Amended in Senate August 5, 2014

Amended in Senate July 1, 2014

Amended in Senate June 18, 2014

Amended in Assembly April 29, 2014

Amended in Assembly April 10, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1883

Introduced by Assembly Member Skinner

(Coauthors: Assembly Members Ammiano, Buchanan, Chesbro, Garcia, Gordon, and Ting)

February 19, 2014

An act to amend Sections 5898.12, 5898.24, 5898.28, 5898.30, and 5899.2 of, and to add Sections 5898.16 and 5898.33 to, the Streets and Highways Code, relating to public improvements.

LEGISLATIVE COUNSEL’S DIGEST

AB 1883, as amended, Skinner. Public improvements: contractual assessments.

Existing law, the Improvement Act of 1911 (Improvement Act), authorizes the legislative body of any public agency, as defined, to determine that it would be convenient, advantageous, and in the public interest to designate an area within the public agency, as specified, within which authorized public agency officials and property owners may enter into voluntary contractual assessments to finance the installation of distributed generation renewable energy sources or energy or water efficiency improvements that are permanently fixed to real property, as specified.

Under existing law, for the purpose of financing the installation of distributed generation renewable energy sources pursuant to the Improvement Act, “permanently fixed” includes, but is not limited to, systems attached to a residential, commercial, industrial, agricultural, or other real property pursuant to a power purchase agreement or lease between the owner of the system and the owner of the assessed property, if the power purchase agreement or lease contains certain provisions, including, but not limited to, provisions intended to ensure that the property owner is guaranteed the electric power from the system for the length of the lien. One of the required provisions is that after installation, the power purchase agreement or lease is paid in full using the funds from the contractual assessment program.

The Mello-Roos Community Facilities Act of 1982 (Mello-Roos Act) authorizes the establishment of community facilities districts and the issuance of bonds and the levying of special taxes to finance various types of facilities and services within the district.

This bill would revise the information included in the power purchase agreement or lease to allow a system owner to include a specified covenant and warranty in its contract with the property owner, providing that the system will not be removed for the term of the contract. The bill would specifically authorize either full or partial payment for the power purchase agreement or lease to be made after installation of the system. begin insert The bill would declare the intent of the Legislature that the program finance prepaid service contracts, as well as installation, of renewable energy sources and energy efficiency improvements. end insert

This bill would make various changes to the Improvement Act to achieve cost reductions and to achieve consistency with similar provisions of the Mello-Roos Act, including changes in recordation requirements and authorizing the financing of facilities in connection with the initial construction of a residential building that is being undertaken by the intended owner or occupant.

This bill would authorize a public agency to transfer, as defined, its right, title, and interest in any voluntary contractual assessments if bonds have not been issued in that regard, subject to an agreement identifying the specific period of time during which the transfer will be operative, not to exceed 3 years. The bill would state that this authorization shall not be construed to authorize the transferee to initiate and prosecute a foreclosure action resulting from a delinquency in the payment of the voluntary contractual assessment, and that a foreclosure action remains the responsibility of the public agency which would retain the sole right to enforce its senior lien status.

This bill would revise various procedures pursuant to which a public agency is authorized to issue bonds under the Improvement Act, including authorizing the public agency to issue new bonds to refinance outstanding bonds payable from contractual assessments levied pursuant to the act, which may be subject to a variable interest rate, under certain circumstances. The bill would authorize a public agency owning property to levy a contractual assessment under the act against a leasehold or possessory interest in that property, as prescribed.

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.  

The Legislature finds and declares all of the
following:

(a) Energy efficiency, renewable energy, and water efficiency
upgrades to residential, commercial, industrial, and other properties
are integral to furthering the state’s goals of reducing greenhouse
gas emissions, insulating the state from the impacts of dwindling
water resources, and helping Californians save money.

(b) Not-for-profit entities and other third parties are increasingly
important partners with local governments in funding Property
Assessed Clean Energy (PACE) upgrades.

(c) The closing costs associated with bond issuance can make
PACE financing for small projects cost-prohibitive.

