BILL ANALYSIS
AB 1246
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1246 (Jones)
As Amended July 15, 2009
Majority vote
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|ASSEMBLY: |77-0 |(May 18, 2009) |SENATE: |35-0 |(August 17, |
| | | | | |2009) |
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Original Committee Reference: H. & C.D.
SUMMARY : Revises the definition of "limited-equity housing
cooperative" to include "workforce housing cooperative trust,"
defines and establishes "workforce housing cooperative trust,"
and establishes a process for both to dissolve.
The Senate amendments make the following changes to the Assembly
version that:
1)Delete the definition of "housing cooperative trust" added to
the bill.
2)Consolidate code sections regarding housing cooperatives and
housing cooperatives and trusts into one chapter.
3)Allow the transfer value of a member's share in a housing
cooperative to be returned to the member if the member moves
within a cooperative from a unit valued at a higher price to
one at a lower price.
4)Delete the requirement that any units held in a limited equity
housing cooperative or workforce housing cooperative trust
that is dissolved be made available through a public lottery.
5)Make technical changes.
AS PASSED BY THE ASSEMBLY , the bill revised the definition of
"limited-equity housing cooperative" to include "housing
cooperative trust" and "workforce housing cooperative trust,"
defines and establishes "housing cooperative trust" and
"workforce housing cooperative trust," and establishes a process
for all three to dissolve. Specifically, this bill :
1)Revised the definition of "limited-equity housing cooperative"
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in the Subdivided Lands Law (Business & Professions Code
Section 11003.4 et al.) to also apply to "housing cooperative
trust" and "workforce housing cooperative trust."
2)Applied the same exemptions to "housing cooperative trust" and
"workforce housing cooperative trust" in the Subdivided Lands
Law (Business & Professions Code Section 11003.4 et al.) to
those that apply to "limited equity housing cooperative."
3)Added the following to the conditions a limited-equity housing
cooperative, housing cooperative trusts and workforce housing
cooperative trust must comply with in order to be exempt from
the Subdivided Lands Law (Business & Professions Code Section
11003.4 et al.):
a) The Federal Home Loan Bank System, one of its members or
a school district finances or subsidizes at least 50% of
the total construction or development cost or $100,000,
whichever is less; and,
b) The property occupied by the cooperative was sold or
leased by a state agency, city, county, or a school
district for the development.
4)Permitted a housing cooperative trust or workforce housing
cooperative trust that meets all of the exemption requirements
may elect to be subject to the Subdivided Lands Law (Business
& Professions Code Section 11003.4 et al.).
5)Revised the definition of "limited-equity housing cooperative"
in the Community Redevelopment Law (Health & Safety Code
Section 33000 et al.) to apply to "housing cooperative trust"
and "workforce housing cooperative trust."
6)Prohibited the articles of incorporation or the bylaws of a
limited-equity housing cooperative, housing cooperative trust,
and workforce housing cooperative trust for purposes of
returning the "transfer value" of a stock or membership
interest in a trust from permitting the following:
a) A board of directors from returning the transfer value
either in full or in part to a member of the trust while he
or she still remains a member; and,
b) An existing member of the board of directors from
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accepting return of his or her transfer value either in
full or in part.
7)Specified that the accumulated interest used in calculating
the transfer value of a membership's share be "simple".
8)Provided in any lawsuit against the board of directors or the
members for not complying with statutes that apply to a
limited-equity housing cooperatives, housing cooperative
trust, and workforce housing cooperative trust the plaintiff
will be awarded all attorneys fees and damages.
9)Prohibited a limited-equity housing cooperative, housing
cooperative trust, and workforce housing cooperative trust
that uses public funds from using any corporate funds to avoid
complying with state law and to pursue dissolution if the
intent or outcome is for some or all of the members to occupy
their units upon dissolution.
10)Prohibited members or the board of directors of a
limited-equity housing cooperative, housing cooperative trust,
and workforce housing cooperative trust from occupying units
in fee simple or as a rental once the trust has been
dissolved.
