BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: AB 1755 HEARING: 6/9/10
AUTHOR: Swanson FISCAL: No
VERSION: 6/1/10 CONSULTANT:
Weinberger
BENEFIT ASSESSMENTS FOR SEISMIC SAFETY
Background and Existing Law
A benefit assessment is an involuntary charge that property
owners pay for a public improvement or service that
provides a special benefit to their property. The amount
of the assessment is directly related to the amount of the
benefit their property receives. Benefit assessments can
finance public projects like flood control, street
improvement, streetlights, and public landscaping.
As an alternative to benefit assessments, and only with the
free and willing consent of affected property owners,
public agencies can use "voluntary contractual assessments"
to finance:
Public improvements to developed parcels (SB 837,
McQuorquodale, 1987).
Renewable energy sources or energy efficiency
improvements that are permanently fixed to real
property (AB 811, Levine, 2008).
Water efficiency improvements that are permanently
fixed to real property (AB 474, Blumenfield, 2009).
To use voluntary contractual assessments, a public agency's
legislative body must adopt a resolution, which:
Determines that it would be convenient, advantageous,
and in the public interest to designate an area within
which officials and property owners may enter into
contractual assessments and make related financing
arrangements.
Identifies the kinds of public works which may be
financed.
Describes the area where contractual assessments may
be used.
Describes the proposed financing arrangements,
including criteria for determining the creditworthiness
of a property owner.
States the time and place for a public hearing.
AB 1755 -- 6/1/10 -- Page 2
Directs an official to prepare a detailed report
about the contractual assessment program and consult
with the county auditor and county controller regarding
fees.
The report on the proposed assessment program must contain:
A map of the area where contractual assessments will
be offered.
A draft contract specifying the terms and conditions.
A list of the types of facilities and improvements
which may be financed.
The official authorized to enter into contractual
assessments on behalf of the county or city.
The maximum aggregate dollar amount of contractual
assessments.
A method for prioritizing requests from property
owners for financing.
A plan for raising a capital amount required to pay
for work performed pursuant to contractual assessments.
Information about the county auditor's and county
controller's fees.
The legislative body must give written notice to all water
or electricity providers within a proposed area where
voluntary contractual assessments will be offered. After
holding a public hearing, the legislative body may adopt a
resolution confirming the program as detailed in the
report, may confirm a modified version of the report, or
may abandon the proceedings.
The legislative body must designate an office to:
Prepare the annual roll of assessment obligations on
property subject to a voluntary contractual assessment.
Establish procedures for responding to inquiries
concerning estimated voluntary contractual assessment
liabilities.
The legislative body must provide for documents to be
recorded with the county recorder, providing notice of a
contractual assessment on real property.
Local officials can help private property owners pay for
seismic safety improvements with loans and grants from
several sources:
Municipal Improvement Act of 1913 assessments (AB
AB 1755 -- 6/1/10 -- Page 3
1700, Farr, 1992).
General obligation bonds (AB 1001, Brown, 1991).
Mello-Roos Act special taxes (SBx 27, Mello, 1990).
Redevelopment Agency funds (AB 3556, Cortese, 1990).
Local revenue bonds (AB 604, Rosenthal, 1982).
Local officials want to add seismic strengthening
improvements to the types of improvements that can be
financed with voluntary contractual assessments.
Proposed Law
Assembly Bill 1755 authorizes the use of contractual
assessments to finance the installation of seismic
strengthening improvements that are permanently fixed to
residential, commercial, industrial, agricultural, or other
real property.
AB 1755 specifies that, for financing the installation of
seismic strengthening improvements, "public agency" means a
city, county, or city and county.
The bill contains legislative findings and declarations
regarding the need to finance seismic strengthening
improvements using contractual assessments.
Comments
1. Public safety, public financing . AB 1755 builds upon a
substantial body of state law that lets local officials use
public financing to help private property owners pay for
seismic improvements. Unreinforced masonry buildings and
"soft story" buildings with large open spaces on the ground
floor are serious earthquake hazards. The Association of
Bay Area Governments says that 26,000 of Oakland's 163,000
housing units will become uninhabitable when the Hayward
Fault has a major earthquake. Because commercial loans for
earthquake improvements can be expensive, local officials
want to accelerate retrofit work on vulnerable buildings by
loaning money to private property owners at below-market
rates. AB 1755 provides local officials with another tool
to help property owners pay for structural upgrades that
save lives, protect rescue workers, and reduce economic
disruption after a major earthquake.
AB 1755 -- 6/1/10 -- Page 4
2. Lien on me . Some federal housing finance regulators
worry that voluntary contractual assessment programs may
overburden property owners with debt, raising risks of
default. Mortgage lenders and regulators are concerned
because voluntary contractual assessment financing is
secured with a tax lien that has superior priority over
first mortgages. Program advocates respond that financing
energy and water improvements may pose less risk of default
than traditional public financing because lower utility
bills offset a property owner's financing costs. However,
AB 1755 authorizes financing for seismic strengthening
improvements, which do not produce offsetting cost savings.
The Committee may wish to consider whether, by authorizing
voluntary contractual assessment financing for improvements
that don't produce cost savings, AB 1755 invites greater
scrutiny by federal regulators and mortgage lenders.
3. Setting limits . To address concerns about property
owners' ability to pay for financed improvements, current
law requires public agencies that offer voluntary
contractual assessment programs to establish criteria for
determining a property owners' creditworthiness.
Additionally, many local voluntary contractual benefit
assessment programs impose caps on the total amount of
assessments that are imposed on parcels. Legislators may
wish to consider whether AB 1755 should be amended to limit
the total amount of debt that may be imposed on any parcel
pursuant to a voluntary contractual assessment to no more
than 10% of the property's market value.
4. It's not your business . Despite the Legislature's
approval of the Levine and Blumenfield bills, some critics
still say that local governments should not be in the
business of providing public financing for seismic projects
on private property. If private property owners want to
finance the large up-front costs of structural
improvements, they ought to rely on private sector lenders,
just as they would finance roofs, decks, other types of
property improvements. Tax-exempt financing, backed by
priority government liens, to pay for seismic improvements
that primarily benefit private property, is inconsistent
with the fundamental purpose of issuing government debt.
5. Too much, too soon ? Many communities are just
beginning to use voluntary contractual assessments for the
AB 1755 -- 6/1/10 -- Page 5
energy and water improvements authorized by the Levine and
Blumenfield bills. Legislators can anticipate additional
proposals to expand voluntary contractual assessment
financing in the future. Fire safety improvements or
improvements to access for people with disabilities, for
example, could also provide sufficient public benefits to
justify financing using voluntary contractual assessments.
The Committee may wish to consider waiting to evaluate
local governments' experience financing energy and water
improvements before further expanding the list of
improvements that property owners can finance with
voluntary contractual assessments.
6. Related legislation . At its June 9 hearing, the
Committee will also consider AB 2182 (Huffman), which lets
local officials use contractual assessments to finance
sewer and septic improvements. Because AB 1755 and AB 2182
both amend the same code sections in different ways, the
Committee may wish to consider adopting double-jointing
amendments that prevent one bill from chaptering-out the
other. If both bills are chaptered without double-jointing
amendments, the changes made by the bill that's chaptered
first will get wiped out by the changes made by the bill
that's chaptered second.
Assembly Actions
Assembly Local Government Committee: 7-1
Assembly Floor: 55-18
Support and Opposition (6/3/10)
Support : City of Oakland, Association of Bay Area
Governments, American Council of Engineering Companies.
Opposition : Unknown.