California Legislature—2013–14 Regular Session

Assembly Bill No. 1799

Introduced by Assembly Member Gordon

(Coauthors: Assembly Members Alejo, Campos, and Wieckowski)

(Coauthors: Senators Beall and Correa)

February 18, 2014

An act to amend Sections 65965 and 65966 of the Government Code, relating to land use.

LEGISLATIVE COUNSEL’S DIGEST

AB 1799, as introduced, Gordon. Land use: mitigation lands.

The Planning and Zoning Law provides that if a state or local agency requires a person to transfer to that agency an interest in real property to mitigate the environmental impact of a project or facility, that agency may authorize specified entities to hold title to, and manage that interest in, real property, as well as any accompanying funds, provided those entities meet specified requirements. Existing law requires that if accompanying funds, as defined, are conveyed at the time the property is protected, then the holder of those accompanying funds must meet specified requirements and requires a state or local agency to exercise due diligence in reviewing the qualifications of a special district or nonprofit organization to effectively manage and steward land, water, or natural resources, as well as the accompanying funds. Existing law requires a conservation easement created as a component of satisfying a local or state mitigation requirement to be perpetual in duration, and sets forth the requirements for long-term stewardship of property by various entities, including, among others, local governmental entities and nonprofit organizations.

This bill would eliminate the requirement of an endowment or other financial mechanism for long-term stewardship where a governmental entity or special district is the entity required to provide the long-term stewardship, if the governmental entity or special district provides evidence to the local or state agency that it possesses an investment-grade credit rating by a nationally recognized statistical rating organization, and provides either a resolution adopted by the legislative body of the governmental entity or special district or a contractual agreement with the local or state agency enforcing the mitigation requirements, as specified.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 65965 of the Government Code is
amended to read:

65965.  

For the purposes of this chapter, the following
definitions apply:

(a) “Endowment” means the funds that are conveyed solely for
the long-term stewardship of a mitigation property. Endowment
funds are held as charitable trusts that are permanently restricted
to paying the costs of long-term management and stewardship of
the mitigation property for which the funds were set aside.
Endowments shall be governed by the underlying laws, regulations,
and specific governmental approvals under those laws and
regulations pursuant to which the endowments were exacted,
consistent with subdivision (b) of Section 65966 and with the
Uniform Prudent Management of Institutional Funds Act (Part 7
(commencing with Section 18501) of Division 9 of the Probate
Code). Endowments do not include funds conveyed for meeting
short-term performance objectives of a project.

(b) “Community foundation” means any community foundation
that meets all of the following requirements:

(1) Meets the requirements of a community trust under Section
1.170A-9(f)(10)-(11) of Title 26 of the Code of Federal
Regulations.

(2) Is exempt from taxation as an organization described in
Section 501(c)(3) of the Internal Revenue Code.

(3) Is qualified to do business in this state.

(4) Is a “qualified organization” as defined in Section 170(h)(3)
of the Internal Revenue Code.

(5) Has complied with National Standards for U.S. Community
Foundations as determined by the Community Foundations
National Standards Board, a supporting organization of the Council
on Foundations.

(6) Is registered with the Registry of Charitable Trusts
maintained by the Attorney General pursuant to Section 12584.

(c) “Conservation easement” means a conservation easement
created pursuant to Chapter 4 (commencing with Section 815) of
Title 2 of Part 2 of Division 2 of the Civil Code.

(d) “Direct protection” means the permanent protection,
conservation, and preservation of lands, waters, or natural
resources, including, but not limited to, agricultural lands, wildlife
habitat, wetlands, endangered species habitat, open-space areas,
or outdoor recreational areas.

(e) “Governmental entity” means any state agency, office,
officer, department, division, bureau, board, commission, public
postsecondary educational institution, city, county, or city and
county, or a joint powers authority formed pursuant to the Joint
Exercise of Powers Act (Chapter 5 (commencing with Section
6500) of Division 7 of Title 1) that meets either of the following
requirements:

(1) The joint powers authority was created for the principal
purpose and activity of the direct protection or stewardship of land,
water, or natural resources, including, but not limited to,
agricultural lands, wildlife habitat, wetlands, endangered species
habitat, open-space areas, and outdoor recreational areas.

(2) The joint powers authority was created for the purpose of
constructing, maintaining, managing, controlling, and operating
transportation infrastructure, such as major thoroughfares and
bridges.

