BILL ANALYSIS �
SB 436
Page 1
Date of Hearing: June 29, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 436 (Kehoe) - As Amended: June 22, 2011
SENATE VOTE : 39-0
SUBJECT : Land use: mitigation lands: nonprofit organizations.
SUMMARY : Authorizes state and local agencies to transfer any
funds set aside for long-term management of land acquired as
environmental mitigation related to a development project, if
the interest in the land is transferred to a qualified nonprofit
organization, and also authorizes qualified special districts to
hold mitigation lands, if specified circumstances are met.
Specifically, this bill :
1)Allows a state or local agency to authorize a special district
to hold title to and manage a property, if a state or local
agency requires a project proponent to transfer property to
mitigate any adverse impact upon natural resources caused by
permitting the development of a project or facility.
2)Requires a state or local agency to exercise due diligence in
reviewing the qualifications of a special district to
effectively manage and steward land, water or natural
resources, as well as the accompanying funds and allows the
state or local agency to adopt guidelines to assist it in that
review process.
3)Requires the recorded instrument that places the title of the
property with a special district to include a provision that
if the state or local agency, or its successor agency,
reasonably determines that the property is not being held,
monitored, or stewarded for conservation purposes in the
manner specified in the mitigation agreement, the property
shall revert to the state or local agency, or to another
qualified public agency, special district, or nonprofit
organization and approved by that local or state agency.
4)Provides, for those nonprofit organizations that are already
authorized under current law to hold title to and manage an
interest in real property for mitigation purposes, and for
special districts authorized to hold title and manage a
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property pursuant to the bill's provisions, that the following
apply:
a) Allows, if the local or state agency authorizes a
special district or nonprofit organization to hold the
property, the state or local agency to permit the
accompanying funds to be held by the same special district
or nonprofit organization that holds the property.
b) Prohibits, except the special district or nonprofit
organization that is holding the property, any other
special district, nonprofit organization or entity from
holding the accompanying funds if the property is held by a
special district or nonprofit organization.
c) Requires the special district or nonprofit organization
to hold, manage, invest, and disburse the funds in
furtherance of the long-term stewardship of the property
for which the funds were set aside.
d) Requires the state or local agency to determine that the
holder of accompanying funds meets all of the following
requirements:
i) The holder has the capacity to effectively manage
the mitigation funds;
ii) The holder has the capacity to achieve reasonable
rates of return on the investment of those funds similar
to those of other prudent investors over the life of the
agreement;
iii) The holder utilizes generally accepted accounting
practices as promulgated by the Financial Accounting
Standards Board for nonprofit organizations or the
Governmental Accounting Standards Board for public
agencies;
iv) The holder will be able to ensure that funds are
accounted for, and tied to, a specific property; and,
v) The holder has an investment policy that is
consistent with the Uniform Prudent Management of
Institutional Funds Act.
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e) Requires the mitigation agreement that authorizes the
funds to be conveyed to a special district or nonprofit
organization to include a provision that requires the
accompanying funds held by a special district or nonprofit
organization to revert to the local agency, or to a
successor organization identified by the agency and subject
to the same requirements as above in d), if any of the
following occurs:
i) The special district or nonprofit ceases to exist;
ii) The special district or nonprofit is dissolved;
iii) The special district or nonprofit becomes bankrupt
or insolvent; or,
iv) The local agency determines that the accompanying
funds are not being held, managed, invested, or disbursed
for conservation purposes in the manner specified in the
mitigation agreement.
f) Allows, if the local agency holds the accompanying
funds, the local agency to hold, manage, and invest the
accompanying funds and requires the local agency to
disburse funds in a timely basis for the stewardship
expenses of the special district or nonprofit organization
holding the property.
g) Allows the state or local agency to contract with or
designate an independent third party to do any of the
following:
i) Review the qualifications of a special district or
nonprofit to effectively manage and steward natural land
or resources;
ii) Review the qualifications of a special district or
nonprofit organization to hold and manage the
accompanying funds; and,
iii) Review reports or other performance indicators to
evaluate the stewardship of lands, resources, or funds,
and compliance with the mitigation agreement.
h) Allows, if a state or local agency authorizes a special
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district or nonprofit to hold the property, the state or
local agency to require an administrative endowment from
the project proponent for costs associated with reviewing
qualifications, approving holders, and regular oversight of
compliance and performance, and provides that the
administrative endowment must be held, managed, and
invested to provide an annual revue sufficient to cover the
costs of reviewing qualifications, approving holders, and
ongoing oversight.
i) Allows the state or local agency to require a project
proponent to provide a one-time payment that will provide
for the initial stewardship costs for not more than five
years while the endowment begins to accumulate investment
earnings.
j) Sunsets the provisions in 4) above that allow a local
or state agency to permit the accompanying funds to be held
by a special district or nonprofit on January 1, 2022,
unless a later enacted statute deletes or extends that
date.
