BILL ANALYSIS �
AB 1799
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON WATER, PARKS AND WILDLIFE
Anthony Rendon, Chair
AB 1799 (Gordon) - As Introduced: February 18, 2014
SUBJECT : Land Use; Mitigation Lands
SUMMARY : Exempts a governmental entity or special district
from the requirement to provide an endowment for long-term
stewardship of mitigation lands if the entity provides evidence
that it possesses an investment-grade credit rating and provides
a resolution or contractual agreement to enforce the mitigation
requirements. Specifically, this bill :
1)Exempts a governmental entity or special district that is
required, as the project proponent, to provide long-term
stewardship of mitigation property, from the requirement to
provide an endowment or other financial mechanism if the
entity possesses an investment-grade credit rating by a
nationally recognized statistical rating organization or other
equivalent evidence of financial responsibility, and provides
one of the following:
a) A resolution adopted by the board or legislative
body of the entity agreeing to fund the long-term
stewardship of the property.
b) A contractual agreement with the state or local
agency enforcing the mitigation requirement to fund the
long-term stewardship of the property.
2)Provides that the resolution or contract shall include a
summary of the entity's current and projected financial state;
a financial analysis of the annual management costs; an annual
pledge of revenue to cover the annual management costs; the
use of specified accounting standards; and an annual fiscal
report.
3)Provides that if the governmental entity or special district
is subsequently downgraded below an investment-grade credit
rating or fails to maintain an equivalent standard of
financial reliability, the state or local agency enforcing the
mitigation requirement may require the posting of collateral
in the form of a performance bond, escrow account, casualty
insurance, letter of credit or other appropriate instrument.
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4)Similarly provides that if the governmental entity or special
district fails to adequately fund the long-term stewardship by
revoking or failing to comply with the board resolution or
fails to cure as provided in the contract, the state or local
agency enforcing the mitigation requirement may 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.
EXISTING LAW :
1)Requires that any conservation easement created to satisfy a
local or state mitigation requirement shall be perpetual in
duration.
2)Authorizes any local or state agency that requires property to
be protected to mitigate environmental impacts of a project to
identify how the funding needs of the long-term stewardship of
the property will be met.
3)Requires if an endowment is secured as the means for providing
the long-term funding, that the endowment be held, managed,
invested, and disbursed solely for the long-term stewardship
of the property, and that the endowment 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.
4)Requires, under the California Endangered Species Act (CESA),
that before an incidental take permit may be issued, the
Department of Fish and Wildlife (DFW) must find that the take
has been fully mitigated. Requires the permit applicant to
ensure adequate funding to implement the mitigation measures
required and for monitoring compliance with and effectiveness
of those measures.
FISCAL EFFECT : Unknown
COMMENTS : The author has introduced this bill to provide public
agencies, including local governments, state governments, and
special districts, with alternative means of financing future
stewardship of mitigation properties. The author asserts that
the current practice of requiring public agencies to set aside
funds in endowments for the long-term stewardship of mitigation
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lands permanently ties up more taxpayer funds than is necessary
to maintain the site, keeping those funds from other critical
projects. The author and sponsors maintain that under this bill
public agencies would still be required to provide mitigation,
but would have more flexibility as to how to finance those
mitigation obligations.
As an example of the impact of current mitigation requirements,
the author notes that the Santa Clara Valley Water District was
required to set aside over 400 acres at Coyote Ridge in
mitigation to be maintained in perpetuity. The ongoing costs of
managing the property were estimated at $80,000 per year.
Rather than being able to budget for this maintenance cost
annually, the district was requested to set aside $5 million in
an endowment account.
Under existing law, public agencies that conduct or approve
projects which have significant environmental impacts are
required to obtain permits from various state and federal
agencies. As a condition of receiving the permits, the public
agency is required to mitigate for the environmental impacts.
