BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          SB 1094 (Kehoe) - Land use: mitigation lands: nonprofit 
          organizations.
          
          Amended: May 15, 2012           Policy Vote: NR&W 8-0, Gov&F 8-0
          Urgency: Yes                    Mandate: No
          Hearing Date: May 21, 2012      Consultant: Marie Liu
          
          This bill meets the criteria for referral to the Suspense File.
          
          
          Bill Summary: SB 1094 would allow certain community foundations 
          and congressionally chartered foundations to hold endowment 
          accounts for mitigation lands. This bill would also expand and 
          modify conditions which all endowment holders must abide.

          Fiscal Impact: Likely ongoing costs of $200,000 to $300,000 from 
          the Fish and Game Preservation Fund (special fund) beginning in 
          2012-13 for the oversight and tracking of endowments.

          Background: When state or local agencies approve land use 
          projects, they can require the project applicant to transfer 
          interest in real property to the agency in order to mitigate the 
          impact that the development will have on natural resources. 
          Under Section 65965 of the Government Code, a state or local 
          agency may authorize a nonprofit organization to hold title and 
          to manage the mitigation lands. 

          The project applicant may also be required by the local and 
          state agency to provide funds to finance the management of 
          mitigation lands in perpetuity, also known as an endowment. Last 
          year, the passage of SB 436 (Kehoe) Chapter 590/2011 gave 
          explicit authority to state or local agencies to allow a 
          nonprofit or special district, which is holding and managing the 
          mitigation lands, to also hold the endowment account, subject to 
          certain conditions. SB 436 allowed for limited exceptions where 
          an endowment can be held by an entity other than the entity that 
          is holding and managing the land. The state or local agency is 
          required to exercise due diligence in reviewing the 
          qualifications of the entity managing the land and the 
          accompanying funds. The entity is required to meet certain 
          standards, including accounting standards, and specified 
          reporting requirements.








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          Proposed Law: This bill would expand the situations where an 
          endowment can be held by an entity other than the one who is 
          holding and managing the mitigation land. The most notable 
          expansion is to allow certain community foundations and 
          congressionally chartered foundations to hold endowments. This 
          bill would also: 
               Allow a governmental entity to manage mitigation lands and 
              the associated endowment.
               Expand the definition of special district.
               Require any entity holding endowment accounts to provide 
              an annual fiscal report to the local or state agency that 
              required the endowment that contains specified information.
               Delete the requirement that local and state agencies must 
              exercise due diligence in reviewing the qualifications of an 
              entity holding an endowment account.
               Define endowments as charitable assets that are 
              permanently restricted funds.

          Staff Comments: This bill is an expansion of the authority 
          granted in SB 436 for non-state and local agencies to hold 
          endowment accounts and a clean-up measure. 

          The Department of Fish and Game (DFG), who is the state agency 
          most frequently involved in requiring mitigation and associated 
          endowments, believed that the requirement in SB 436 for state 
          and local agencies to exercise due diligence in reviewing the 
          qualifications of an entity holding an endowment account would 
          cost DFG approximately $500,000. By removing this requirement, 
          this bill would result in a savings to DFG. The author and 
          sponsors feel that the numerous requirements on entities holding 
          endowments reduce the need for review by local and state 
          agencies. Staff notes that DFG (as well as any other state or 
          local agency requiring the mitigation) can assess a project 
          proponent a one-time fee to recover costs associated with 
          reviewing qualifications holders of the property. Staff believes 
          that this fee could be expanded to included review of holders of 
          the endowment in order to achieve the same cost savings without 
          removing a local or state agency's responsibility to exercise 
          due diligence in reviewing the endowment holder. 

          As this bill would expand the number of entities that can hold 
          endowment accounts, DFG will also have to expand its review and 
          oversight, including review of annual fiscal reports. DFG does 








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          not have a fiscal estimate for such expanded activities, but 
          staff estimates that these costs are likely to be between 
          $200,000 and $300,000.