AB 1709 - Mello-Roos Act for Renewable Energy & Energy Efficiency - Legislative Analysis

[ AB 1709 is an alternative to AB 811 put forth by some municipal
financing professionals to add flexibility and expand energy
options under AB 811.
A primary expansion is to create Mello-Roos type CFD
Community Facilities District) bonds vs "contractual assessment"
financing with funds available for new construction.
AB 811 is for retrofits only. Vetoed by the Governor on 9/27/2008 per below - JFinlay ]


BILL NUMBER:  AB 1709
  VETOED DATE: 09/27/2008

To the Members of the California State Assembly:

I am returning Assembly Bill 1709 without my signature.

While I support the use and inclusion of energy efficiency products
for the homes in our state as demonstrated by my Million Solar Roofs
Initiative, this bill would allow Mello-Roos taxes to be imposed on
homeowners in order to finance energy efficiency improvements.  This
provision represents a fundamental shift in the purpose of Mello-Roos
taxes and is one that I cannot support.

Sincerely,
Arnold Schwarzenegger

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SENATE LOCAL GOVERNMENT COMMITTEE
[ analysis, discussion of AB 1709 ]
              Senator Gloria Negrete McLeod, Chair

  BILL NO:  AB 1709                    HEARING:  6/25/08
  AUTHOR:  Hancock                     FISCAL:  No
  VERSION:  5/19/08                    CONSULTANT:
  Weinberger

   MELLO-ROOS ACT FOR RENEWABLE ENERGY AND ENERGY EFFICIENCY

                            Background 

  The Mello-Roos Community Facilities Act allows counties,
  cities, special districts, and school districts to levy
  special taxes (parcel taxes) to finance a wide variety of
  public works, including parks, recreation centers, schools,
  libraries, child care facilities, and utility
  infrastructure.  A Mello-Roos Community Facilities District
  (CFD) issues bonds against these special taxes to finance
  the public works projects.  Like all special taxes,
  Mello-Roos Act special taxes require 2/3-voter approval.
  If there are fewer than 12 registered voters, the affected
  landowners vote.

  In addition to financing public or governmental capital
  facilities, Mello-Roos Act special taxes can fund a limited
  list of public services: police services, fire protection,
  recreation programs, library services, museum operations,
  park maintenance, flood protection, hazardous waste
  cleanup, street and road maintenance, lighting of parks,
  parkways, streets, roads, and open space, plowing and
  removal of snow, and graffiti management and removal.

  The Mello-Roos Act is an important feature of the local
  fiscal landscape, providing local officials with a key tool
  for accumulating the public capital needed to pay for the
  public works projects that make new residential development
  possible.  Since 1985, CFDs have issued over $18 billion in
  long-term bonds, mostly for capital improvements.  Without
  access to Mello-Roos bond funding, many builders would have
  to pay higher development impact fees and raise housing
  prices.

  Local officials want to be able to use Mello-Roos taxes to
  help finance renewable energy and energy efficiency
  improvements on private property.  To simplify the process
  by which property owners can voluntarily use Mello-Roos

  financing, local officials want to be able to create CFDs
  that initially contain no parcels of land, but consist only
  of territory from which parcels may subsequently be annexed
  to the CFD with the unanimous approval of parcel owners.


                           Proposed Law 

  I.   Facilities  .  In addition to financing public works such
  as park, school, and library facilities, CFDs can pay for
  improvements on privately owned buildings or real property.
   For example, CFDs may pay for work deemed necessary to
  bring buildings or real property, whether privately or
  publicly owned, into compliance with seismic safety
  standard and regulations.

  Assembly Bill 1709 adds the acquisition, installation, and
  improvement of energy efficiency and renewable energy
  improvements to the types of facilities that a CFD may
  finance, or refinance, regardless of whether the buildings
  or property are privately or public owned.

  AB 1709 provides that work on privately owned buildings and
  real property may be financed by a special tax levy only:
         If all of the votes cast on the question of levying
       the special tax are in favor of levying the special
       tax;   or  ,
         With the prior written consent to the special tax
       of all of the owners of each property that may be
       subject to the special tax.

  AB 1709 specifies that the prior written consent
  constitutes a unanimous vote in favor of the special tax
  and any associated bond indebtedness.


  II.   CFD formation and annexation  .  To initiate the
  formation of a CFD, a local agency's legislative body must
  adopt a resolution of intention to establish the district,
  which must:
         Describe the district's boundaries.
         Describe the facilities and services proposed to be
       financed.
         State that a special tax, secured by a lien against
       real property, will be annually levied.


         Specify, in detail, the rate, method of
       apportionment, and manner of collection of the special
       tax.
         Fix a time and place for a public hearing.
  After holding the hearing and considering protests, if the
  legislative body determines to establish the CFD, it must
  adopt a resolution of formation containing all of the
  information provided in the resolution of intention and, if
  a special tax is to be levied, some additional information
  about the tax levy.

