Putting Action into the Open Space Element:
One of the best methods for preserving open space and farmland is to buy or lease the land. This avoids questions of inverse condemnation or "taking" since the owner is compensated for the rights to the land. But where does the money for such acquisition come from? The following sections describe a variety of funding sources that are available to local governments.
A recent Constitutional amendment has significantly restricted the ability of local governments to raise revenues through many of the following funding sources. Proposition 218, enacted by California voters in November 1996, "protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent." Many of the general taxes, assessments, and user fees previously used to raise revenues are now subject to voter approval under the provisions of Proposition 218. The significance of Proposition 218 in funding open space initiatives will be discussed in the following sections. Not all sources of revenue are affected, but overall, the process will be slower, the overhead costs will be greater, and, with the new ability of the electorate to repeal or reduce taxes, assessments, fees, and charges by initiative, there will be less certainty of a continuous revenue stream.
Remember that acquisition is not limited to fee simple purchases of land.
Purchasing development rights, property options, or easements can also be
effective means of protecting open space, depending upon the circumstances.
For a detailed discussion of many of the available options, refer to Tools
for the Greenbelt published by The Greenbelt Alliance, a San Francisco-based
open space advocacy group.
Development impact fees are a popular method for financing park land (under the Quimby Act) and infrastructure. However, we will not discuss impact fees in detail. While impact fees and dedications of land are useful on a project-by-project basis, in our opinion they are not particularly well suited to be the sole basis for a long-range acquisition program. There are several reasons for this:
1. The amount of fees collected is directly related to the rate of development within the community. They cannot be depended upon during times of slow activity.
2. Fees are short-term in nature. Under California law, unused and uncommitted fees must be refunded if not obligated in five years.
3. Fees must be clearly justified. They must be based upon a nexus that relates the purpose and amount of the fee to the specific development project, its proportional impact on the community, and the governmental purpose that is being advanced by the fee.
4. Impact fees concentrate on new development. They are not spread over the community as a whole even though their results may be enjoyed by everyone.
5. Fees often cannot provide an adequate lump sum for significant improvements to be built at one time. They also do not offer a dependable return on investments to support bonded indebtedness.
Two good reference books on fees are The Calculation of Proportionate-Share Impact Fees by James C. Nicholas, available from the American Planning Association, and Public Needs and Private Dollars, by William Abbott, et al., and available from Solano Press Books.
Most experts agree that development impact fees are not affected by Proposition
218. The Constitutional amendment clearly provides that Proposition 218
does not apply to "existing laws relating to the imposition of fees
or charges as a condition of project development" (Section (b)(1),
Article XIIID, California Constitution). As such, development impact fees
remain under the authority of the Mitigation Fee Act (Government Code section
66000, et seq.) and do not require voter approval.
The Mello-Roos Community Facilities Act (Government Code section 53311 et seq.) is a tax-based financing method available to cities, counties, and special districts. It authorizes local governments to establish community facilities districts (CFDs) within which they may levy special taxes and issue bonds to finance open space acquisition, maintenance, and other programs.
Approval of the special tax and any related bond issue requires approval by two-thirds of the district electorate. When there are fewer than 12 registered voters in a CFD, approval must be by two-thirds of the district's landowners. Since Mello-Roos taxes already require a two-thirds vote, they are not affected by the voter approval requirements of Proposition 218. However, as with all special taxes, Mello-Roos taxes are subject to reduction or repeal by initiative under Proposition 218.
CFD boundaries need not be contiguous. For example, areas may be excluded from the district where there is sufficient open space or where voters oppose a tax levy.
Several years ago, the city of Fairfield created three Mello-Roos CFDs
to fund open space acquisition. The city levies special taxes on both developed
and undeveloped land. The taxes vary among the districts and are administered
by the Solano County Farmlands and Open Space Foundation. Proceeds from
the first of these CFDs helped to finance the purchase of 1000 acres of
grazing land in Lynch Canyon.
Cities and counties may use the Infrastructure Financing District
(IFD) law (Government Code section 53395 et seq.) to form tax increment
districts to finance the purchase of open space. Similar to redevelopment
financing, the IFD provides a way for localities to purchase open space
without raising property taxes. However, in order for an IFD to be formed,
each of the other taxing agencies must grant its approval before any of
its portion of their increment can be collected by the IFD. Since an IFD
should only be established in substantially undeveloped areas, conflicts
should not occur with redevelopment areas.
In June 1986 California's voters enacted Proposition 46 authorizing cities and counties to issue "general obligation" (G.O.) bonds "for the acquisition and improvement of real property," including open space. Issuance of the bonds is premised on a two-thirds voter approval.
G.O. bonds are secured primarily by ad valorem property taxes. Cities and counties may increase property taxes beyond the normal Proposition 13 limit to pay the principal and interest on the bonds. Since investors perceive property taxes as being less risky than the security for other types of indebtedness, G.O. bonds may be issued at relatively lower interest rates. G.O. bonds are therefore less expensive funding mechanisms for local governments than revenue bonds, for example.
In November 1987, Redlands voters authorized a $7.6 million G.O. bond with a 71% positive vote. About 50% of the money was designated for land acquisitions. As part of the city's historic orange grove protection program, the open space bonds helped fund grove purchases along with other improvements such as land for open space at major city entrance points, preservation of large natural areas on the city's periphery, a strip park with trails, land for expanded park and recreation spaces, and land for a sports complex, golf course, and swim complex.
In 1988 a combined total of 67.5 percent of the voters in Alameda and
Contra Costa Counties authorized the East Bay Regional Park District to
issue $225 million in G.O. bonds. The bonds financed a major expansion of
the district's park and open space holdings. The bonds also financed the
improvement and enlargement of various city park and recreation facilities
within the East Bay district.