11)Defined workforce housing cooperative trust as an
organization that meets the requirements of a limited-equity
housing cooperative in the Community Redevelopment Law (Health
& Safety Code Section 33000 et al.) and complies with all of
the following:
a) Allowed the governing board to be composed of two
classes of board members as follows:
i) One class is elected by the residents; and,
ii) One class is appointed by sponsor organizations
including employer and employee
organizations, chambers of commerce, government
entities, unions, religious
organizations, nonprofit organization, cooperative
organizations and other forms of
organizations.
b) Required resident members to elect a majority of the
board members;
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c) Allowed sponsor organizations to appoint up to one less
than a majority of the board members;
d) Required the numerical composition and class of the
sponsor and resident board members to be set in the
articles of incorporation and in the bylaws;
e) Required the charter board of a workforce housing
cooperative trust to be made up only of sponsor board
members who will remain in place for the first three years
after the first resident occupancy;
f) Required resident members to elect a majority of the
board members after three years of occupancy;
g) Prohibited the removal of the appointees of a sponsor
organization except for cause;
h) Allows for the issuance of separate classes of shares to
sponsor organizations that will be known as "workforce
housing shares" and may receive a rate of return of no more
than 10% simple interest pursuant to the articles of
incorporation or bylaws;
i) Provided a sponsor organization of a workforce housing
cooperative trust is entitled to perfect a security
interest in a cooperative interest or in sponsor shares it
has funded;
j) Required the affirmative vote of at least a majority of
the resident-owner members of the shareholders and a
majority of each class of board members to amend the bylaws
and articles of incorporation;
aa) Provided the rights of the sponsor board members or the
sponsor may not be changed without the affirmative vote of
two-thirds of the sponsor board members;
bb) Provided that members of the board of directors shall
only be removed for cause;
cc) Provided the conditions set forth for workforce housing
cooperatives apply to any organization previously formed
under this section prior to January 1, 2010 that has
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sponsor seats designated in its bylaws;
dd) Provided a workforce housing cooperative trust shall be
entitled to operate at multiple locations in order to
sponsor limited-equity housing cooperatives;
ee) Provided a workforce housing cooperative trust may
either own or lease land for the purpose of developing
limited-equity housing cooperative; and,
ff) Allowed a workforce housing cooperative trust to be
created when at least 51% of the occupied units in a
multifamily property that is in foreclosed support efforts
to buy the building or property.
12)Established the following procedure for dissolving a limited
equity housing cooperative,
housing cooperative trust, or workforce housing cooperative
trust:
a) Required a public hearing conducted by the county in
which the limited equity housing, cooperative, housing
cooperative trust or workforce housing cooperative trust is
located and paid for by the cooperative or trust that is
dissolving;
b) Required the county to provide notice to all interested
parties at least 120 days prior to the date of the hearing;
c) Required the notice to be mailed first-class postage
pre-paid to all limited equity housing cooperatives and
cooperative development organizations in the state in an
effort to create a merger with an existing limited equity
housing cooperative;
d) Required any merger of a dissolving cooperative or trust
to be with an existing cooperative or trust that is
geographically closest to the extent possible;
e) Provided that if a dissolving cooperative or trust does
not merge with an existing cooperative or trust both of the
following must occur:
i) The public hearing process must ensure that any
dissolution plan is free of private inurement and meets
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the requirements of state and federal law; and,
ii) Any dissolved housing units held by the trust or
cooperative are made available through a public lottery
supervised by the county in which the cooperative or
trust is located.
f) Provided that any sponsor organization of a workforce
housing cooperative trust has the legal standing of a
member unless it revokes its sponsorship in writing.
g) Provided in any action taken against a board of
directors and its members based upon a breach of corporate
or fiduciary duties or a failure to comply with statutes
that apply to cooperatives or trusts the prevailing party
will be awarded compensatory and punitive damages and
attorney's fees.
FISCAL EFFECT : None
COMMENTS : A "limited equity housing cooperative" (cooperative)
is a corporation which is organized as a nonprofit public
benefit corporation which holds title to real property for the
benefit of a trust. Cooperatives are made up of members who own
stock in the corporation. Cooperatives usually receive public
financing from a federal, state or local public agency which
comes with a regulatory agreement. The regulatory agreement
must at the least provide assurances for the completion of the
common area, that the cooperative have governing documents, that
there is ongoing fiscal management of the cooperative and that
prospective members receive all specified disclosures. If a
cooperative meets certain requirements including 50% of the
total construction is financed by a public agency, then it can
receive an exemption from the Subdivided Lands Law (Business &
Professions Code Section 11003.4 et al) from DRE.
