BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 555|
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THIRD READING
Bill No: SB 555
Author: Hancock (D)
Amended: 4/26/11
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 5/4/11
AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
NOES: Huff, Fuller, La Malfa
SUBJECT : Local government: community facilities
districts
SOURCE : Author
DIGEST : This bill authorizes Mello-Roos community
facilities districts (CFDs) to finance renewable energy,
energy efficiency, and water efficiency improvements on
private property.
ANALYSIS : The Mello-Roos Community Facilities Act allows
counties, cities, special districts, and school districts
to levy special taxes (parcel taxes) to finance a wide
variety of public works, including parks, recreation
centers, schools, libraries, child care facilities, and
utility infrastructure. A Mello-Roos CFD issues bonds
against these special taxes to finance the public works
projects. Like all special taxes, Mello-Roos Act special
taxes require two-thirds voter approval. If there are
fewer than 12 registered voters, the affected landowners
vote.
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In addition to financing public or governmental capital
facilities, Mello-Roos Act special taxes can fund a limited
list of public services: police services, fire protection,
recreation programs, library services, museum operations,
park maintenance, flood protection, hazardous waste
cleanup, street and road maintenance, lighting of parks,
parkways, streets, roads, and open space, plowing and
removal of snow, and graffiti management and removal.
Property assessed clean energy (PACE) financing programs
offer government loans to private property owners to cover
the initial costs of renewable energy, energy efficiency,
and water efficiency improvements. Property owners repay
the loans through voluntary annual assessments, which are
secured by priority liens, on their property tax bills.
With the free and willing consent of affected property
owners, state law lets public agencies use voluntary
contractual assessments to finance:
Renewable energy sources or energy efficiency
improvements that are permanently fixed to real property
(AB 811 �Levine], Chapter 159, Statutes of 2008).
Water efficiency improvements that are permanently
fixed to real property (AB 474 �Blumenfield], Chapter
444, Statutes of 2009).
Electric vehicle charging infrastructure (SB 1340
�Kehoe], Chapter 649, Statutes of 2010).
Local officials want to be able to use Mello-Roos taxes to
help finance renewable energy, energy efficiency, and water
efficiency improvements on private property. To simplify
the process by which property owners can voluntarily use
Mello-Roos financing, local officials want to be able to
create CFDs that initially contain no parcels of land, but
consist only of territory from which parcels may
subsequently be annexed to the CFD with the unanimous
approval of parcel owners.
Specifics of SB 555
I. Facilities . In addition to financing public works such
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as park, school, and library facilities, CFDs can pay
for the following improvements on privately owned
buildings or real property:
Work deemed necessary to bring buildings or real
property into compliance with seismic safety
standards and regulations.
The repair and abatement of damage to buildings
caused by soil deterioration.
The removal or remediation of any hazardous
substance on real or other tangible property.
This bill adds the acquisition, installation, and
improvement of energy efficiency, water conservation,
and renewable energy improvements to the types of
facilities that a CFD may finance, or refinance,
regardless of whether the buildings or property are
privately or publicly owned. this bill requires that
energy efficiency, water conservation, and renewable
energy improvements financed by a CFD must be affixed,
as specified in statute, to or on real property.
This bill requires that energy efficiency, water
conservation, and renewable energy improvements financed
by a district must be installed on a privately owned
building and on privately owned real property only with
the prior written consent of the owner or owners of the
building or real property.
This bill prohibits a CFD from financing energy
efficiency, water conservation, and renewable energy
improvements on a privately owned building or on
privately owned real property in connection with the
initial construction of a residential building unless
the initial construction is undertaken by the intended
owner or occupant.
CFDs can use tax revenues to make lease or debt-service
payments on any lease, lease-purchase contract, or
certificate of participation used to finance authorized
district facilities. This bill authorizes the use of
tax revenues to make lease or debt-service payments on
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any lease, lease-purchase contract, or certificate of
participation used to finance "facilities authorized to
be financed by the district."
