BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1246|
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THIRD READING
Bill No: AB 1246
Author: Jones (D)
Amended: 7/15/09 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 10-0, 7/7/09
AYES: Lowenthal, Huff, Ashburn, DeSaulnier, Harman,
Hollingsworth, Kehoe, Pavley, Simitian, Wolk
NO VOTE RECORDED: Oropeza
ASSEMBLY FLOOR : 77-0, 5/18/09 (Consent) - See last page
for vote
SUBJECT : Housing cooperatives
SOURCE : Associated Cooperatives, Inc.
DIGEST : 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
CONTINUED
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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 cooperatives limit the resale value of
shares. Generally targeted at low- and moderate-income
people (in the 80-120 percent 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
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:
1. Is a nonprofit public benefit corporation.
2. Holds title to real property as the beneficiary of a
trust providing for distribution for public or
charitable purposes upon termination of the trust.
3. Holds title to real property subject to conditions that
will result in reversion to a public or charitable
entity upon dissolution of the corporation.
4. 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:
1. Require a resident who ceases to be a permanent resident
to sell his/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
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pre-determined inflation factor that does not exceed 10
percent.
2. 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.
3. 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.
4. 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.
5. Require a two-thirds 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:
1. A federal, state, or local public entity directly
finances or subsidizes at least 50 percent 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.
2. Purchasers provide no more than 10 percent of the total
development cost, or 20 percent in the case of a
limited-equity mobilehome park.
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3. 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:
A. Assurances for completion of the common areas and
facilities.
B. Governing instruments for the organization and
operation of the housing cooperative.
C. Provisions for adequate budget, reserves,
maintenance, and management.
D. 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.
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.
5. 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.
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With respect to both limited-equity cooperatives and
workforce housing cooperatives, this 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, this bill:
1. 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.
2. Defines a "workforce housing cooperative trust" as a
limited-equity housing cooperative that also meets all
of the following criteria:
A. 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.
B. 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 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.
C. Prohibits board members appointed by sponsor
organizations from being removed except for cause.
D. 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
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two-thirds vote of the sponsor board members.
3. 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.
4. 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.
5. 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.
6. Makes the following changes to existing law relating to
limited-equity housing cooperatives and applies these
provisions to workforce housing cooperative trusts as
well:
A. 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.
B. 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 may continue to use compound
interest if so specified in the governing documents.
C. 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/her
transfer value.
D. Prohibits a cooperative that receives public funds
from using corporate funds to avoid compliance with
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this bill or to pursue dissolution if the intent or
outcome is for some or all of the members to receive
any payment in excess of the transfer value to which
a person is entitled.
E. Prohibits members or the board of directors from
arranging to occupy units as an outcome of
dissolution.
7. 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:
A. The city or the county for any unincorporated area
in which the cooperative is located must conduct a
public hearing paid for by the cooperative.
B. The city or the county for any unincorporated area
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.
C. Upon completion of the public hearing, the city or
the county for any unincorporated area must adopt a
resolution approving of the dissolution and make a
finding that the dissolution plan meets the
requirements of state and federal law, meets the
donative intent standards of the Internal Revenue
Service and is free of private inurement, which
includes a prohibition on any member receiving any
payment in excess of the transfer value which the
person is entitled.
D. Requires the city or county to forward all
information and written testimony from the hearing to
the Attorney General for consideration in the ruling
on the dissolution.
8. Allows a prevailing party in any action instituted
against a board of directors and its members, on or
after January 1, 2010, based upon a breach of corporate
or fiduciary duties or a failure to comply with the
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requirements of the bill, to recover reasonable
attorney's fees and costs.
9. Expands the lists of public entities whose subsidies
qualify a 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.
10.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. This bill also allows the cooperative to
lease land from these entities and qualify for the
exemption.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/15/09)
Associated Cooperatives, Inc. (source)
9th Street Co-op
Agricultural Council of California
Bay Area Community Land Trust
Burbank Housing Development Corporation
Burlington Associates in Community Development
California Center for Cooperative Development
California Teachers Association
City of Sacramento
Cooperative Development Foundation
Housing California
Housing Now
I'M HOME
National Consumer Cooperative Bank
National Cooperative Business Association
NCB Capital Impact
Nehemiah Community Reinvestment Fund, Inc.
Neighborhood Partners
Resident Owned Communities USA
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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)
ARGUMENTS IN SUPPORT : According to the author's office,
existing law authorizing limited-equity housing
cooperatives was enacted over 30 years ago, and in many
ways the demand for affordable and conveniently located
housing has changed. This bill creates 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.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nava, Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Ruskin, Salas, Silva, Skinner, Smyth,
Solorio, Audra Strickland, Swanson, Torlakson, Torres,
Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Eng, Price, Saldana
JJA:mw 7/15/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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