BILL ANALYSIS Ó
AB 2265
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Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 2265 (Hernández) - As Introduced: February 24, 2012
SUBJECT : Improvement districts.
SUMMARY : Prohibits, for various improvement and assessment
districts, the ability to contract for specified services with a
firm or organization if that firm or organization was previously
contracted with for services relating to the formation of that
district. Specifically, this bill :
1)Prohibits the city council, owners' association, or a
nonprofit corporation, if one is designated, in the case of a
district formed pursuant to the Property and Business
Improvement District Law of 1994 or the Multifamily
Improvement District Law, from contracting for services
relating to the management or operation of the district with
any individual, firm, corporation, partnership, limited
liability company, association, or other organization that was
previously contracted with for services relating to the
formation of the district.
2)Prohibits a local agency, in the case of an assessment
district formed pursuant to the Landscaping and Lighting Act
of 1972, from contracting for services relating to the
management or operation of the district with any individual,
firm, corporation, partnership, limited liability company,
association, or other organization that was previously
contracted with for services relating to the formation of the
district.
EXISTING LAW :
1)Allows, under the Property and Business Improvement District
Law of 1994, property owners to petition a city or county to
set up an improvement district to levy assessments on property
owners or business owners for specified purposes.
2)Allows, under the Multifamily Improvement District Law, a city
council to set up an improvement district and levy property
assessments and business assessments to pay for activities and
improvements in multifamily neighborhoods.
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3)Allows, under the Landscaping and Lighting Act of 1972, a
local agency, including cities, counties, and special
districts, to finance the costs and expenses of landscaping
and lighting public areas.
FISCAL EFFECT : None
COMMENTS :
1)Special assessment districts (also called benefit assessments)
have a long history in California. Until the Great Depression
of the 1930s, special assessments were a major municipal
financing tool. However, economic conditions during the
depression caused landowners to default on assessments, which
then resulted in difficulty paying off the bonds backed by the
assessments. From that time until the passage of Proposition
13 (1978), special assessments were rarely used because local
governments relied upon property taxes for income.
Post-Proposition 13, assessments gained momentum as a new
source of funding. Most of the special assessment acts
provide for the issuance of bonds, generally secured by the
property within the district, and then the bonded indebtedness
is repaid with money generated by the assessments.
Over time, there have been various assessment acts in statute
including the Improvement Act of 1911, the Municipal
Improvement Act of 1913, the Improvement Bond Act of 1915, the
Park and Playground Act of 1909, the Tree Planting Act of
1931, the Landscaping and Lighting Act of 1972, the Benefit
Assessment Act of 1982, the Integrated Financing District Act,
the Street Lighting Act of 1919, the Municipal Lighting
Maintenance District Act of 1927, the Street Lighting Act of
1931, the Parking District Law of 1943, the Parking District
Law of 1951, the Parking and Business Improvement Area Law of
1989, the Property and Business Improvement District Law of
1994, the Pedestrian Mall Law of 1960, the Permanent Road
Divisions Law, the Community Rehabilitation District Law of
1985, the Geologic Hazard Abatement District, the Open Space
Maintenance Act, and the Fire Suppression Assessment.
When a general law city levies an assessment, it typically
selects an assessment law under which it will proceed, and it
then follows the procedures and limitations set by that law.
Charter cities may follow this same route, but they often
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enact local ordinances and proceed under the local ordinance
rather than a generally available assessment law. Local
assessment laws are typically drafted to incorporate one or
more of the statewide laws, but may include revisions to the
incorporated law either streamlining procedures or permitting
the financing of improvements or services not authorized under
the state law.
Most assessments are levied against real property, and are
generally collected on the property tax roll, secured by a
lien against the assessed property, and subject to Proposition
218 (1996). Assessments levied in connection with business
improvement districts, however, are levied on business, not
real property, and are usually collected along with business
license taxes and are not secured by a lien against real
property.
2)Formation of an assessment district allows local officials to
charge benefit assessments to property owners to pay for
public works and public services. Business improvement
districts are one model for how local governments use
assessment financing to pay for projects to attract and retain
businesses. The Parking and Business Improvement Area Law of
1989 allows a city council or county board of supervisors to
set up an "improvement area" and levy assessments on
businesses to pay for several types of physical improvements
or activities within the area. The Property and Business
Improvement District Law of 1994 allows property owners to
petition a city or county to set up an "improvement district"
and levy assessments on property owners to pay for promotional
activities and physical improvements. Local officials may
also use the 1994 Law to assess business owners.
The Multifamily Improvement District Law allows a city council
to set up an "improvement
district" and levy both property assessments and business
assessments to pay for several types of activities and
improvements in multifamily neighborhoods.
For property-based assessment districts, their notice,
protest, and hearing requirements for new, extended, or
increase assessments are governed by Proposition 218, which
involves mailed protest ballots to all assessed property
owners, a 45-day protest period, and a public hearing at which
protests are counted and the presence or absence of a majority
protest is determined. After complying with notice, protest,
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and hearing requirements, if a majority protest is not
received from property owners, the legislative body may adopt
a resolution to establish the assessment district and levy the
assessment.