(d) By pooling small to medium size PACE projects into one
bond, the closing costs for each project can be drastically reduced.

(e) In order for a third party to pool projects, it is necessary to
enable local governments to assign the revenue from a PACE
assessment to an investor prior to the issuance of a bond.

(f) The right to foreclose on delinquent voluntary assessments,
and the senior lien status of those assessments, should remain with
the local government.

SEC. 2.  

Section 5898.12 of the Streets and Highways Code is
amended to read:

5898.12.  

(a) It is the intent of the Legislature that this chapter
should be used to finance public improvements to lots or parcels
that are developed and where the costs and time delays involved
in creating an assessment district pursuant to other provisions of
this division or any other law would be prohibitively large relative
to the cost of the public improvements to be financed.

(b) It is also the intent of the Legislature that this chapter should
be used to finance the installation begin insert or prepaid service contract, or
both, end insert of distributed generation renewable energy sources or energy
efficiency improvements that are permanently fixed to residential,
commercial, industrial, agricultural, or other real property.

(c) It is also the intent of the Legislature to address chronic
water needs throughout California by permitting voluntary
individual efforts to improve water efficiency. The Legislature
further intends that this chapter should be used to finance the
installation of water efficiency improvements that are permanently
fixed to residential, commercial, industrial, agricultural, or other
real property, including, but not limited to, recycled water
connections, synthetic turf, cisterns for stormwater recovery, and
permeable pavement.

(d) It is also the intent of the Legislature that a public agency
in the process of establishing an assessment program, to the extent
feasible, use a good faith effort to provide advance notice of the
proposed program to water and electric service providers in the
relevant service area, as set forth in Section 5898.24, to allow the
most efficient coordination and collaboration between the public
agency and water and electric service providers.

(e) This chapter shall not be used to finance facilities for parcels
in connection with the initial construction of a residential building,
unless the initial construction is undertaken by the intended owner
or occupant.

(f) This chapter shall not be used to finance the purchase or
installation of appliances that are not permanently fixed to
residential, commercial, industrial, agricultural, or other real
property.

(g) Assessments may be levied pursuant to this chapter only
with the free and willing consent of the owner of each lot or parcel
on which an assessment is levied at the time the assessment is
levied.

SEC. 3.  

Section 5898.16 is added to the Streets and Highways
Code, to read:

5898.16.  

All references to financing in this chapter shall be
deemed to also refer to refinancing, except that with respect to
refinancing, the legislative body shall conclude that providing the
refinancing will result in an increased adoption of the
improvements authorized to be financed by this chapter. This
section does not constitute a change in, but is declaratory and a
clarification of existing law.

SEC. 4.  

Section 5898.24 of the Streets and Highways Code is
amended to read:

5898.24.  

(a) A legislative body shall publish notice of a hearing
pursuant to Section 6066 of the Government Code, and the first
publication shall occur not later than 20 days before the date of
the hearing.

(b) A legislative body shall provide written notice of a proposed
contractual assessment program to all water or electric providers
within the boundaries of the area within which voluntary
contractual assessments may be entered into not less than 60 days
prior to adoption of any resolution pursuant to Section 5898.26.

(c) (1) A legislative body administering a voluntary contractual
assessment program shall designate an office, department, or
bureau of the local agency that shall be responsible for annually
preparing the current roll of assessment obligations by assessor’s
parcel number on property subject to a voluntary contractual
assessment.

(2) The designated office, department, or bureau shall establish
procedures to promptly respond to inquiries concerning current
and future estimated liability for a voluntary contractual
assessment. Neither the designated office, department, or bureau,
nor the legislative body, shall be liable if any estimate of future
voluntary contractual assessment liability is inaccurate, nor for
any failure of any seller to request notice pursuant to this chapter
or to provide the notice to a buyer.