5)Requires, if the Department of Fish and Game (DFG) is the
state agency, the following conditions to apply to the
holding, managing, investment, expenditure, disbursement, and
oversight of the accompanying funds:
a) A special district or nonprofit organization shall not
hold funds unless it is certified by DFG. DFG shall adopt
regulations for a process to certify special districts or
nonprofit organizations to hold accompanying funds, and
provides that DFG shall not certify more than 10 special
districts or nonprofits to hold accompanying funds;
b) DFG may contract with the Controller to provide fiscal
expertise for the evaluation of a special district or
nonprofit organization to hold accompanying funds;
c) A special district or nonprofit organization that holds
accompanying funds for the long-term stewardship of land
may be subject to oversight by the Controller, who may
annually review independent audit or financial statements,
tax filings, or any other documents or reports the
Controller determines are necessary to verify the sound
financial management of funds;
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d) All costs incurred by DFG or the Controller shall be
paid by the administrative endowment;
e) If the state agency holds the accompanying funds, the
state agency may hold, manage, and invest the accompanying
funds and requires the state agency to disburse funds in a
timely basis for the stewardship expenses of the special
district or nonprofit organization; and,
f) A sunset of January 1, 2022, unless a later enacted
statute deletes or extends that date.
6)States that the section of the bill's provisions relating to
state agencies shall not apply retroactively to endowment
funds held by the state in the Pooled Money Investment Account
as of January 1, 2012.
7)Provides that nonprofits organizations authorized under
current law to hold property must be qualified to do business
in the state.
8)Allows, if a state or local agency, in the development of its
own project, is required to protect property to mitigate an
adverse impact upon natural resources, the agency to provide
funds to a nonprofit or special district to acquire land or
easements that satisfy the agency's mitigation obligations.
9)Allows the state or local agency to require the special
district or nonprofit to submit a report not more than once
every 12 months that details the stewardship and condition of
the property and the accompanying funds for the number of
years specified in the mitigation agreement.
10)Requires any local or state agency that requires property to
be protected pursuant to provisions of the bill to identify
how the funding needs of the long-term stewardship of the
property will be met.
11)Provides, if funds are set aside at the time the property is
protected, that all of the following apply:
a) The accompanying funds shall be held, managed, invested,
and disbursed solely for the long-term stewardship of the
specific property for which the funds were set aside;
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b) The accompanying funds shall be calculated to include a
principle amount that, when managed and invested, will
produce revenues that are reasonably sufficient to cover
the annual stewardship costs of the property in perpetuity;
c) The principle amount shall be defined and managed as
permanently restricted funds;
d) Any one-time administrative endowment payment, and
earning from the principle, shall be managed as temporarily
restricted funds; and,
e) The accompanying funds shall be held, managed, invested,
and disbursed consistent with the Uniform Prudent
Management of Institutional funds Act.
12)States that a property that has been previously protected for
conservation purposes, including the placement of a
conservation easement on the property, may not be used for
mitigation purposes.
13)Specifies that any conservation easement that is used to
satisfy a local or state mitigation requirement shall be
permanent in duration.
14)Provides that if a property conserved pursuant to the bill's
provisions is condemned, any funds received for the
condemnation of the property shall be used for the purchase of
a replacement property with similar natural resource
characteristics or as near as reasonably feasible, and
provides that any accompanying funds held for the condemned
property shall be held for the long-term stewardship of the
replacement property.
15)Re-enacts specified provisions related to the authorization
by state and local agencies of special districts and
nonprofits to hold mitigation properties as of January 1,
2022.
16)Defines "accompanying funds" to mean the funds for the
long-term stewardship of lands that may be conveyed for the
long-term stewardship of a property.
17)Defines "conservation easement" to mean a conservation
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easement created pursuant to Chapter 4 (Section 815) of the
Civil Code.
18)Defines "direct protection" to mean the permanent protection,
conservation, and preservation of lands, waters, or natural
resources, including, but not limited to, agricultural lands,
wildlife habitat, wetlands, endangered special habitat,
open-space areas, or outdoor recreational areas.
19)Defines "exclusive department-named entity" to mean any
entity chosen by DFG in a manner that excludes other entities
from the same activity or activities.
20)Defines "mitigation agreement" to mean a written agreement
between a public agency, the project proponent, and the
special district, nonprofit organization, or other entity that
holds the property, and provides that a mitigation agreement
shall govern the long-term stewardship of a property and
accompanying funds, and shall specify any reporting
requirements or elements, including due dates or reports.
21)Defines "project proponent" to mean any individual, business
entity, agency, or other entity that is developing a project
or facility and is required to mitigate an adverse impact upon
natural resources.