For non-property based assessments, the provisions of
Proposition 218 do not apply. However, state law requires the
Ralph M. Brown Act to apply to assessment districts that are
not based on real property, such as certain business
improvement district assessments.
3)This bill places a prohibition on the ability of an
improvement district to contract for services relating to the
management or operation of an assessment district with any
individual, firm, corporation, partnership, limited liability
company, association or other organization, if that
organization was previously contracted with for services
related to the formation of the district. In particular, the
provisions of this bill apply specifically to districts formed
under the Landscaping and Lighting Act of 1972, the Property
and Business Improvement District Law of 1994, and the
Multifamily Improvement District Act. This bill is
author-sponsored.
4)According to the author "in the past, private for-profit
organizations have utilized assessment districts to their own
personal benefit. These entities construct and advertise
district proposals in a manner that makes them difficult to
understand but more likely to pass because of weighted votes
given to each property owner. In addition, the proposals for
the formation of the district have either identified the
company to be hired for management or have made eligibility
requirements for such an entity so narrow that it only applies
to a particular group, giving these private organizations a
financial interest in the passage of the district - this is a
major conflict of interest."
The author notes that this bill "removes the current conflict
of interest embedded in the process of formatting and
operating an assessment district and will provide good
government and protection for California taxpayers."
5)The author references an Attorney General opinion released in
2005 at the request of then Assembly Member Wilma Chan, who
posed the question "is a person who was hired by a city as a
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consultant in the process of forming a business improvement
district precluded from being hired after formation of the
district by a nonprofit corporation that is under contract
with the city to manage the district?"
That opinion concluded that "a person who was hired by a city
as a consultant in the process of forming a business
improvement district is not precluded from being hired after
the formation of the district by a nonprofit corporation that
is under contract with the city to manage the district.
The opinion looked specifically at the possible application of
Government Code section 1090 to the contract between the
owners' association and the former consultant. Section 1090
generally prohibits public officers and employees from
participating in the negotiation and execution of any contract
in which they have a financial interest. The purpose of the
prohibition is to ensure that public officials making
government contracts "not be distracted by personal financial
gain from exercising absolute loyalty and undivided allegiance
to the best interest of the entity which they serve."
The opinion found that Government Code section 1090 would
"have no application to the first contract between the city
and the consultant for his work during the district formation
period. While the consultant would have a financial interest
in this contract, he would not be participating in the making
of the contract in any official capacity; he would be
contracting only in his individual capacity."
6)The Committee may wish to consider the following questions:
a) Why does the bill only apply to three types of
assessment and improvement districts? There are several
other assessment districts contained in current law.
b) What if a community is more rural in nature and the only
consulting firm in that area also does formation and
management?
c) What if the consulting firm offers the best deal for the
city or taxpayers in terms of management costs? This bill
would then prohibit the city or local agency from using
that firm, thereby reducing local control.
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d) Are there other avenues that could be undertaken to
increase transparency and community involvement in the
formation of assessment districts, in order to curb the
situations referenced by the author?
e) How would the prohibitions contained in this bill impact
charter cities and the ability of charter cities to adopt
their own local assessment ordinances?
7)According to the California Business Properties Association,
in opposition, "this bill prevents
a current manager of non-profit revitalization organizations
and/or contracted employees of these districts from assisting
in the formation of the assessment district without losing
their jobs once the district is formed. It is short-sighted
and unnecessary?the state neither saves nor loses any money
and this bill solves no problems, it only creates them."
The League of California Cities, in opposition, writes that
this measure would "erode local authority to select
appropriate management for an assessment district by
prohibiting a contract with a person or entity which
previously assisted with the formation of the district. If
there is a need to form a district, it is natural that the
services of those people or entities most qualified and
knowledgeable in this arcane area of law would be sought to
assist with issues related to a district's formation. Once a
district is formed, it is in the interest of all parties -
including property owners - to obtain the best possible
management for the district. If it so happens that the person
or entity that assisted with the formation of the district
also has qualifications to manage the district, then Ýthe
League of California Cities] sees no reason that such a person
or entity should be disqualified from consideration."
8)Support arguments : The author writes that "this loophole in
California law has inadvertently opened the doors for private
companies to monopolize assessment districts. They are
motivated by a district's perpetuity rather than the actual
benefit the district will have on the community and on the
taxpayers."
Opposition arguments : The League of California Cities writes
that "with the loss of redevelopment, local agencies have few
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tools remaining to address local infrastructure and community
needs?it is not helpful to impose additional burdensome
requirements on local agencies that will make it more
difficult to use the few remaining tools Ýlocal agencies] have
left."
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Business Properties Association
California Downtown Association
California Main Street Alliance
League of California Cities
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958