  Assembly Bill 1709 authorizes an alternate procedure for
  forming a CFD that initially consists solely of territory
  proposed for annexation to the CFD in the future, with the
  condition that a parcel or parcels within that territory
  may be annexed to the CFD and subjected to the special tax
  only with the unanimous approval of the parcel owner or
  owners at the time of annexation.

  Under the alternate CFD formation procedure authorized by
  AB 1709, the resolution of intention or the resolution of
  formation do not need to specify the rate or rates of
  special tax, provided that the rate of special tax
  applicable to a parcel or parcels will be specified in the
  unanimous approval provided by parcel owners at the time
  they annex to the CFD.

  A majority protest to a proposed CFD halts formation
  proceedings for one year from the date of the protest
  decision.  A majority protest occurs if 50% or more of the
  registered voters, or six registered voters, whichever is
  more, residing within the territory proposed to be included
  in the district, or if the owners of one-half or more of
  the area of the land in the territory proposed to be
  included in the district and not exempt from the special
  tax, file written protests against the establishment of the
  district.  AB 1709 provides that this definition of
  majority protest does not apply to the alternative CFD
  formation process.  Instead, under the alternative CFD
  formation process authorized by AB 1709, a majority protest
  occurs if 50% or more of the registered voters, or six
  registered voters, whichever is more, residing within the
  territory proposed to be annexed to the CFD in the future,
  or the owners of one-half or more of the area of the land
  proposed to be annexed in the future and not exempt from

  the special tax, file written protests against the
  establishment of the district.

  After the adoption of the resolution of formation, voters
  must approve the special tax levy, authorize indebtedness,
  and establish the CFD's appropriations limit.  Under the
  alternate procedure established by AB 1709, the
  appropriations limit for the CFD, the applicable rate of
  the special tax and the method of apportionment and manner
  of collection of that tax, and the authorization to incur
  bonded indebtedness must be specified and be approved by
  the unanimous approval of the owner or owners of each
  parcel or parcels at the time that the parcel or parcels
  are annexed to the CFD.  The bill states that no additional
  hearings or procedures are required, and the unanimous
  approval shall be deemed to constitute a unanimous vote in
  favor of the appropriations limit for the CFD, the
  authorization to levy the special tax on the parcel or
  parcels, and the authorization to incur bonded
  indebtedness.

  AB 1709 prohibits a local legislative body from recording a
  notice of tax lien against any parcel or parcels within a
  CFD formed using the alternative process until the parcel
  owner or owners have given unanimous approval of the parcel
  or parcels' annexation to the CFD, at which time the
  special tax lien shall be recorded.


  III.   Special taxes  .  A resolution of intention to form a
  CFD must specify the rate, method of apportionment, and
  manner of collection of the special tax that is to be
  levied in sufficient detail to allow each landowner or
  resident within the proposed district to estimate the
  maximum amount that he or she will have to pay.  After a
  CFD has been created and authorized to levy special taxes,
  the legislative body may approve an ordinance to levy the
  special taxes at the rate, and in the manner, described in
  the resolution of intention.

  Under the alternative CFD formation process authorized by
  Assembly Bill 1709, a legislative body adopts an ordinance
  providing for the levy of the special taxes on parcels that
  will annex to the CFD at the rate or rates to be approved
  unanimously by the parcel owner or owners.  The ordinance

  providing for the levy of special taxes must also provide
  for the apportionment and collection of special taxes in
  the manner specified in the resolution of formation.  AB
  1709 specifies that no further ordinance shall be required
  even though no parcels may have annexed to the CFD.

  An action to determine the validity of special taxes levied
  by a CFD must be brought by an interested person, pursuant
  to specified statutes, within 30 days after voters approve
  the special tax.  AB 1709 requires an action to determine
  the validity of special taxes levied by a CFD formed under
  the alternative process to be brought by an interested
  person, pursuant to specified statutes, within 30 days
  after voters approve the adoption of the resolution of
  formation for the CFD.


  III.   Bonds  .  For a CFD to issue bonds, the local
  legislative body must adopt a resolution proposing to incur
  bonded indebtedness, hold a hearing on the proposed debt
  authorization, and submit the proposition to voters.  A 2/3
  vote is required to approve the issuance of bonds by a CFD.


  Under the alternative CFD formation process authorized by
  Assembly Bill 1709, the proposition to authorize bonded
  indebtedness is approved by parcel owners at the time a
  parcel or parcels is annexed to the CFD pursuant to the
  unanimous approval requirements for annexing into the CFD.
  AB 1709 provides that no additional hearings or procedures
  shall be required, and unanimous approval shall be deemed
  to constitute a unanimous vote in favor of the proposition
  to authorize bonded indebtedness.

