BILL ANALYSIS �
AB 1799
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Date of Hearing: April 2, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 1799 (Gordon) - As Introduced: February 18, 2014
SUBJECT : Land use: mitigation lands.
SUMMARY : Eliminates, if a governmental entity or special
district provides evidence that it possesses an investment-grade
credit rating and meets other specified conditions, the
requirement of an endowment for long-term stewardship.
Specifically, this bill :
1)Eliminates 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 or
other equivalent evidence of financial reliability, and
provides one of the following:
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; or,
b) A contractual agreement with the state or local agency
enforcing the mitigation requirements to fund the long-term
stewardship of the property.
2)Provides that a resolution or contract shall include all of
the following:
a) A summary of the governmental entity or special
district's current and projected financial state;
b) A finding regarding a financial analysis conducted on
annual management costs;
c) An annual pledge of revenue to cover the annual
mitigation requirements;
d) An annual pledge of revenue to cover the annual
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management costs;
e) Use of accounting standards consistent with standards
promulgated by the Governmental Accounting Standards Board
(GASB) or its successor entity; and,
f) An annual fiscal report.
3)Allows, 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 to 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.
4)Specifies that the obligation to maintain collateral shall
end, and all unused collateral shall be cancelled 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.
5)Allows, if the governmental entity or special district fails
to adequately fund the long-term stewardship by revoking,
failing to comply with, or otherwise rending ineffective the
board resolution, or after being provided written notice,
fails to cure the remedy period set forth in the contractual
agreement, the state or local agency enforcing the mitigation
requirement, in addition to any contractual remedies, to
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.
6)Defines "investment grade" to mean a credit rating provided by
a nationally recognized statistical rating organization that
indicates a relatively low risk of default.
7)Defines "national recognized statistical rating organization"
to mean a rating agency designated by the Securities and
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Exchange Commission as being nationally recognized.
EXISTING LAW :
1)Specifies that 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, the agency may authorize a governmental
entity, special district, a nonprofit organization, a
for-profit entity, a person, or another entity to hold title
to and manage that property.
2)Defines "endowment" to mean the funds that are conveyed solely
for the long-term stewardship of a mitigation property.
3)Requires a mitigation agreement to govern the long-term
stewardship of the property and the endowment.
4)Requires any conservation easement created as a component of
satisfying a local or state mitigation requirement to be
perpetual in duration, as specified.
5)Requires, if an endowment is conveyed or secured at the time
the property is protected, all of the following to apply:
a) 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;
b) 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; and,
c) The endowment shall be held, managed, invested,
disbursed, and governed as specified and consistent with
the Uniform Prudent Management of Institutional Funds Act.
6)Requires, if a nonprofit corporation holds the endowment, the
nonprofit to utilize generally accepted accounting practices
that are promulgated by the Financial Accounting Standards
Board of any successor entity.
7)Requires, if a local agency holds the endowment, the local
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agency to do all of the following:
a) Hold, manage, and invest the endowment, as specified;
b) Disburse funds on a timely basis to meet the stewardship
expenses of the entity holding the property; and,
c) Utilize accounting standards consistent with standards
promulgated by the Governmental Accounting Standards Board
or any successor entity.
FISCAL EFFECT : None
COMMENTS :
1)Purpose of this bill . This bill eliminates the requirement of
an endowment for long-term stewardship, if a governmental
entity or special district provides evidence that it possesses
an investment-grade credit rating and meets other specified
criteria. The bill is sponsored by the Santa Clara Valley
Water District.
2)Background and previous legislation . Current law 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., accompany funds or
endowment) to mitigate adverse impacts to natural resources
caused by a permitted development project. This was put into
place by SB 436 (Kehoe), Chapter 590, Statutes of 2011 and
modified by SB 1094 (Kehoe), Chapter 705, Statutes of 2012,
with various technical clean-up of the prior bill. Prior to
these bills, however, there was a long history of attempts to
clarify which entities could hold both the property and the
endowment for mitigation lands.
In 2006, the Assembly Water, Parks and Wildlife Committee
asked for a written opinion from Legislative Counsel about
whether there was statutory authorization for nonprofit
organizations to hold and manage funds set aside for the
purpose of long-term management of mitigation lands. At that
time, Legislative Counsel opined that existing law already
allowed a state agency, including the Department of Fish and
Game (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.