Members of a cooperative receive a variety of benefits
including: establishing personal income tax deductions, lower
turnover rates, lower real estate tax assessments (in some local
areas), controlled maintenance costs, and resident participation
and control. Rather than paying a mortgage payment each month,
each stockowner pays his or her share of the total operating
costs of the corporation.
By design, the transfer value of an owner's membership in the
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cooperative is limited in order to keep the housing affordable.
The transfer value of a membership must be defined in the
articles of incorporation or bylaws of the cooperative and are
further limited in state law. The transfer value of a member's
share is the aggregate of the amount the first occupant paid for
the share, the value of any improvements made by the member (and
that were approved by the board of directors) to the share and
the accumulated interest on the share not to exceed 10% annual
increase on the amount originally paid for the share.
Purpose of this bill: According to the author, the existing law
authorizing limited equity housing cooperatives was created 30
years ago and in many ways the demand for affordable and
conveniently located housing has changed. Existing law has also
not kept up with changes in public and private finance
opportunities in the marketplace for limited equity housing
cooperatives. The supply of entry level affordable housing is
far short of demand for low-to-moderate-income working
Californians. The U.S. Department of Housing and Urban
Development (HUD) reports that 12 million renter and homeowner
households pay more than 50% of their annual income for housing.
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 buildings 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.
Housing cooperatives can be townhouses, apartments, single
family homes, student housing, senior housing and mobilehome
parks. Limited-equity cooperatives limit the resale value of
shares and are generally targeted at low- and moderate- income
people who are at 80% to 120% of area median income. The
purpose of the limited equity cooperative structure is to
prevent speculation, encourage long-term residency and preserve
the affordable character of the cooperative for future
residents.
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Workforce housing cooperative: AB 1246 would authorize a new
type of cooperative housing, the workforce housing trust. A
sponsor group, most likely an employer or employee group would
be authorized to bring equity, fund, lease land, and permanently
protect the assets of the affordable housing units which will
meet the needs of workers. According to the sponsor, under one
possible scenario, "a company, city or school district has or
obtains land and leases it to the cooperative for 99 years. The
cooperative builds a multifamily community on site. The leasing
entity then reserves the right for its employees to have a
priority on the waiting list for all or at least some of the
units. Initially, the leasing entity could have first
preference given its own employees and make any remaining units
available to the public."
Under another potential scenario, "either a single entity or a
group, employers, unions or public agencies could jointly
sponsor a workforce housing cooperative. Each single entity
could agree to sponsor a set number of units in a cooperative.
For example, each entity could pledge $20,000 to sponsor a unit
for which it retains reservation rights for its own employees or
union members. If the sponsor lacks employees or union members
to fill, the unit, the cooperative could fill it from a waiting
list. When a unit turns over, the sponsor who had not taken
their share of sponsor units could be given first priority on
the waiting list. Sponsors also could provide their employees
or union members with the $5,000 down payment."
Dissolving a limited-equity housing cooperative: For
limited-equity housing cooperatives, existing law specifies that
the corporate equity of a limited-equity housing cooperative may
not be distributed to the members except to make improvements to
the property, to acquire more property and for public benefit or
charitable purposes. Any distribution must be approved by the
board of directors and is subject to any limitations included in
the bylaws. Existing law specifies that if the property is sold
or the corporation is dissolved the corporate equity minus the
transfer value of the membership interest or shares is required
to be used for public or charitable purpose.
Under existing law in order to dissolve a non-profit
corporation, a majority of the directors in office must sign a
certificate of dissolution and file it with the Attorney
General's (AG) Office. The statement must verify that the
corporation has been completely wound up, all known debts and
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liabilities have actually been paid or adequately provided for,
that all known assets have been distributed to the persons
entitled to them, and that the corporation is dissolved. Prior
to filing a certificate of dissolution with the AG's Office a
non-profit corporation must also file a certificate of
satisfaction with the Franchise Tax Board verifying that all
taxes have been paid or secured.
AB 1246 would establish a new procedure for dissolving a
limited-equity housing cooperative or workforce housing
cooperative. The procedure would require a public hearing
conducted by the county in which the cooperative is located and
paid for by the dissolving cooperative. The county would be
required to notify all interested parties including all other
limited-equity housing cooperatives and limited-equity
cooperative organizations in the state who might be interested
in merging with the dissolving cooperative. If the dissolving
cooperative does not merge with an existing cooperative any
dissolving units held by the cooperative must be made available
to the public by a lottery supervised by the county.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0002032