(f) (1) “Mitigation agreement” means either of the following:

(A) A written agreement between the project proponent and the
entity qualified to hold the property and the endowment pursuant
to this chapter, which is submitted to the state or local agency for
the purpose of obtaining any permit, clearance, or mitigation
approval from that state or local agency.

(B) A written agreement between the project proponent and the
entity qualified to hold the property pursuant to this chapter,
including any agreement with an entity qualified to hold the
endowment pursuant to this chapter, which is submitted to the state
or local agency for the purpose of obtaining any permit, clearance,
or mitigation approval from that state or local agency.

(2) A mitigation agreement shall govern the long-term
stewardship of the property and the endowment.

(g) “Congressionally chartered foundation” means a nonprofit
organization that meets all of the following requirements:

(1) Is chartered by the United States Congress.

(2) Is exempt from taxation as an organization described in
Section 501(c)(3) of the Internal Revenue Code.

(3) Is qualified to do business in this state.

(4) Is registered with the Registry of Charitable Trusts
maintained by the Attorney General pursuant to Section 12584.

(5) Has as a purpose the conservation and management of fish,
wildlife, plants, and other natural resources, which includes, but
is not limited to, the direct protection or stewardship of land, water,
or natural wildlife habitat, wetlands, endangered species habitat,
open-space areas, and outdoor recreational areas.

begin insert

(h) “Investment grade” means a credit rating provided by a
nationally recognized statistical rating organization that indicates
a relatively low risk of default. For purposes of this subdivision,
“nationally recognized statistical rating organization” means a
rating agency designated by the Securities and Exchange
Commission as being nationally recognized.

end insert begin delete

(h)

end delete

begin insert (i) end insert  “Nonprofit organization” means any nonprofit organization
that meets all of the following requirements:

(1) Is exempt from taxation as an organization described in
Section 501(c)(3) of the Internal Revenue Code.

(2) Is qualified to do business in this state.

(3) Is a “qualified organization” as defined in Section 170(h)(3)
of the Internal Revenue Code.

(4) Is registered with the Registry of Charitable Trusts
maintained by the Attorney General pursuant to Section 12584.

(5) Has as its principal purpose and activity the direct protection
or stewardship of land, water, or natural resources, including, but
not limited to, agricultural lands, wildlife habitat, wetlands,
endangered species habitat, open-space areas, and outdoor
recreational areas.

begin delete

(i)

end delete

begin insert (j) end insert  “Project proponent” means an individual, business entity,
agency, or other entity that is developing a project or facility and
is required to mitigate any adverse impact upon natural resources.

begin delete

(j)

end delete

begin insert (k) end insert  “Property” means fee title land or any partial interest in real
property, including a conservation easement, that may be conveyed
pursuant to a mitigation requirement by a state or local agency.

begin delete

(k)

end delete

begin insert (l) end insert  “Special district” means any of the following special districts:

(1) A special district formed pursuant to Article 3 (commencing
with Section 5500) of Chapter 3 of Division 5 or Division 26
(commencing with Section 35100) of the Public Resources Code.

(2) A resource conservation district organized pursuant to
Division 9 (commencing with Section 9001) of the Public
Resources Code.

(3) A district organized or formed pursuant to the Metropolitan
Water District Act (Chapter 209 of the Statutes of 1969).

(4) A county water district organized under Division 12
(commencing with Section 30000) of the Water Code, that has
more than 5,000 acres of mitigation lands.

(5) A special district formed pursuant to Chapter 2 (commencing
with Section 11561) of Division 6 of the Public Utilities Code that
provides water and wastewater treatment services.

(6) A district organized or formed pursuant to the County Water
Authority Act (Chapter 545 of the Statutes of 1943).

(7) A local flood control district formed pursuant to any law.

begin delete

(l)

end delete

begin insert (m) end insert  “Stewardship” encompasses 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.

SEC. 2.  

Section 65966 of the Government Code is amended
to read:

65966.  

(a) Any conservation easement created as a component
of satisfying a local or state mitigation requirement shall be
perpetual in duration, whether created pursuant to Chapter 6.6
(commencing with Section 51070) of Part 1 of Division 1 of Title
5 of this code or Chapter 4 (commencing with Section 815) of
Title 2 of Part 2 of the Civil Code.

