no more than 10% of the total development
cost, or 20% in the case of a limited-equity mobilehome park.
The cooperative and a public entity have executed a regulatory
agreement that covers the cooperative for a term of at least
as long as the duration of the permanent financing or subsidy
and includes:
? Assurances for completion of the common areas and
facilities.
? Governing instruments for the organization and operation
of the housing cooperative.
? Provisions for adequate budget, reserves, maintenance,
and management.
? Distribution of a membership information report to any
prospective purchaser prior to purchase, which contains
full disclosure of the financial obligations and
responsibilities of cooperative membership, the resale of
shares, the financing of the cooperative, occupancy
restrictions, management arrangements, and any other
information pertinent to the benefits, risks, and
obligations of cooperative ownership.
AB 1246 (JONES) Page 4
The federal, state, or local public agency is satisfied that
the bylaws, articles of incorporation, and other agreements
and arrangements provide adequate protection of the rights of
cooperative members.
The cooperative provides a legal opinion to the public
financing agency that the cooperative meets the definition of
a limited-equity housing cooperative and qualifies for this
exemption.
Davis-Stirling Common Interest Development Act
Limited-equity cooperatives are also common interest
developments subject to the Davis-Stirling Common Interest
Development Act.
This bill provides for a new type of limited-equity housing
cooperative known as a "workforce housing cooperative trust" by
defining this term and including this form of housing within the
exemption to the Subdivided Lands Law. With respect to both
limited-equity cooperatives and workforce housing cooperatives,
the bill also establishes new procedures and standards for
dissolution and allows a court to award attorney's fees and,
under specified circumstances, punitive damages to the
prevailing party in a lawsuit alleging non-compliance with this
bill.
Specifically, the bill:
Moves the existing definition of a limited-equity cooperative
from the Community Redevelopment Law to the Civil Code where
other forms of real property are defined and regulated.
Defines a "workforce housing cooperative trust" as a
limited-equity housing cooperative that also meets all of the
following criteria:
? Allows sponsor organizations to receive a separate class
of shares, whose redemption value shall be calculated
according to the same formula used to calculate a
resident's transfer value.
? Allows the governing board to be composed of two classes
of board members, one elected by the residents and one
appointed by one or more sponsor organizations. The
AB 1246 (JONES) Page 5
specific composition of the board shall be set in the
governing documents, provided that they comply with the
following: 1) initially, and until one year after the first
resident occupancy, the board shall be comprised only of
sponsor appointees; 2) after one year, the resident members
shall elect a single board member; and 3) after three
years, resident members shall elect a majority of the board
members.
? Prohibits board members appointed by sponsor
organizations from being removed except for cause.
? Requires a majority vote of both the resident-owner
members and a majority vote of each class of board members
to amend the articles on incorporation and bylaws of the
cooperative generally. An amendment to change the rights
of the sponsor board members or the sponsors requires a 2/3
vote of the sponsor board members.
Exempts a workforce housing cooperative trust from the
Subdivided Lands Law if the cooperative receives a specified
level of public subsidy and meets the same conditions required
of a limited-equity housing cooperative.
Allows a workforce housing cooperative trust to be created
when at least 51 percent of the occupied units in a
multifamily property that is in foreclosure support efforts to
buy the building or property.
Clarifies that a sponsor organization of a sponsor
organization of a workforce housing cooperative trust has the
legal standing of a member unless it revokes its sponsorship
in writing.
Makes the following changes to existing law relating to
limited-equity housing cooperatives and applies these
provisions to workforce housing cooperative trusts as well:
? Provides that the value of all approved improvements to
a unit are included in the transfer value of a member's
cooperative share, as opposed to just those improvements
made by the departing member.
? Provides that a departing member's transfer value shall
be calculated using simple interest for both new and
existing cooperatives, except that an existing cooperative
AB 1246 (JONES) Page 6
may continue to use compound interest if so specified in
the governing documents.
? Prohibits the board from returning all or a part of the
transfer value to a member while he or she remains a member
and further prohibits an existing member from accepting
such a return of his or her transfer value.
? Prohibits a cooperative that receives public funds from
using corporate funds to avoid compliance with this bill or
to pursue dissolution if the intent or outcome is for some
or all of the members to occupy units of the cooperative
upon dissolution.
? Prohibits members or the board of directors from
arranging to occupy units as an outcome of dissolution.
Establishes the following procedure for dissolution of a
limited-equity housing cooperative or a workforce housing
cooperative trust that receives or has received a public
subsidy:
? The county in which the cooperative is located must
conduct a public hearing paid for by the cooperative.