(d) For purposes of enabling sellers of real property subject to
a voluntary contractual assessment to satisfy the notice
requirements of Section 1102.6b of the Civil Code, the legislative
body shall cause to be recorded in the office of the county recorder
for the county in which the real property is located, concurrently
with the instrument creating the voluntary contractual assessment,
a separate document that meets all of the following requirements:

(1) The title of the document shall be “Payment of Contractual
Assessment Required” in at least 14-point boldface type.

(2) The document shall include all of the following information:

(A) The names of all current owners of the real property subject
to the contractual assessment and the begin delete assessor’s parcel number for
the affected real property, or the legal description if there is no
assessor’s parcel number. end delete begin insert legal description and assessor’s parcel
number for the affected property. end insert

(B) The annual amount of the contractual assessment.

(C) The date or circumstances under which the contractual
assessment expires, or a statement that the assessment is perpetual.

(D) The purpose for which the funds from the contractual
assessment will be used.

(E) The entity to which funds from the contractual assessment
will be paid and specific contact information for that entity.

(F) The signature of the authorized representative of the
legislative body to which funds from the contractual assessment
will be paid.

(e) The recorder shall only be responsible for examining the
document required by subdivision (d) and determining that it
contains the information required by subparagraphs (A), (E), and
(F) of paragraph (2) of subdivision (d). The recorder shall index
the document under the names of the persons and entities identified
in subparagraphs (A) and (E) of paragraph (2) of subdivision (d).
The recorder shall not examine any other information contained
in the document required by subdivision (d).

(f) In order to reduce the costs associated with contractual
assessments, a legislative body may authorize the document
described in subdivision (d) to be combined with the notice
required by Section 5898.32, and recorded as a single document.

SEC. 5.  

Section 5898.28 of the Streets and Highways Code is
amended to read:

5898.28.  

(a) A public agency may issue bonds pursuant to this
chapter, the principal and interest for which would be repaid by
voluntary contractual assessments. A public agency may advance
its own funds to finance work to be repaid through voluntary
contractual assessments, and may from time to time sell bonds to
reimburse itself for those advances. A public agency may enter
into a relationship with an underwriter or financial institution that
would allow the sequential issuance of a series of bonds, each bond
being issued as the need arose to finance work to be repaid through
voluntary contractual assessments. The interest rate of each bond
may be determined by an appropriate index, but shall be fixed at
the time each bond is issued unless the bond is issued to finance
improvements to nonresidential private property or residential
private property with four or more units. Bond proceeds may be
used to establish a reserve fund for debt service or paying the costs
of foreclosure on properties participating in the program, to fund
capitalized interest for a period up to two years from the date of
issuance of the bonds, to fund the administrative fee required for
participation in the PACE Reserve Program established pursuant
to Chapter 4 (commencing with Section 26050) of Division 16 of
the Public Resources Code, and to pay for expenses incidental to
the issuance and sale of the bonds. Division 10 (commencing with
Section 8500) shall apply to any bonds issued pursuant to this
section, insofar as that division is not in conflict with this chapter.

(b) (1) Notwithstanding any provision of this division or the
Improvement Act of 1915 (Division 10 (commencing with Section
8500)), a public agency may transfer its right, title, and interest in
and to any voluntary contractual assessments, if bonds have not
been issued pursuant to subdivision (a). The public agency and
the transferee shall enter into an agreement that, among other
things, identifies the specific period of time during which the
transfer of voluntary contractual assessments will be operative,
not to exceed three years. Except as provided in paragraph (2), a
transfer of any voluntary contractual assessments under this
subdivision shall be treated as a true and absolute transfer of the
asset so transferred for the period of the transfer and not as a pledge
or grant of a security interest by the public agency for any
borrowing. The characterization of the transfer of any of those
assets as an absolute transfer by the public agency shall not be
negated or adversely affected by the fact that only a portion of any
voluntary contractual assessment is transferred, nor by any
characterization of the transferee for purposes of accounting,
taxation, or securities regulation, nor by any other factor
whatsoever. As used in this section, “transfer” means sale,
assignment, or other transfer.