State law authorizes local governments to levy special assessments upon property owners in order to purchase and maintain open space. The owners must be the beneficiaries of the open space and the size of individual assessment levies must be strictly proportional to the amount of per-parcel "special benefit" which the property receives. As strictly defined by Proposition 218, "special benefit" means "a particular and distinct benefit over and above general benefits conferred on real property located in the district or the public at large. General enhancement of property value does not constitute 'special benefit.'" Assessments must not exceed the project's total cost.
Unlike a special district, a special assessment district is not a political entity. It is simply a designated area in which a local government levies open space charges.
Proposition 218 impacts special assessments more than any other of the financing mechanisms discussed in this report. The Constitutional amendment invalidates previously established procedures and court interpretations applied to the use and levying of special assessments. It restricts the uses to which assessments may be put, limits the property owners who may be charged assessments, increases local agency accountability, and prohibits assessments that lack the support of local property owners.
The formation of a district is premised on receiving approval from a majority of the affected property owners by cast of ballot (this method of voting is called an "assessment ballot proceeding" to distinguish it from an election). Ballots must be weighted proportionally to the financial obligation of the affected property. In contrast to previous law, the governing body does not have the authority to overrule the property owners when a majority cast ballots against district formation. Further, once an assessment is created, it may be repealed or reduced by popular vote.
The following existing assessments, in place as of November 5, 1996, are exempt from the application of Proposition 218:
"(a) Any assessment imposed exclusively to finance the capital costs or maintenance and operation expenses for sidewalks, streets, sewers, water, flood control, drainage systems, and vector control...
"(b) Any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed.
"(c) Any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Clause of the Constitution of the United States.
"(d) Any assessment which previously received majority voter approval from the voters voting in an election on the issue of the assessment." (Section 5, Article XIII D, California Constitution)
The Park and Playground Act of 1909 (Government Code section 38000 et seq.) allows cities (but not counties) to impose assessments to finance the acquisition and improvement of public parks, playgrounds, and urban open space land. This act also allows a city to condemn land for these purposes.
The Landscaping and Lighting Act of 1972 (Streets and Highways Code section 22500 et seq.) enables cities, counties, and special districts to, among other things, acquire land for parks, recreation, and open space. In addition, a local government may use the assessments to pay for improvements and maintenance. Prior to Proposition 218, this Act was widely used on the basis that parks, open space, and recreation facilities benefited properties by increasing their value. Proposition 218 puts an end to this justification by imposing its strict definition of special benefit, thus making the Act much more difficult to use.
In 1990, the East Bay Regional Park District established a new Landscaping and Lighting Act assessment district to finance maintenance of parks in eastern Contra Costa County. In 1993, the parks district established another Landscaping and Lighting district covering both Alameda and Contra Costa Counties to fund maintenance of trails and trail corridors.
The little-used Open Space Maintenance Act (Government Code section 50575
et seq.) is helpful when a city or county has already acquired open space,
but doesn't have a way to pay for its maintenance. Under the act, local
governments may levy ad valorem special assessments to improve and maintain
open space; reduce fire, flood, and erosion hazards; and perform related
activities. The formation proceedings of this Act conflict with Proposition
218's provisions. The local government must substitute the requirements
of Proposition 218 for any conflicting provisions in the code until proper
legislative action is taken to reconcile the Act with Proposition 218.
Lease-purchasing is another technique for acquiring open space. A lease-purchase is, in effect, a loan. A city or county finds a bank, leasing company, nonprofit organization, etc., willing to purchase the targeted property. The purchaser then leases the land to the city or county which makes a regular appropriation for "rent." The rent consists of principal and interest payments. At the end of the lease, the local entity has completely reimbursed the lessor and it ends up owning the property.
Cities and counties may sometimes use "certificate of participation" (COP) financing in conjunction with lease-purchasing to acquire expensive tracts of land. Under this technique, the lessor purchases the desired open space, leases it to the local government, and receives a small fee for his/her services. The lessor then assigns the rights to receive lease payments to a trustee. The trustee, working with an underwriter, issues certificates of participation to individual investors who contribute to the property acquisition fund to reimburse the lessor. The COP is a bond-like securing indicating the holder has an undivided interest in a percentage of the local government's lease payments.
The local government annually appropriates funds for lease payments. The payments are then distributed to the certificate holders by the trustee. The percentage of the payment received by each such investor equals the percentage of the purchasing fund contributed by the investor. At the end of the lease, the city or county acquires title to the property.
Because it is similar to a lease, COP financing is not limited by statutory restrictions on long-term debt. Also, a city or county may issue COPs without a vote of the local electorate, unless an election is required by local charter.
Under a carefully crafted COP program, investors may be entitled to tax-free investment income (i.e., the interest portions of the lease payments). Depending on the local government's credit rating, this type of financing can therefore be accomplished at a relatively low interest rate.
At times, COP financing can be complicated and costly because of all the players and arrangements involved in making it possible. Also, a local government must be careful that its actions relative to the acquired land do not invalidate the tax-exempt status of the lease-purchase arrangement.
The city of Carlsbad employed COPs in 1988 to acquire and preserve 52 acres of open space. The property contains a grove of trees and is nearly surrounded by urban uses. When word of its pending development began circulating, preserving the grove became a hot political issue. As an alternative to G.O. bonds, the city turned to COPs to purchase and save the property. Carlsbad's growth control plan provided the rationale for the city's actions.
The cities of Los Altos and Cupertino have also issued COPs for open space purposes. Both used their funds to acquire excess school district lands to expand or develop local parks.
Next: Land Banking
State of California
This report prepared by:
Governor's Office of Planning and Research
1400 Tenth Street
Sacramento, CA 95814
(916) 445-0613
Revised November 1997