This bill declares that any improvement on private
property authorized to be financed by a CFD constitutes
a "public facility" for purposes of the Mello-Roos Act,
and a "public improvement" for purposes of specified
statutes, whether the improvement is owned by a private
entity, if the legislative body has determined that the
improvement provides a public benefit, or the
improvement is owned by a public agency.
II. CFD formation and annexation . To initiate the formation
of a CFD, a local agency's legislative body must adopt a
resolution of intention to establish the district, which
must:
Describe the district's boundaries.
Describe the facilities and services proposed to
be financed.
State that a special tax, secured by a lien
against real property, will be annually levied.
Specify, in detail, the rate, method of
apportionment, and manner of collection of the
special tax.
Fix a time and place for a public hearing.
After holding the hearing and considering protests, if
the legislative body determines to establish the CFD, it
must adopt a resolution of formation containing all of
the information provided in the resolution of intention
and, if a special tax is to be levied, some additional
information about the tax levy.
This bill authorizes an alternate procedure for forming
a CFD that initially consists solely of territory
proposed for annexation to the CFD in the future, with
the condition that a parcel or parcels within that
territory may be annexed to the CFD and subjected to the
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special tax only with the unanimous approval of the
parcel owner or owners at the time of annexation.
Under this alternate CFD formation procedure, the
resolution of intention or the resolution of formation
need not specify the rate or rates of special tax,
provided that:
The resolution of intention and the resolution of
formation include a statement that the rate must be
established in an amount required to finance or
refinance the authorized improvements and to pay the
district's administrative expenses.
The maximum rate of special tax applicable to a
parcel or parcels must be specified in the unanimous
approval provided by parcel owners when they annex to
the CFD.
A majority protest to a proposed CFD halts formation
proceedings for one year from the date of the protest
decision. A majority protest occurs if 50% or more of
the registered voters, or six registered voters,
whichever is more, residing within the territory
proposed to be included in the district, or if the
owners of one-half or more of the area of the land in
the territory proposed to be included in the district
and not exempt from the special tax, file written
protests against the establishment of the district.
This bill provides that this definition of majority
protest does not apply to the alternate CFD formation
process. Instead, under the alternate CFD formation
process, a majority protest occurs if 50 percent or more
of the registered voters, or six registered voters,
whichever is more, residing within the territory
proposed to be annexed to the CFD in the future, or the
owners of one-half or more of the area of the land
proposed to be annexed in the future and not exempt from
the special tax, file written protests against the
establishment of the district.
After the adoption of the resolution of formation,
voters must approve the special tax levy, authorize
indebtedness, and establish the CFD's appropriations
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limit. Under the alternate procedure established by
this bill, the appropriations limit for the CFD, the
applicable rate of the special tax and the method of
apportionment and manner of collection of that tax, and
the authorization to incur bonded indebtedness must be
specified and be approved by the unanimous approval of
the owner or owners of each parcel or parcels at the
time that the parcel or parcels annex the CFD. This
bill states that no additional hearings or procedures
are required, and the unanimous approval shall be deemed
to constitute a unanimous vote in favor of the
appropriations limit for the CFD, the authorization to
levy the special tax on the parcel or parcels, and the
authorization to incur bonded indebtedness.
This bill allows a local agency to designate a parcel or
parcels annexed to a CFD under the alternate process as
an improvement area within the district. After the
designation of an improvement area, all proceedings for
approval of the appropriations limit, the rate and
method of apportionment and manner of collection of
special tax and the authorization to incur bonded
indebtedness for the designated parcel or parcels apply
only to the improvement area.
This bill prohibits a local legislative body from
recording a notice of tax lien against any parcel or
parcels within a CFD formed using the alternative
process until the parcel owner or owners have given
unanimous approval of the parcel or parcels' annexation
to the CFD, at which time the special tax lien shall be
recorded.
This bill states that, for CFDs created to finance
energy efficiency and renewable energy improvements, the
refusal of a person to undertake acts, including:
the formation of, or annexation to, a community
facilities district,
voting to levy a special tax, or
authorizing another to vote to levy a special
tax.
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shall not be a factor when considering the approval of
specified legislative or adjudicative acts, or both.
