BILL ANALYSIS �
SB 436
Page 1
SENATE THIRD READING
SB 436 (Kehoe)
As Amended August 26, 2011
Majority vote
SENATE VOTE :39-0
LOCAL GOVERNMENT 7-0 NATURAL RESOURCES 7-0
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|Ayes:|Smyth, Alejo, Campos, |Ayes:|Chesbro, Knight, |
| |Gordon, Hueso, Knight, | |Brownley, Dickinson, |
| |Norby | |Grove, Huffman, Monning |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 11-1
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|Ayes:|Fuentes, Blumenfield, | | |
| |Bradford, Charles | | |
| |Calderon, Campos, Davis, | | |
| |Hall, Hill, Lara, | | |
| |Mitchell, Solorio | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Gatto | | |
| | | | |
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SUMMARY : Authorizes a state or local agency to allow a
qualified and approved nonprofit organization or special
district to hold property and long-term stewardship funds (i.e.,
accompanying funds) to mitigate adverse impacts to natural
resources caused by a permitted development project.
Specifically, this bill:
1)Transferring Mitigation Property.
a) Authorizes a state or local agency to allow a special
district or a nonprofit organization to hold title to and
manage mitigation property that is transferred by a project
proponent for the mitigation of adverse impacts on natural
resources caused by permitting the development of a project
or facility;
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b) Defines "special district" as any regional park
district, regional park and open-space district, regional
open-space district, the Santa Clara County Open-Space
Authority, or resource conservation district;
c) Requires a nonprofit organization, for the purpose of
holding title to and managing mitigation property, to meet
the following requirements:
i) The nonprofit organization shall be exempt from
taxation as an organization described in Section
501(c)(3) of the Internal Revenue Code;
ii) The nonprofit organization shall be qualified to do
business in the state;
iii) The nonprofit organization shall be a "qualified
organization" as defined in Section 170(h)(3) of the
Internal Revenue Code; and,
iv) The nonprofit organization shall have as its
principal purpose and activity the direct protection or
stewardship of land, water, or natural 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.
d) Authorizes the state or local agency to require the
special district or nonprofit organization to submit a
report not more than once every 12 months that details the
stewardship and condition of the property and accompanying
funds; and,
e) Requires that the recording instrument for the title of
the property include a provision that if the state or local
agency reasonably determines that the property is not being
held, monitored, or stewarded for conservation purposes,
the property shall revert to the state or local agency or a
qualified and approved special district or nonprofit
organization.
2)Transferring Accompanying Funds:
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a) Defines "accompanying funds" as the funds that may be
conveyed for the long-term stewardship of a property;
b) Authorizes a state or local agency that allows a special
district or nonprofit organization to hold and manage
mitigation property to also allow the same special district
or nonprofit organization to hold the property's
accompanying funds;
c) Requires the state or local agency to determine that the
holder of the 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;
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) If the holder is a nonprofit organization, it has an
investment policy that is consistent with the Uniform
Prudent Management of Institutional Funds Act.
d) 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 state or local agency if any
of the following occurs:
i) The special district or nonprofit ceases to exist;
ii) The special district or nonprofit is dissolved;
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iii) The special district or nonprofit becomes bankrupt
or insolvent; or,
iv) The state or 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.
e) Repeals, on January 1, 2022, the provisions regarding a
special district or nonprofit organization holding
accompanying funds.
3) Other Funds:
a) Authorizes a state or local agency that allows a special
district or nonprofit organization to hold and manage
mitigation property to require an administrative endowment
from the project proponent for reasonable costs associated
with reviewing qualifications, approving holders, and
regular oversight of compliance and performance.
b) Authorizes a state or local agency to require a project
proponent to provide a one-time payment that will provide
for the initial stewardship costs for up to three years
while the endowment begins to accumulate investment
earnings.
4)The Department and Accompanying Funds:
a) Requires, if the state agency is the Department of Fish
and Game (Department), the following conditions to apply:
i) A special district or nonprofit organization shall
not hold funds unless it is certified by the Department.
The Department shall adopt regulations for a process to
certify special districts or nonprofit organizations to
hold accompanying funds. The Department shall not
certify more than 10 special districts or nonprofit
organizations to hold accompanying funds;
ii) The Department may contract with the State
Controller, the Department of Finance, or a qualified,
independent third party to evaluate qualifications for
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holding accompanying funds and to provide regular
oversight of financial management of the accompanying
funds;
iii) A special district or nonprofit organization that
holds accompanying funds for the long-term stewardship of
land may be subject to oversight by any of the entities
listed in ii) above. The entity may annually review
independent audits or financial statements, tax filings,
or any other documents or reports determined necessary to
verify the sound financial management of funds held by
the special district or nonprofit organization; and,
iv) All reasonable costs incurred by the Department or
the entity referenced in ii) and iii) above shall be paid
by the administrative endowment.
b) Repeals, on January 1, 2022, the provisions that are
specific to the Department.
EXISTING LAW :
1)Allows a state or local public agency to authorize a nonprofit
organization to hold title to and manage an interest in real
property that was transferred by a project proponent to
mitigate adverse impacts upon natural resources caused by the
agency permitting the development of a project or facility.