(2) Nothing in this subdivision shall be construed to authorize
the transferee to initiate and prosecute a foreclosure action resulting
from a delinquency in the payment of the voluntary contractual
assessment. Initiation and prosecution of a foreclosure action shall
remain the responsibility of the public agency, which shall retain
the sole right to enforce its senior lien status.

(c) Division 10 (commencing with Section 8500) shall apply to
any bonds issued pursuant to this section, insofar as that division
is not in conflict with this chapter. Notwithstanding Part 16
(commencing with Section 8880) of Division 10, if any reserve
fund is established in whole or in part with legally available
moneys of one or more public agencies other than bond proceeds,
the public agency or agencies may provide that a property owner
who prepays all or a portion of the assessment shall not be credited
with the public agency moneys in the reserve fund and there shall
be no reduction in the assessment pursuant to Sections 8884 or
8881, and the public agency moneys in the reserve account shall
not be used to redeem bonds pursuant to Section 8885 and any
public agency moneys remaining in the reserve fund at the maturity
of the bonds shall be disbursed to the public agency free and clear
of the lien of the issuing instrument. Any excess bond proceeds
may be used to pay principal of and interest on the bonds in
addition to any other use permitted by Division 10 (commencing
with Section 8500).

(d) Notwithstanding any other law, the public agency may
conclude that it is in the public interest for bonds issued by the
public agency pursuant to this chapter to not be subject to
redemption prior to their scheduled maturity date except as a result
of the prepayment in whole or in part of contractual assessments.
Notwithstanding any other limitations set forth in law, and with
respect to bonds issued to finance improvements to nonresidential
property or residential property with four or more units, the
redemption premium associated with a redemption of bonds as a
result of a contractual assessment prepayment shall be determined
by agreement of the public agency issuing the bonds, the property
begin delete owner end delete begin insert owner, end insert and the initial purchaser of the bonds.

(e) (1) Without the prior written approval of the property owner,
and notwithstanding any other law, a public agency may issue
bonds pursuant to this chapter to refinance outstanding bonds
payable from contractual assessments levied pursuant to this
chapter if all of the following are true:

(A) The total interest cost to maturity on the refunding bonds
is less than the total interest cost to maturity on the bonds to be
refunded.

(B) The final maturity date of the refunding bonds is not later
than the final maturity date of the refunded bonds, except that if
the bonds to be refunded are variable rate bonds, the final maturity
date of the refunding bonds may extend to, but not beyond, the
useful life of the financed improvements.

(C) The total interest component of the scheduled contractual
assessment installments to maturity, after issuance of the refunding
bonds, is less than the total interest component of the scheduled
contractual assessment installments to maturity prior to issuance
of the refunding bonds.

(2) For purposes of this section, in connection with the issuance
of fixed rate bonds to refinance variable rate bonds, the interest
rate on the refunded bonds for purpose of demonstrating
compliance with this section may be assumed to be the maximum
possible interest rate on the bonds to be refunded as long as the
legislative body concludes that the public interest will be served
by issuing fixed rate bonds to refinance the outstanding variable
rate bonds. In connection with an issuance of refunding bonds
under this chapter, the legislative body may direct that an
amendment to the document required by subdivision (d) of Section
5898.24 be recorded to reflect the revised contractual assessment
installment schedule.

(f) With the prior written approval of the owner of nonresidential
property or residential property with four or more units, and
notwithstanding any other law, a public agency may issue bonds
pursuant to this chapter to refinance outstanding bonds payable
from contractual assessments levied pursuant to this chapter
without complying with subdivision (e). The final maturity date
of the refunding bonds issued pursuant to this subdivision may be
later than the final maturity date of the bonds being refunded as
long as the final maturity date of the refunding bonds does not
extend beyond the useful life of the financed improvements.

SEC. 6.  

Section 5898.30 of the Streets and Highways Code is
amended to read:

5898.30.  

