BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 561 HEARING: 6/22/11
AUTHOR: Gorell FISCAL: No
VERSION: 6/7/11 TAX LEVY: No
CONSULTANT: Lui
VENTURA COUNTY WATERSHED PROTECTION DISTRICT'S DEBT
Increases Ventura County Watershed Protection District's
securitized limited obligation note limit. Allows the
District to participate in state and federal loan programs.
Background and Existing Law
Before counties, cities, or school districts can create
multi-year general obligation debt, the California
Constitution requires that counties and cities receive
2/3-voter approval and 55% voter-approval for school
district bonds. Because the Constitution doesn't mention
special districts, the Legislature has allowed some
districts to borrow money without voter approval by issuing
"promissory notes," loans that are backed only by the
promise to repay.
Local officials have several fiscal tools to create public
capital needed to pay for public works projects.
General obligation (G.O.) bonds are funded through
ad valorem tax revenues, outside of Proposition 13's
(1978) 1% tax rate.
Limited obligation bonds are securitized by a local
government's existing revenues. Limited obligation
bonds require 2/3-voter approval.
Revenue bonds, which are funded by rates and user
charges, need majority-voter approval.
Mello-Roos Act bonds allow counties, cities,
special districts, and school districts to levy
special taxes (parcel taxes) to finance a wide variety
of public works with 2/3-voter approval.
AB 561 - 6-7-11 -- Page 2
Benefit assessment bonds allow property owners to
pay for public improvements. The amount of the
assessment is directly related to the amount of the
benefit that the property receives. Benefit
assessments require property owners' approval in
weighted ballot elections.
Special districts may issue securitized limited
obligation notes (SLONs), which must be secured by
pledging a dedicated revenue stream. Though SLONs
don't require voter approval, they need a 4/5-vote of
a district's governing board. Special districts can
borrow up to $2 million to be paid back from
designated revenues, over 10 years. The authority for
special districts to issue SLONs sunsets on December
31, 2014 (SB 1770, Senate Local Government Committee,
2004).
In 1987, the federal Clean Water Act created the Clean
Water State Revolving Fund (CWSRF) loan program, which
provides low-cost financing to state and tribal lands for
water quality projects. The American Recovery and
Reinvestment Act of 2009 granted the CWSRF $4 billion to
fund high priority wastewater infrastructure projects.
In 1944, the Legislature created the Ventura County Flood
Control District, now called the Ventura County Watershed
Protection District (AB 2320, Strickland, 2002). The
District controls and conserves flood, storm waters, and
watersheds to protect life, property, and public
infrastructure. The Ventura County Board of Supervisors
governs the District.
The District funds its activities through property taxes,
benefit assessments, and land development fees. In
addition, the District can borrow money, but first:
The Board of Supervisors must declare the existence
of an emergency, or the board must form a special
zone, and
2/3 of the voters must approve the borrowing in a
special election.
After Hurricane Katrina in 2005, the Federal Emergency
AB 561 - 6-7-11 -- Page 3
Management Agency (FEMA) and the United States Army Corps
of Engineers reviewed the nation's flood protection
infrastructure. Levees built on a flood plain that has 1%
annual chance of flooding must meet Federal Levee
Certification Requirements. If a levee fails to meet these
requirements, FEMA de-accredits the levee system, and flood
insurance rate maps (FIRMs) show them as insufficient flood
protection. As a result of FEMA's and the Army Corps'
joint re-evaluation, the District identified around $209
million of flood protection capital projects which need to
be designed, certified, or rehabilitated, and 7, 076 new
parcels have been added to FIRMs. The District prioritizes
two projects--along Highway 101 and the Calleguas
Creek--that would cost an estimated $13 million in
improvements.
District revenues may not be enough to start the identified
infrastructure projects. To expedite levee improvements
and future capital projects, the District wants to increase
its SLON limit. The District also wants to apply for state
and federal revolving loan programs.
Proposed Law
Assembly Bill 561 authorizes the Ventura County Watershed
Protection District to participate in state and federal
revolving loan funds for the purposes of flood and storm
water control, water conservation, erosion protection,
beach and shoreline restoration, water reclamation, water
storage, technical investigations, and capital works
projects.
AB 561 increases the District's promissory note borrowing
capacity from $2 million to $20 million.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . During stressed fiscal times,
local governments have fewer resources to allocate to
critical infrastructure improvements. In 2009, 11 District
AB 561 - 6-7-11 -- Page 4
levees failed to meet Federal Levee Certification
requirements and must be retrofitted or enhanced. The
District's levees protect more than $8 billion of property
and improvements of parcels, and the estimated costs of
prevented flood damages are roughly $526 million. Despite
possible fiscal and safety incentives to improve levee
systems, the District's steady revenue streams of
assessments, property taxes, and land development fees
aren't enough. AB 561 lets the District participate in
state and federal revolving loans, rather than wait for
lengthy borrowing procedures. Moreover, AB 561 raises the
cap on the District's SLONs. By giving the District more
access to additional borrowing, the bill helps the District
prevent damage and stabilize flood insurance rates, rather
than wait until a disaster wreaks costlier havoc.
2. For the people, by the people ? The California
Constitution's stringent rules for incurring local debt
reflect the voters' desire to have direct control over
fiscal decisions related to public debt. If the District
wants to finance projects by pledging existing revenues to
SLONs, it incurs long-term debt without the voters'
consent. The Committee may wish to consider if the bill's
$18 million increase in the SLON cap runs counter to the
voters' wishes.
3. How much is too much ? The District's enabling Act
already provides an extensive array of financing
mechanisms: loans, bonds, notes, and assessments.
Nevertheless, the District wants to raise its SLON capacity
from $2 million to $20 million. That's more than the $13
million that the District says it needs for priority
repairs to its levees. It's also more than the $12 million
SLON cap that the Legislature set for the San Bernardino
Flood Control District (SB 1561, Soto, 2002). The
Committee may wish to consider amending AB 561 to reset the
District's SLON limit at $13 million.
Assembly Actions
Assembly Local Government Committee: 7-0
Assembly Floor: 73-0
Support and Opposition (6/16/11)
Support : Calleguas Municipal Water District; Ventura
AB 561 - 6-7-11 -- Page 5
County Board of Supervisors.
Opposition : Unknown.