  An action to determine the validity of bonds issued by a
  CFD must be brought by an interested person, pursuant to
  specified statutes, within 30 days after voters approve the
  issuance of the bonds.  AB 1709 requires an action to
  determine the validity of bonds issued by a CFD formed
  under the alternative process to be brought by an
  interested person, pursuant to specified statutes, within
  30 days after the effective date of a resolution to approve
  bonded indebtedness that has been adopted by the local
  legislative body.


                             Comments 

  1.   Local assistance for energy improvements  .  In response
  to rising energy costs and concerns about climate change,
  local governments want to promote energy efficiency and
  renewable energy generation.  Up-front installation costs
  can deter property owners from installing solar panels, or
  making energy efficiency improvements.  Using Mello-Roos
  taxes, counties and cities can help to finance these
  investments at low interest rates.  Property owners who
  voluntarily agree to pay Mello-Ross taxes to finance energy
  improvements will realize immediate savings on their
  utility bills while paying off their costs over time on
  their property tax bills.  By lowering energy costs,
  reducing energy demand, and expanding generation from
  renewable energy sources, the voluntary Mello-Roos taxes
  authorized by AB 1709 will benefit residents throughout
  California.

  2.   Narrow purpose, broad powers .  The alternative CFD
  formation process in AB 1709 is intended to simplify the
  process by which individual private parcel owners can
  voluntarily use Mello-Roos special taxes to finance energy
  efficiency and renewable energy improvements.  However, a
  CFD formed using this alternative process could finance any
  of the facilities and services authorized by the Mello-Roos
  Act.  It is unclear why the alternative CFD formation
  process should be used for CFDs that finance anything other
  than energy efficiency and renewable energy facilities on
  individual parcels.  The Committee may wish to consider
  amending AB 1709 to authorize the use of the alternative
  CFD formation procedure only for a CFD that will
  exclusively finance energy efficiency and renewable energy
  improvements that are permanently fixed to or on real
  property and in buildings.

  3.   Permanent fixtures  .  AB 1709 does not define the term
  "energy efficiency improvements," potentially allowing
  property owners to use Mello-Roos special taxes to finance
  the purchase of energy efficient appliances, like
  flat-screen TVs or microwave ovens.  Because Mello-Roos
  taxes are levied on real property and may be enforced
  through recordation of a lien against real property, the
  Committee may wish to consider whether they should be used

  to finance the purchase of appliances and other facilities
  that may be unplugged and easily removed from the property.
   The Committee may wish to consider amending AB 1709 to
  require that energy efficiency and renewable energy
  improvements must be permanently fixed to or on real
  property and in buildings.

  4.   Public purpose  .  The California Constitution prohibits
  the use or pledge of public credit to aid - or pay the
  liabilities of - any individual, association, or
  corporation.  However, the courts have found this
  prohibition does not preclude the use of public credit or
  funds for public purposes, even if a private entity also
  benefits.  For example, to finance seismic safety work on
  private property (AB 1700, Farr, 1992) and fire safety
  improvements on private property (AB 2594, Bates, 1992),
  benefit assessments can be levied only with a property
  owner's consent.  The Committee may wish to consider
  amending AB 1709 to include a legislative declaration that
  a public purpose will be served by providing the
  legislative body of a local agency with the authority to
  use Mello-Roos special taxes to finance the installation of
  energy efficiency and renewable energy improvements that
  are permanently fixed to or on real property and in
  buildings.

  5.   Technical amendment  .  The committee may wish to
  consider deleting the cross-reference to  53321.1 on page
  10, line 3, and replacing it with a reference to  53328.1.

  6.   Related bill  .  At its June 4 hearing, the Senate Local
  Government Committee passed AB 811 (Levine) which
  authorizes cities and counties to finance distributed
  generation renewable energy sources and energy efficiency
  improvements using contractual assessments.

  7.   Legislative history  .  As introduced, AB 1709 was a bill
  authored by the Assembly Committee on Labor and Employment
  that would have required the Labor and Workforce
  Development Agency to report specified information to the
  Legislature.  The July 20, 2007 amendments removed that
  material, changed the author, and inserted language
  relating to the declaration of a temporary local public
  health emergency.  The May 19, 2008 amendments, in turn,
  removed that material and inserted the current language
  relating to Mello-Roos Community Facilities Districts.


                         Assembly Actions 

  Not relevant to current the May 19, 2008 version of the
  bill.


                 Support and Opposition  (6/19/08)

   Support  :  Cities of Berkeley, Morgan Hill, Saratoga, and
  Solana Beach, County of San Mateo, Pacific Gas and Electric
  Company.

   Opposition  :  Howard Jarvis Taxpayers Association.