III. Special taxes . A resolution of intention to form a CFD
must specify the rate, method of apportionment, and
manner of collection of the special tax that is to be
levied in sufficient detail to allow each landowner or
resident within the proposed district to estimate the
maximum amount that he or she will have to pay. After a
CFD has been created and authorized to levy special
taxes, the legislative body may approve an ordinance to
levy the special taxes at the rate, and in the manner,
described in the resolution of intention.
Under the alternate CFD formation process authorized by
this bill, a legislative body adopts an ordinance
providing for the levy of the special taxes on parcels
that will annex to the CFD at the rate or rates to be
approved unanimously by the parcel owner or owners. The
ordinance providing for the levy of special taxes must
also provide for the apportionment and collection of
special taxes in the manner specified in the resolution
of formation. This bill specifies that no further
ordinance shall be required even though no parcels may
have annexed to the CFD.
A lawsuit to test the validity of a CFD's special taxes
must be filed within 30 days after voters approve the
special tax. This bill requires a validation lawsuit
regarding the special taxes levied against a parcel by a
CFD formed under the alternative process to be filed
within 15 days after the notice of special tax lien is
recorded against the parcel. This bill also authorizes
the local agency to file a validation lawsuit to
determine the validity of any CFD special taxes created
through the alternative CFD formation process.
IV. Bonds . For a CFD to issue bonds, the local legislative
body must adopt a resolution proposing to incur bonded
indebtedness, hold a hearing on the proposed debt
authorization, and submit the proposition to voters. A
two-thirds vote is required to approve the issuance of
bonds by a CFD.
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Under the alternative CFD formation process authorized
by this bill, the parcel owners approve the proposition
to authorize bonded indebtedness when their parcels
annex to the CFD. This bill provides that no additional
hearings or procedures are needed, and unanimous
approval constitutes a unanimous vote in favor of the
proposition to authorize bonded indebtedness.
A lawsuit to test the validity of a CFD's bonds must be
filed within 30 days after voters approve the bonds.
This bill requires that a validation lawsuit over bonds
issued by a CFD formed under the alternative process
must be filed within 30 days after the effective date of
the local legislative body's resolution to approve
bonded indebtedness. This bill also authorizes the
local agency to file a lawsuit to determine the validity
of any CFD bonds.
V. Other provisions . The California Constitution requires
that appropriations limits, special taxes, and some
local governments' bonded indebtedness must be approved
by a vote of qualified electors. This bill declares
that property owners' unanimous approval of special
taxes, bonded indebtedness, an appropriations limit, and
annexation to a CFD under the alternate CFD formation
process constitutes the vote of the qualified elector in
favor for purposes of the California Constitution. This
bill also contains legislative findings and a
declaration that a public purpose will be served by
allowing local governments to use Mello-Roos special
taxes to finance the installation of renewable energy,
energy efficiency, and water efficiency improvements to
residential, commercial, industrial, or other property.
The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) must create
a Property Assessed Clean Energy (PACE) bond reserve
program to assist local jurisdictions in financing the
installation of distributed generation of renewable
energy sources or energy or water efficiency
improvements (SB 77 �Pavley], Chapter 15, Statutes of
2010). This bill adds CFD bonds authorized through the
bill's alternate CFD formation and annexation process to
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the definition of PACE bonds that are eligible for
CAEATFA's bond reserve program.
Comments
In response to rising energy costs and concerns about
climate change, local governments want to promote energy
efficiency and renewable energy generation. The initial
installation costs can deter property owners from
installing solar panels, or making energy efficiency
improvements. Using Mello-Roos taxes, counties and cities
can help to finance these investments at low interest
rates. Property owners who voluntarily agree to pay
Mello-Ross special taxes to finance energy improvements
will realize immediate savings on their utility bills while
paying off their costs over time on their property tax
bills.
Prior Legislation . This bill is similar to SB 279
(Hancock, 2009), which Governor Schwarzenegger vetoed,
citing his concerns about the use of Mello-Roos taxes to
finance energy efficiency improvements.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/5/11)
American Federation of State, County and Municipal
Employees
California Association of Realtors
East Bay Municipal Utility District
United States Green Building Council
AGB:mw 5/5/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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