Assessments levied pursuant to this chapter, and the
interest and any penalties thereon shall constitute a lien against
the lots and parcels of land on which they are made, until they are
paid. Division 10 (commencing with Section 8500), insofar as
those provisions are not in conflict with this chapter, Article 13
(commencing with Section 53930) of, and Article 13.5
(commencing with Section 53938) of, Chapter 4 of Part 1 of
Division 2 of Title 5 of the Government Code apply to the
imposition and collection of assessments contracted for pursuant
to this chapter, including, but not limited to, provisions related to
lien priority, the collection of assessments in the same manner and
at the same time as the general taxes of the city or county on real
property, unless another procedure has been authorized by the
legislative body or by statute, and any penalties and remedies in
the event of delinquency and default.

SEC. 7.  

Section 5898.33 is added to the Streets and Highways
Code, to read:

5898.33.  

(a) If a public agency owning property, including
property held in trust for any beneficiary, grants a leasehold or
other possessory interest in the property, the contractual assessment
may be levied on the leasehold or possessory interest and shall be
payable by the owner of the leasehold or possessory interest. The
assessment contract shall be entered into by the public agency that
established the program and the lessee, and the public agency
owning the property shall provide prior written consent to the
contractual assessment.

(b) At the time the assessment contract is executed, the term of
the leasehold interest shall be at least as long as the term of the
assessment contract.

(c) If the contractual assessment on any possessory interest
levied pursuant to subdivision (a) is unpaid when due, the tax
collector may use those collection procedures that are available
for the collection of assessments on the unsecured roll.

SEC. 8.  

Section 5899.2 of the Streets and Highways Code is
amended to read:

5899.2.  

For the purpose of financing the installation of
distributed generation renewable energy sources pursuant to this
chapter, “permanently fixed” includes, but is not limited to, systems
attached to a residential, commercial, industrial, agricultural, or
other real property pursuant to a power purchase agreement or
lease between the owner of the system and the owner of the
assessed property, if the power purchase agreement or lease
contains all of the following provisions:

(a) The attached system is an eligible renewable energy resource
pursuant to the California Renewables Portfolio Standard Program
(Article 16 (commencing with Section 399.11) of Chapter 2.3 of
Part 1 of Division 1 of the Public Utilities Code).

(b) The term of the power purchase agreement or lease is at
least as long as the term of the related assessment contract.

(c) The owner of the attached system agrees to install, maintain,
and monitor the system for the entire term of the power purchase
agreement or lease.

(d) The owner of the attached system is not permitted to remove
the system prior to completion of the term of the contractual
assessment lien.

(e) After installation, the power purchase agreement or lease is
paid, either partially or in full, using the funds from the contractual
assessment program.

(f) The right to receive the electricity from the system, through
a power purchase agreement or lease or the right to the system
itself, is tied to the ownership of the assessed real property and is
required to be automatically transferred with the title to the real
property whether the title is transferred by voluntary sale, judicial
or nonjudicial foreclosure, or by any other means.

(g) The power purchase agreement or lease identifies the public
agency that is a party to the assessment contract on the real property
as a third-party beneficiary of the power purchase agreement or
lease until the assessment lien on the property has been fully paid
and, only until that time, prohibits amendments to the power
purchase agreement or lease without the consent of the public
agency.

(h) In order to ensure that the property owner is guaranteed the
electric power from the system for the length of the lien, the system
shall not be removed if the owner of the attached system is not
performing its obligations under the contract, and one of the
following is true:

(1) The owner of the attached system does both of the following:

(A) Covenants in its contract with the property owner that
neither the owner of the attached system nor any successor in
interest will remove or permanently decommission the attached
system during the term of the contract.

(B) Warrants in the contract with the property owner that no
assignee, creditor, partner, or owner of the attached system’s owner
has, as of the date of the contract or during the remaining term of
the contract, the right to remove or permanently decommission
the attached system.

(2) The owner of the attached system must be a bankruptcy
remote special purpose entity that is bankruptcy remote and meets
all of the following conditions:

(A) It does not engage in any business other than owning the
attached systems and entering into electricity contracts with the
homeowner.

(B) It has no material debt.

(C) Its contracts are either entered into with unrelated third
parties or have terms negotiated at arms length.