? The county must provide 120-day advance notice of the
hearing to all interested parties, including all
cooperatives in California included on the list kept by the
California Center for Cooperative Development.
? Upon completion of the public hearing, the county must
adopt a resolution approving of the dissolution and make a
finding that the dissolution plan is free of private
inurement and meets the requirements of state and federal
law.
? The county must supervise a public lottery to make
available dissolved housing units held by the cooperative.
Allows a court to award attorney's fees and, if the court
determines by clear and convincing evidence that the breach or
failure to comply was willful, punitive damages to the
prevailing party in a lawsuit alleging non-compliance with
this bill.
Expands the lists of public entities whose subsidies qualify a
AB 1246 (JONES) Page 7
limited-equity housing cooperative or workforce housing
cooperative trust for exemption from the Subdivided Lands Law
to include the Public Employees' Retirement System, the State
Teachers' Retirement System, and the Federal Home Loan Bank
System or any of its member institutions.
Expands the list of public entities that may sell land to a
limited-equity housing cooperative or workforce housing
cooperative trust in order to qualify the cooperative for
exemption from the Subdivided Lands Law to include state
agencies, cities, counties, and school districts. The bill
also allows the cooperative to lease land from these entities
and qualify for the exemption.
COMMENTS:
1.Purpose of the bill . According to the author, existing law
authorizing limited-equity housing cooperatives was enacted
over thirty years ago, and in many ways the demand for
affordable and conveniently located housing has changed. This
bill will create new opportunities for low- and
moderate-income workforce housing by allowing an employer,
employee group, or any other private civic organization to
create a housing cooperative to provide permanently affordable
housing for employees. This bill also modifies the process by
which an existing or future housing cooperative may dissolve,
thereby reducing the chance that members may unjustly profit
from the dissolution.
2.Allow it and they will come . The most likely entities to
sponsor a workforce housing cooperative are employers, unions,
chambers of commerce or other business groups, religious
organizations, nonprofit organizations, and cooperative
organizations. According to the bill's sponsor, a number of
such entities in California have expressed interest in the
concept, but no plans have progressed very far due to the lack
of a legal structure for such ventures. This bill seeks to
create the legal framework for workforce housing cooperatives
in the hope that these expressions of interested can be
converted into reality.
3.Requiring all residents to move upon dissolution . Upon the
dissolution of a limited-equity housing cooperative or a
workforce housing cooperative trust that has received a public
subsidy, this bill requires existing residents to move and the
county to hold a public lottery to choose new occupants.
AB 1246 (JONES) Page 8
Given that the public has underwritten the development, it
makes sense that existing residents should not benefit
financially from the dissolution or receive any portion of the
cooperative's assets in excess of the transfer value they are
due. It is not clear, however, why these residents must also
vacate the building when it has been their home and community
for some time. While limiting the payout to residents to
their transfer values, the committee may wish to consider
giving existing residents upon dissolution the first right to
purchase or rent the unit they have occupied according to the
same terms available to new occupants and limiting the lottery
only to those units that are vacant at or after dissolution.
4.Arguments in opposition . Opponents argue that this bill takes
away the rights of members of existing limited-equity housing
cooperatives with respect to any future dissolution of the
cooperative. Current residents bought into their cooperative
with an understanding of their various rights and
responsibilities, including their rights under dissolution.
Opponents believe it is unfair to take away such rights from
existing cooperatives. Moreover, opponents believe that the
alteration of these rights constitutes a governmental "taking"
and is therefore unconstitutional.
Assembly Votes:
Floor: 77-0
Judic: 10-0
H&CD: 7-0
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 17, 2009)
SUPPORT: Associated Cooperatives, Inc. (sponsor)
9th Street Co-op
Agricultural Council of California
California Center for Cooperative Development
California Teachers Association
City of Sacramento
Cooperative Development Foundation
Bay Area Community Land Trust
Burbank Housing Development Corporation
Burlington Associates in Community Development
Housing Now
I'M HOME
AB 1246 (JONES) Page 9
National Cooperative Business Association
National Consumer Cooperative Bank
NCB Capital Impact
Nehemiah Community Reinvestment Fund, Inc.
Neighborhood Partners
Resident Owned Communities USA
Rural Community Assistance Corporation
Sacramento Housing Alliance
San Francisco Community Land Trust
San Luis Obispo County Housing Trust Fund
Twin Pines Cooperative Foundation
WAGES Cooperatives (Women's Action to Gain
Economic Security)
One individual
OPPOSED: Walnut House Cooperative