The nonprofit organization, among other things, must have 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)Requires that if the state or local public 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
the recorded instrument or in the mitigation agreement between
the public agency and the nonprofit organization, the interest
in real property reverts to the public agency or another
approved nonprofit organization.
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3)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.
4)Establishes the Fish and Game Mitigation and Protection
Endowment Principal Account (Endowment Account) and Fish and
Game Mitigation and Protection Expendable Funds Account
(Expendable Funds Account) which consists of mitigation and
conservation funds received by the Department pursuant to: a)
agreements or permits pursuant to the Natural Communities
Conservation Planning Act; b) conservation bank agreements; c)
habitat conservation implementation agreements; d) incidental
take permits; e) legal or other written settlements; f)
mitigation agreements; g) streambed or lakebed alteration
agreements; and, h) trust agreements.
5)Places the Endowment Account and Expendable Funds Account in
the Special Deposit Fund within the Pooled Money Investment
Account but allows the Department to have the State
Treasurer's office transfer funds from the Pooled Money
Investment Account to another account within the State
Treasury system to increase earnings over time while providing
adequate liquidity.
FISCAL EFFECT : According to Assembly Appropriations Committee:
1)Potentially significant shift in the formal management and
disposition of potentially tens to hundreds of millions of
dollars from the state treasury to individual nonprofit
organizations and certain special districts, to the extent
that state agencies convey such funds in response to this
bill. This shift may increase the amount of money earned on
such funds; it also may expose the state to more risk of loss
of those funds.
2)One-time costs ranging from $150,000 to $200,000 during
2011-12 and 2012-13 to the Department of Fish and Game (DFG)
to develop regulations and standards. (Fish and Game
Preservation Fund.)
(DFG estimates startup costs to be $481,000 in the first 18
months following passage the bill. DFG, however, has been
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developing a pilot program for the management of mitigation
funds by nonprofits. The work DFG has already put in
developing the pilot program should limit the costs DFG
realizes to develop regulations and standards for this bill.)
3)One-time costs of an unknown amount, but likely ranging from
the tens of thousands to hundreds of thousands of dollars, in
2012-13 to DFG, and possibly other state agencies, to review
the qualifications of nonprofits and special districts
applying to hold and manage mitigation lands and related
funds. (Fish and Game Preservation Fund and other special
funds.)
(Actual costs will depend upon the number of entities applying
to DFG and other state agencies and the complexity of the
review required for each applicant. DFG estimates these costs
at $511,000 during the second year of the program. As is the
case with DFG's other startup costs, the costs of review
applicants should be limited by the work DFG has already
performed in development of its pilot project.)
4)Ongoing annual costs of an unknown amount, but likely in the
hundreds of thousands of dollars, beginning in 2012-13 to DFG,
and possibly other state agencies to review, process and, if
accepted, administer requests to hold and manage mitigation
lands and related funds. (Fish and Game Preservation Fund and
other special funds.)
5)Potential ongoing annual General Fund costs in the tens of
thousands of dollars to the State Controller and the
Department of Finance to oversee nonprofit organizations and
special districts that hold funds for the management of
mitigation lands. (General Fund.)
6)Potential revenue, in the form of one-time stewardship
payments and administrative endowments, of an unknown amount
but presumably sufficient to cover most of the ongoing costs
of DFG, other state agencies and local agencies.
COMMENTS : Under various laws, including the California
Environmental Quality Act and California Endangered Species Act,
a private party seeking a development permit may be required to
transfer an interest in real property, such as fee title or a
conservation easement, to a public agency to mitigate the
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development's adverse environmental impacts. A public agency in
the development of its own project may also be required to
protect lands to mitigate adverse environmental impacts.
Existing law allows a public agency to authorize a nonprofit
organization to hold title to and manage mitigation properties.
Existing law, however, is silent on whether a public agency may
authorize a nonprofit organization to hold and manage funds
dedicated to mitigation activities on mitigation land.
According to the author, there are many public agencies that
allow nonprofit organizations to hold funds for mitigation
lands. The Office of Legislative Counsel wrote an opinion in
2006 explaining that the Department is not prohibited from
authorizing a third party to hold and manage funds that are set
aside for the purpose of operating and managing mitigation
lands. This bill would expressly allow a public agency to
transfer funds to a nonprofit organization or special district
for the long-term stewardship of mitigation land. If funds are
transferred to a nonprofit organization or special district,
they shall revert back to the public agency or a qualified
organization if, among other things, the funds are not being
held, managed, invested, or disbursed for conservation purposes
in the manner specified in the applicable mitigation agreement.
Similar legislation was introduced in 2006 AB 2916 (Assembly
Water, Parks and Wildlife Committee), 2007 SB 1011
(Hollingsworth), and 2009 AB 444 (Caballero). AB 2916 and SB
1011 were both held on the Senate Appropriation Committee's
suspense file. AB 444 passed both houses with no "no" votes;
however it was vetoed by the Governor because he believed the
bill contained inadequate fiscal assurances.
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092
FN: 0002307