The mitigation may take the form of setting aside other resource
conservation lands. When lands are set aside in mitigation, the
law requires that the mitigation lands be protected in
perpetuity. For example, a development project that removes or
impairs a wetland may be required to mitigate for the impact of
the project by setting aside and protecting other wetlands so
that there is no net loss of wetlands. Similarly, a project
that displaces habitat of an endangered or threatened species
may be required to mitigate by protecting other habitat lands in
mitigation.
An endowment provides a means of ensuring that funding will be
available to provide for the long-term stewardship of the
mitigation lands in perpetuity. Typically, the interest on the
principle is used to fund the annual management costs. This
bill would permit a local agency, state agency or special
district that is credit worthy to instead commit to provide the
annual funding necessary for the long-term stewardship of the
lands through passage of a resolution or through a contractual
agreement. If at some point in the future the local agency is
no longer credit worthy, or fails to provide the funding
necessary for stewardship of the lands, the enforcing agency
could require that the local agency provide some other
assurance, such as a performance bond or escrow account.
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The enforceability or degree of assurance that would be provided
by the resolution provisions of this bill is uncertain for
several reasons. First, it is unclear that a resolution adopted
by a city council, board of supervisors, or other legislative
governing body would be enforceable against the entity in
subsequent years, since the members of such bodies change.
Second, the content requirements for the resolution, and their
relevance and pertinence to the specific mitigation
requirements, lacks clarity. The permitting agency would
presumably not have authority to approve the specific language
of the resolution. While the bill requires that the resolution
contain information regarding annual management costs and
mitigation requirements, it is unclear how those would relate
specifically to the mitigation requirements the permitting
agency might require, or to any mitigation agreement negotiated
with the permitting agency. It is also unclear what period of
time the pledge of revenues would be required to cover, and thus
how the requirement for management in perpetuity would be
assured.
In addition, the credit worthiness of governmental entities can
change from time to time. What a city, county or special
district projects their financial state to be in the future may
or may not be realized. In recent years, there have been a
number of local governments in California that were forced to
declare bankruptcy. Whether the remedies provided in this bill
would provide adequate assurance in the event that the credit
rating of a governmental entity is subsequently downgraded is
uncertain, since in that event the ability of the governmental
entity to provide alternative financing mechanisms may be
limited due to their financial situation. Placing the burden on
the permitting agency responsible for enforcing the mitigation
requirements to check the credit ratings of all of the entities
that are responsible for long-term stewardship of mitigation
lands, and to track and monitor annual commitments of funds by
those agencies may also be impractical and cost prohibitive for
state permitting agencies.
Habitat conservation, which can be understood as a type of green
infrastructure, like other types of infrastructure, requires
management, maintenance and monitoring to ensure the property
continues to provide its intended functions. Without active
management and monitoring, investments into habitat preservation
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and mitigation could be at risk of no longer being effective in
conserving the habitats, species, and natural biological
functions they are intended to provide.
An example of the type of habitat mitigation requirement that
could be affected by this bill is the mitigation required under
CESA for projects impacting habitat of endangered species. CESA
requires, as a condition of issuance of an incidental take
permit, that any take be fully mitigated, and requires the
permit applicant to ensure adequate funding is provided to
implement the mitigation measures, and for monitoring of
compliance and effectiveness. Typically, DFW requires the
permittee to provide an endowment to ensure the costs of
providing for the long term stewardship of habitat mitigation
lands set aside to mitigate for the loss of habitat are covered.
The endowment is invested so the interest on the endowment can
be used to cover the ongoing expenses of the land management in
perpetuity. The permittee is required to provide for the long
term stewardship of the lands in perpetuity because the
mitigation lands are replacing the permanent take or loss of
habitat for the protected species resulting from the project.
Public agencies sometimes default on their mitigation
implementation obligations under CESA. The DFW found in a
recent review that of 294 incidental take permits issued, 29
permits to public agencies were out of compliance. This
statistic points to the need for DFW to require security in the
event of non-compliance to ensure the long term stewardship of
habitat mitigation lands is provided for.