(b) Any local or state agency that requires property to be
protected pursuant to subdivision (a) or (b) of Section 65967 may
identify how the funding needs of the long-term stewardship of
the property will be met. Nothing in this chapter shall be construed
as otherwise precluding other methods of funding for the long-term
stewardship of the property. If an endowment is conveyed or
secured at the time the property is protected, all of the following
shall apply:

(1) The endowment shall be held, managed, invested, and
disbursed solely for, and permanently restricted to, the long-term
stewardship of the specific property for which the funds were set
aside.

(2) The endowment shall be calculated to include a principal
amount that, when managed and invested, is reasonably anticipated
to cover the annual stewardship costs of the property in perpetuity.

(3) The endowment shall be held, managed, invested, disbursed,
and governed as described in subdivision (a) of Section 65965
consistent with the Uniform Prudent Management of Institutional
Funds Act (Part 7 (commencing with Section 18501) of Division
9 of the Probate Code).

(c) If a nonprofit corporation holds the endowment, the nonprofit
shall utilize generally accepted accounting practices that are
promulgated by the Financial Accounting Standards Board or any
successor entity.

(d) If a local agency holds the endowment, the local agency
shall do all of the following:

(1) Hold, manage, and invest the endowment consistent with
subdivision (b) to the extent allowed by law.

(2) Disburse funds on a timely basis to meet the stewardship
expenses of the entity holding the property.

(3) Utilize accounting standards consistent with standards
promulgated by the Governmental Accounting Standards Board
or any successor entity.

(e) (1) Unless the mitigation agreement provides that another
person or entity shall prepare the annual fiscal report described
below, a governmental entity, community foundation, special
district, a congressionally chartered foundation, or a nonprofit
organization that holds funds pursuant to this chapter, including
an endowment or moneys for initial stewardship costs, shall provide
the local or state agency that required the endowment with an
annual fiscal report that contains at least the following elements
with respect to each individual endowment dedicated and held by
that entity:

(A) The balance of each individual endowment at the beginning
of the reporting period.

(B) The amount of any contribution to the endowment during
the reporting period including, but not limited to, gifts, grants, and
contributions received.

(C) The net amounts of investment earnings, gains, and losses
during the reporting period, including both realized and unrealized
amounts.

(D) The amounts distributed during the reporting period that
accomplish the purpose for which the endowment was established.

(E) The administrative expenses charged to the endowment
from internal or third-party sources during the reporting period.

(F) The balance of the endowment or other fund at the end of
the reporting period.

(G) The specific asset allocation percentages including, but not
limited to, cash, fixed income, equities, and alternative investments.

(H) The most recent financial statements for the organization
audited by an independent auditor who is, at a minimum, a certified
public accountant.

(2) If an entity is required to submit an identical annual fiscal
report pursuant to paragraph (1) to the Department of Fish and
Game and any other state or local agency, then that report shall be
provided only to the Department of Fish and Game. In that
instance, the Department of Fish and Game shall provide a copy
of that annual fiscal report on its Internet Web site for a minimum
of five years.

(f) If a state agency authorizes a governmental entity, special
district, or nonprofit organization to hold property pursuant to
subdivision (a) or (b) of Section 65967 in connection with a
development project, the agency may require the project proponent
to pay a one-time fee that does not exceed the reasonable costs of
the agency in reviewing qualifications of potential holders of the
property and approving those holders. This one-time fee shall be
collected only if the agency can demonstrate its actual review of
qualifications and approval of holders.

(g) If a local agency authorizes a governmental entity, special
district, or nonprofit organization to hold property or an endowment
pursuant to this chapter, the agency may require the project
proponent to pay a one-time fee that does not exceed the reasonable
costs of the agency in reviewing qualifications of the parties
identified in the mitigation agreement, approving those parties,
and any regular oversight over those parties to ensure that the
parties are complying with all applicable laws. This one-time fee
shall be collected only if the agency can demonstrate its actual
review of qualifications, approval of parties, or regular oversight
of compliance and performance.

(h) A local agency may 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. The funds for the initial
stewardship costs are distinct from the funds that may be conveyed
for long-term stewardship, construction, or other costs. If there are
funds remaining at the completion of the initial stewardship period,
the funds shall be conveyed to the project proponent.

(i) The local agency may contract with or designate a qualified
third party to do any of the following:

(1) Review the qualifications of a governmental entity, special
district, or nonprofit organization to effectively manage and
steward natural land or resources pursuant to subdivision (c) of
Section 65967.

(2) Review the qualifications of a governmental entity,
community foundation, or nonprofit organization to hold and
manage the endowment that is set aside for long-term stewardship
of the property.