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In the following years, there were numerous bills to expressly
authorize nonprofits to hold and manage mitigation fund
endowments for the long-term management of the property,
including the following:
a) AB 2916 (Water, Parks and Wildlife Committee, 2006) -
would have authored DFF to enter into agreements with
eligible nonprofit organizations to hold and manage
endowment accounts, subject to specified standards. The
bill was held in the Senate Appropriations Committee.
b) SB 1011 (Hollingsworth, 2007) - 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.
c) 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.
d) AB 444 (Caballero, 2009) - would have clarified that
funds set aside for long-term management of mitigation
lands conveyed to a nonprofit organization may also be
conveyed to the nonprofit, and authorizes the nonprofit to
hold, manage, invest, and disburse the funds for management
and stewardship of the land or easement for which the funds
were set aside. AB 444 was vetoed by Governor
Schwarzenegger because of the lack of adequate fiscal
assurances.
e) SB 1094 (Kehoe), Chapter 705, Statutes of 2012 - As a
technical clean-up to SB 436 (Kehoe), this bill modified
provisions related to mitigation agreements and the
entities that may hold endowments dedicated to mitigation
lands, and expands the eligible entities authorized to hold
title, manage property, and hold endowments related to
mitigation lands
1)Author's statement . According to the author, this bill would
"provide alternatives for financing the future stewardship of
mitigation properties, as long as the project lead agency
demonstrates financial reliability. Permitting agencies would
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only approve entities that have provided financial assurances
for fully funding the long-term stewardship of the mitigation
property through a Board resolution or contractual agreement.
Public agencies would still be required to provide
mitigation?this bill simply allows them more flexibility as to
how they finance those mitigation obligations."
"Requiring public agencies to set aside funds in endowments
permanently ties up more taxpayer funds than is necessary to
maintain the site, keeping those funds from other critical
projects. Freeing up these valuable taxpayer dollars will
help fund additional public efforts including environmental
stewardship, public safety, and additional mitigation
projects."
2)Santa Clara Valley Water District . The sponsor raises the
issue of their Stream Maintenance Program, which required over
400 acres at Coyote Ridge to be set aside and maintained in
perpetuity. Ongoing maintenance of the property is estimated
at $80,000 per year. The District notes that they'd rather be
able to budget for this maintenance cost annually, but under
current law, the District has been requested to set aside $5
million of taxpayer funds in a restricted account. According
to the sponsor, these are funds that would no longer be
available for other public projects and improvements.
3)Policy considerations . A coalition of environmental
organizations (California Council of Land Trusts, Defenders of
Wildlife, Wildlands, Inc., and Wildlife Heritage Foundation)
that were heavily involved in the policy discussions and
legislation since 2006 in how mitigation, and mitigation
endowments are held and managed, raise the following concerns:
a) The bill exempts one class of entities (i.e.
governmental entity or special district) that must meet
mitigation requirements from being required by the
permitting agency to set aside secure funds thus creating
an un-level playing field in which one class of project
proponents is treated differently from other project
proponents.
b) SB 1094 (Kehoe, 2012) expressly provides that other
methods of funding for the long-term stewardship of the
property shall not be precluded as funding options for the
long-term stewardship of the mitigation property. This
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bill jumps completely past other funding mechanism options
to completely exempt selected public parties from any form
of dedicated financial assurance for mitigation lands.
c) The relevant definitions of "governmental entity" are
very broad and encompassing and could include joint
ventures, joint power authorities, public-private
partnerships and other groups that include governmental
entities or special districts that would be exempt from
conveying an endowment. Also, using the phrase "possession
of an investment-grade credit rating" as one of the
triggers for excluding local agencies from being required
to convey and endowment is an extremely broad category.
d) The permitting agency that is requiring the mitigation
has no authority to approve the local resolution, yet the
bill completely removes endowments as an option from the
permitting agency's 'financial mechanism toolbox.'
e) There is no mandatory or comparable penalty in the bill
should the governmental entity or special district fail to
meet the obligations embodied in the mitigation agreement.
The Coalition believes that if the governmental entity
fails to fulfill its obligations, then it should
immediately be required to create an endowment.
4)Arguments in support . Local government groups including the
Rural County Representatives of California, California State
Association of Counties, and the California Special Districts
Association, argue that this bill would provide the needed
flexibility for local governments to budget and pay for
mitigation costs as needed, and that the current requirement
to set aside funds greatly hinders the ability of local
governments to best utilize their valuable taxpayer dollars.
5)Arguments in opposition . A coalition of environmental groups
including the California Council of Land Trusts, Defenders of
Wildlife, Wildlands, Inc. and Wildlife Heritage Foundation
raise a number of concerns about both the policy direction the
bill sets, plus a number of technical issues related to the
broad language in the bill, and the un-level playing field in
which one class of project proponents is treated differently
from other project proponents.
6)Double-referral . This bill is double-referred to the Water,
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Parks and Wildlife Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Santa Clara Valley Water District [SPONSOR]
California State Association of Counties
California Special Districts Association
Counties of San Bernardino and Santa Barbara
Mid-Peninsula Open Space District
Rural County Representatives of California
Opposition
California Council of Land Trusts
Defenders of Wildlife
Wildlands, Inc.
Wildlife Heritage Foundation
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958