22)Defines "property" to mean fee title land or any partial
interest in real property, including a conservation easement.
23)Defines "special district" to mean any special district
formed as a regional park district, regional park and
open-space district, or open-space district, or as an
open-space authority.
24)Defines "stewardship" do encompass the range of activities
involved in controlling, resource and compliance monitoring,
and managing for conservation purposes a property, or a
conservation or open-space easement, as defined by the terms
of the easement, and its attendant resources.
25)Makes findings and declarations.
EXISTING LAW :
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1)Allows, if a state or local public agency requires a property
owner to transfer to the agency an interest in real property
to mitigate any adverse impact upon natural resources caused
by permitting the development of a project or facility, the
state or local public agency to authorize a nonprofit
organization to hold title to and manage that interest in real
property, provided that the nonprofit organization is all of
the following:
a) Exempt from taxation as an organization described in
Section 501(c) (3) of the Internal Revenue Code, and
qualified to do business in the state;
b) A "qualified organization" as defined in Section 170(h)
(3) of the Internal Revenue Code; and,
c) An organization that has as its principal purpose and
activity the direct protection or stewardship of natural
land or resources, or cultural or historic resources,
including, but not limited to, agricultural lands, wildlife
habitat, wetlands, endangered species habitat, open-space
areas, and outdoor recreational areas.
2)Allows, if a state or local public agency, in the development
of its own project, is required to transfer an interest in
real property to mitigate an adverse impact upon natural
resources, the agency to transfer the interest to a nonprofit
organization that meets specified requirements.
3)Requires the recorded instrument that places title with a
nonprofit organization to include, at a minimum, a provision
that if the state or local public agency that authorized the
nonprofit organization to hold the title, or its successor
agency, determines that the interest in real property that is
held by the nonprofit organization is not being held,
monitored, or managed for conservation purposes in the manner
specified in that instrument or in the mitigation agreement
between the state or local public agency and the nonprofit
organization, the interest in real property shall revert to
the state or that local public agency, or to another public
agency or nonprofit organization, approved by the state or
local public agency.
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4)Requires a state or local public agency to exercise due
diligence in reviewing the qualifications of a nonprofit
organization to effectively manage and steward natural land or
resources. The state or local public agency may adopt
guidelines to assist the agency in that review process.
5)Defines "direct protection" to mean the protection and
preservation of natural lands or resources, including, but not
limited to, agricultural lands, wildlife habitat, wetlands,
endangered species habitat, open-space areas, or outdoor
recreational areas.
6)Defines "stewardship" to encompass the range of activities
involved in controlling, monitoring, and managing for
conservation purposes a property, or a conservation or
open-space easement, as defined by the terms of the easement,
and its attendant resources.
7)Requires funds received by DFG for management of mitigation
lands to be deposited in the Fish and Game Mitigation and
Protection Endowment Account or the Fish and Game Mitigation
Expendable Funds Account, which are held in the State Special
Deposit Fund, and requires interest generated on endowment
funds deposited in the former account to be made available to
DFG, upon appropriation by the Legislature, to fund long-term
management of habitat lands.
FISCAL EFFECT : According to the Senate Appropriations
Committee, there are unknown, potentially significant future
shifts of funds from the state to nonprofit organizations,
estimated costs to DFG of approximately $150,000 in 2011-12, and
costs to the State Controller's Office that are covered by
nonprofits.
COMMENTS :
1)Under current law, lands that are required to be set aside as
mitigation can be transferred to a nonprofit organization for
management. This policy came about as a result of AB 2746
(Blakeslee), Chapter 577, Statutes of 2006. However, the law
lacks clarity as to whether the endowment funds for that
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long-term management can also be conveyed to the nonprofit.
While it has been common practice in the past for many public
agencies to allow the nonprofit to manage the funds, there is
no existing statute providing explicit affirmation of this
practice. Additionally, land managers have experienced delays
in reimbursement payments of up to six months to a year in
some cases. This bill has been introduced to help clarify
existing law which is silent on whether endowment funds can be
transferred.
2)The Assembly Water, Parks and Wildlife Committee asked for a
written opinion on this topic in 2006. Legislative Counsel
opined that existing law already allows the state to authorize
nonprofit organizations to hold and manage funds set aside for
the purpose of long-term management of mitigation lands.
Legislative Counsel opined that existing law already allows a
state agency, including DFG, to enter into an agreement
authorizing a nonprofit organization to hold and manage
mitigation funds sets aside for the long-term management of
the property. The lack of express authorization in the
statute and the lack of clarity in existing codes has led to
the reluctance on the part of some state agencies, most
notably DGF, to allow third parties to hold and manage
mitigation funds.