Another perhaps unintended consequence of this bill could be
that nonprofit conservation organizations and state agencies
that often agree to manage mitigation lands for local
governments may no longer be willing to take on that
responsibility without an endowment being provided to cover the
costs of the management.
Support Arguments : Supporters note that the current requirement
for local governments to set aside funds in endowments
permanently for the stewardship of mitigation properties greatly
hinders the ability of local governments to best utilize their
valuable taxpayer dollars for the benefit of their community.
Supporters assert this bill would provide the needed flexibility
for local governments to budget and pay for mitigation costs as
needed while freeing up funds for other public safety and local
programs. Supporters believe this measure will not result in
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reduced or less mitigation, but will provide greater flexibility
in the use of public taxpayer funds. By eliminating the
requirement for an endowment or other financial mechanism for
long term stewardship where a governmental entity or special
district is the entity required to provide the mitigation, this
bill would allow funds to be leveraged or used for other public
projects.
Opposition Arguments : Opponents assert this bill would undermine
the long standing environmental policy of the state which
requires mitigation of loss or damage to natural resources when
a project is developed. Typically, as a condition of receiving
a permit for a project that would result in the taking of
protected species or habitat the project proponent is required
to set aside land that is equivalent in size and habitat quality
to the land being developed, and to provide for the long-term
stewardship of the mitigation land in perpetuity. In order to
ensure the funds necessary for long-term stewardship are
provided, the project proponent can be required by the
permitting agency to set aside funds in an endowment. This
bill, by exempting governmental entities and special districts
from that requirement, creates an un-level playing field, and
also places in doubt the long-term stewardship of mitigation
lands since the budgets of such entities may vary dramatically
from year to year. Additional concerns of the opposition
include: the broad definition of governmental entities and
special districts that would be exempt from the endowment
requirement; the lack of assurances that funding will be
provided for other entities that agree to hold and manage
mitigation lands for the governmental entities; practical
enforcement problems and vagueness in the resolution provisions;
and the lack of penalty for failure to comply.
Proposed Amendments : In order to address some of the above
concerns, while still allowing entities a more affordable means
of fulfilling their mitigation obligations, the attached
amendments are proposed. These amendments are suggested as a
means of both meeting the objectives of the author while at
least partially addressing concerns about uncertainties and the
need for assurances that funding for long term stewardship of
mitigation properties will be provided. Briefly, the amendments
would: (1) delete the option for a resolution and instead
require an enforceable contract, (2) require that the contract
include a commitment of an alternative means of collateral for
performance, as specified, and (3) authorize the enforcing
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agency, if the responsible entity fails to fulfil its
obligations to fund the long-term stewardship of the mitigation
lands, to require an endowment. The amendments also add
additional reporting requirements and require that a contingency
fund be established to cover the first five years of management
costs. Finally, the amendments add a five year sunset clause to
make this a pilot project.
Double-referral : This bill was double-referred to the Assembly
Local Government and Assembly Water, Parks & Wildlife
Committees. It passed the Local Government Committee on April
2, 2014.
REGISTERED SUPPORT / OPPOSITION :
Support
Santa Clara Valley Water District (sponsor)
Association of California Water Agencies
California Special Districts Association
California State Association of Counties
City of Gilroy
City of Los Altos
City of Palo Alto
City of Saratoga
City of Sunnyvale
Contra Costa Water District
County of San Bernardino
County of San Diego
County of Santa Barbara
County of Santa Clara
Midpeninsula Regional Open Space District
Open Space Authority Santa Clara Valley
Orange County Board of Supervisors
Rural County Representatives of California
San Diego County Board of Supervisors
Opposition
California Council of Land Trusts
Defenders of Wildlife
Endangered Habitats Conservancy
Endangered Habitats League
Environmental Defense Fund
Natural Resources Defense Council
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Placer Land Trust
Planning and Conservation League
Sierra Club California
Sierra Foothill Conservancy
Solano Land Trust
Wildlands
Wildlife Heritage Foundation
Analysis Prepared by : Diane Colborn / W., P. & W. / (916)
319-2096