BILL ANALYSIS Ó
AB 2265
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ASSEMBLY THIRD READING
AB 2265 (Roger Hernández)
As Introduced February 24, 2012
Majority vote
LOCAL GOVERNMENT 6-3
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|Ayes:|Alejo, Bradford, Campos, | | |
| |Davis, Gordon, Hueso | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Smyth, Knight, Norby | | |
| | | | |
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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 :
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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.
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 : 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,
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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 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.
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.
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For property-based assessment districts, their notice, protest,
and hearing requirements for new, extended, or increased
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, 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.
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.
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
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assessment district and will provide good government and
protection for California taxpayers."
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
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."
The Legislature may wish to consider the following questions:
1)Why does the bill only apply to three types of assessment and
improvement districts? There are several other assessment
districts contained in current law.
2)What if a community is more rural in nature and the only
consulting firm in that area also does formation and
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management?
3)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.
4)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?
5)How would the prohibitions contained in this bill impact
charter cities and the ability of charter cities to adopt
their own local assessment ordinances?
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."
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
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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
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."
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0003584