3)In 2006, the Assembly Water, Parks and Wildlife Committee
sponsored a similar bill,
AB 2916, that would have authorized DFG to enter into agreements
with eligible nonprofit organizations to hold and manage
endowment accounts, subject to specified standards and
conditions, including annual audit and reporting requirements.
AB 2916 passed the Assembly on a vote of 79-0, but was
ultimately held in the Senate Appropriations Committee.
In 2007, SB 1011 (Hollingsworth) similarly proposed to allow
DFG to authorize a local public entity or a nonprofit to hold
and manage mitigation endowment funds, subject to specified
conditions. SB 1011 was held in the Senate Appropriations
Committee. AB 2746 (Blakeslee), Chapter 577, Statues of 2006,
and AB 1246 (Blakeslee), Chapter 330, Statutes of 2007,
clarified the authority of state and local agencies to allow
nonprofit land trusts to accept and hold mitigation lands.
Both of these bills were enacted with unanimous bipartisan
support.
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4)Another bill with similar intent, AB 444 (Caballero, 2009),
was vetoed by Governor Schwarzenegger. The Governor's veto
message states:
"Although I am in support of this bill's efforts to allow
non-governmental entities to manage funds set aside for the
long-term management of lands and easements, authorizing them
to hold funds without adequate fiscal assurances, as this bill
would provide, is unacceptable.
"I am directing the Department of Fish and Game to work with
the author and interested parties toward developing an
alternative that provides sufficient protections for the
financial and environmental resources subject to third-party
agreements."
5)Since AB 444 was vetoed, DFG has proposed the implementation
of a pilot project that would give applicants two options for
the management of endowment funds required under a California
Endangered Species Act (CESA) incidental take permit. The two
options recommended by DGF would be to either: a) have the
funds held in the State Deposit Fund; or, b) have the funds
held and managed by a single third party endowment manager as
an alternative to the State Deposit Fund. The single third
party endowment manager proposed by DGF to manage CESA
endowment funds is the National Fish and Wildlife Foundation.
6)This bill, sponsored by the California Council of Land Trusts,
offers a comprehensive re-write of existing law as well as a
more in-depth set of statutes that would clarify who can hold
mitigation lands, the requirements necessary to hold lands,
and how the endowment funds related to the mitigation lands
can be transferred. The bill additionally expands current law
to allow specified special districts to hold mitigation lands
and requires DFG, as the state agency, to adopt regulations
for a process to certify special districts or nonprofits to
hold endowment funds and allows DFG to contract with the
Controller to provide fiscal expertise for the evaluation of
special districts and nonprofit organizations.
Provisions in the bill authorizing nonprofits and special
districts to hold endowment funds and provisions related to
DGF's certification process are set to expire January 1, 2022.
The bill then re-enacts provisions that would become
operative beyond January 1, 2022.
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7)A similar bill, AB 484 (Alejo), passed this Committee in April
2011 and has been referred to the Senate Natural Resources and
Water Committee. The Committee may wish to ask the author and
sponsor how these two bills will mesh together.
8)Support arguments: Supporters argue that this bill is needed
to clarify existing law with respect who can hold endowment
funds, and makes other improvements to laws relating to
mitigation in California.
Opposition arguments: While there is no registered opposition
to the bill, it may be prudent to ask interested parties and
stakeholders to work with DFG on implementation of the pilot
project as another way to accomplish the goals of the bill.
9)This bill is double-referred to the Natural Resources
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support Opposition
California Council of Land Trusts (CCLT) None on file
Amargosa Conservancy
American Land Conservancy
American River Conservancy
Bay Area Open Space Council
Bay Area Ridge Trail Council
Big Sur Land Trust
CALAFCO
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Catalina Island Conservancy
Center for Natural Lands Management
East Austin Creek Conservation Bank
Eastern Sierra Land Trust
Elkhorn Slough Foundation
Lake County Land Trust
Land Conservancy of San Luis Obispo
Land Trust for Santa Barbara County
Land Trust of Santa Cruz County
Marin Agricultural Land Trust
Mendocino Land Trust
Monterey County Board of Supervisors
Muzzy Ranch Conservation Company
Pacific Forest Trust
Palos Verdes Peninsula Land Conservancy
Placer Land Trust
Redlands Conservancy
Redwood Coast Land Conservancy
Sacramento Valley Conservancy
Sanctuary Forest
San Joaquin River Parkway and Conservation Trust
Save Mount Diablo
Sequoia Riverlands Trust
Sierra-Cascade Land Trust Council
Solano Land Trust
Southern California Open Space Council
The Nature Conservancy
T.J. Nelson & Associations, Inc.
Transition Habitat Conservancy
Transportation Agency for Monterey County
Tri-Valley Conservancy
Trust for Public Land
Wildlife Heritage Foundation
Individual letter (1)
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958