(3) Review reports or other performance indicators to evaluate
the stewardship of lands, natural resources, or funds, and
compliance with the mitigation agreement.

(j) If a property conserved pursuant to subdivision (a) or (b) of
Section 65967 is condemned, the net proceeds from the
condemnation of the real property interest set aside for mitigation
purposes shall be used for the purchase of property that replaces
the natural resource characteristics the original mitigation was
intended to protect, or as near as reasonably feasible. Any
endowment held for the condemned property shall be held for the
long-term stewardship of the replacement property.

(k) Unless prohibited by law, no provision in this chapter is
intended to prohibit for-profit entities from holding, acquiring, or
providing property for mitigation purposes.

(l) Nothing in this section shall prohibit a state agency from
exercising any powers described in subdivision (d), (g), or (h).

(m) A governmental entity, special district, or nonprofit
organization may contract with a community foundation or
congressionally chartered foundation at any time to hold, manage,
and invest the endowment for a mitigation property and disburse
payments from the endowment to the holder of the mitigation
property consistent with the fund agreement.

(n) Except as expressly authorized in paragraph (1) of
subdivision (e), the mitigation agreement shall not include any
provision to waive or exempt the parties from any requirement, in
whole or part, of this chapter.

(o) Subdivisions (b) to (e), inclusive, shall not apply to funds,
including funds from mitigation fees, held for the long-term
management and stewardship of property pursuant to either an
interim or approved habitat conservation plan pursuant to Chapter
35 (commencing with Section 1531) of Title 16 of the United
States Code or an interim or approved natural community
conservation plan pursuant to Chapter 10 (commencing with
Section 2800) of Division 3 of the Fish and Game Code, if, in the
interim or approved plan documents, the permitting agency
determines the endowment to be established with those funds will
be adequate and provides a schedule for funding the endowment.

begin insert

(p) (1) If a governmental entity or special district is the project
proponent required to provide long-term stewardship of property
pursuant to subdivision (b), an endowment or other financial
mechanism for long-term stewardship shall not be required if the
governmental entity or special district provides evidence to the
local or state agency that it possesses an investment-grade credit
rating by a nationally recognized statistical rating organization
or other equivalent evidence of financial reliability, and provides
one of the following:

end insert begin insert

(A) A resolution to fund the long-term stewardship of the
property adopted by the board or legislative body of the
governmental entity or special district.

end insert begin insert

(B) A contractual agreement with the state or local agency
enforcing the mitigation requirements to fund the long-term
stewardship of the property.

end insert begin insert

(2) A resolution or contract provided pursuant to paragraph
(1) shall include all of the following:

end insert begin insert

(A) A summary of the governmental entity or special district’s
current and projected financial state.

end insert begin insert

(B) A finding regarding a financial analysis conducted on
annual management costs.

end insert begin insert

(C) An annual pledge of revenue to cover the annual mitigation
requirements.

end insert begin insert

(D) An annual pledge of revenue to cover the annual
management costs.

end insert begin insert

(E) Use of accounting standards consistent with standards
promulgated by the Governmental Accounting Standards Board
or its successor entity.

end insert begin insert

(F) An annual fiscal report.

end insert begin insert

(3) If the governmental entity or special district is subsequently
downgraded below an investment-grade credit rating by a
nationally recognized statistical rating organization or fails to
maintain an equivalent standard of financial reliability, the state
or local agency enforcing the mitigation requirement may provide
written notice thereof and require the governmental entity or
special district to post collateral for performance of the long-term
stewardship in the form of a performance bond, escrow account,
casualty insurance, letter of credit, or other appropriate
instrument. The obligation to maintain collateral shall end, and
all unused collateral shall be canceled or refunded, upon the
governmental entity or special district providing evidence of its
return to an investment-grade credit rating by a nationally
recognized statistical rating organization or other equivalent
evidence of financial reliability.

end insert begin insert

(4) If the governmental entity or special district fails to
adequately fund the long-term stewardship by revoking, failing to
comply with, or otherwise rendering ineffective the board
resolution described in paragraph (1), or after being provided
written notice, fails to cure within the remedy period set forth in
the contractual agreement, the state or local agency enforcing the
mitigation requirement may, in addition to any contractual
remedies, require the governmental entity or special district to
post collateral for performance of the long-term stewardship in
the form of a performance bond, escrow account, casualty
insurance, letter of credit, or other appropriate instrument.

end insert