Sustainable Development – Goodwin Procter
Moody’s Downgrades Redevelopment Agency Bonds
In light of the pending elimination of California redevelopment agencies, Moody’s Investors Service has downgraded $11.6 billion of tax allocation bonds. According to Moody’s, all bonds rated above Baa2 will be lowered by one rating degree.
As industry participants struggle to comply with ABx1 26, which calls for the elimination of all redevelopment agencies in California, concerns have been raised regarding the timely payment of debt service for outstanding bonds secured by tax increment. Although Moody’s noted in its release the intent expressed in ABx1 26 to honor existing obligations through creation of successor agencies charged with fulfilling existing bond contracts, the rating agency also noted that much uncertainty exists. Such uncertainty stems from the audit requirements and sheer complexity of the law, as well as the challenges associated with the reallocation of tax increment revenue, which “may initially conflict with existing bond indentures.”
Moody’s also indicated that future downgrades could be possible. For instance, should a judge find that compliance with bond documents is subordinate to other objectives of ABx1 26, or should the legislation be implemented in a way that does not preserve timely debt service payments, redevelopment agency bond ratings could be reduced even further.
City of LA Votes Against Becoming Successor Agency to CRA/LA
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In a lengthy session this week, the City Council of the City of Los Angeles, CA voted against assuming the obligations of the Community Redevelopment Agency of Los Angeles (CRA/LA) to become the successor agency under the provisions of ABx1 26.
The passing of ABx1 26 and the subsequent fallout has put several projects into a precarious position, including 10 projects in Los Angeles County show in the graphic on the left.
An article about the Council’s decision can be found in today’s Los Angeles Times. To hear the discussion about the Council’s decision and the next steps, watch the on-demand video of the meeting here.
Weekly Quick Hits – Redevelopment Fall-Out Edition
In light of the California Supreme Court’s decision regarding ABx1 26 and ABx1 27, which permits the dissolution of redevelopment agencies to proceed, we have aggregated some of the news items on that topic from third-party sources.
Rescuing Redevelopment – An Op-Ed in the Los Angeles Times that advocates adopting a bill to extend the time period for abolishing redevelopment agencies and salvage the positive features of the community redevelopment law. (Los Angeles Times)
Unintended Consequences of New RDA Bills – This Op-Ed explores the unintended consequences of new bills that may reignite some of the alleged ills that were ostensibly eliminated by the Supreme Court’s ruling. (Silicon Valley Mercury News)
RDA Doors and Benefits Close – In addition to funding, California redevelopment agencies provided stimulus for jobs and economic development that now must be recovered through another mechanism. (Contra Costa Times)
On Hold: Projects Hit the Brakes with Redevelopment Decision – This article discusses the many projects that are now stalled following the court’s ruling to allow the shutdown of redevelopment agencies. (Bakersfield Californian)
Judge Rules Part of AB 32 Unconstitutional
A district court judge in California dealt a major setback to AB 32, California’s landmark global warming law. With the goal of reducing greenhouse gas emissions to 1990 levels by 2020, AB 32 set a Low Carbon Fuel Standard that required the carbon content in gasoline to be reduced by 10% and required that 20% of total gasoline used in the state come from renewable fuels.
The law was one of the first in the country to use a “carbon intensity” analysis to determine the total amount of green house gases emitted during the production and transportation of fuel. By capping the amount of carbon permissible in the fuel, the law would provide marketable credits to producers and distributors who emitted less carbon. Those who could not comply with the standard would face increased fuel costs as they would be forced to buy additional credits.
However, the law, which went into effect this year, may have stalled before even leaving the gates. According to the judge, the new standard unconstitutionally discriminated against out-of-state producers and attempted to regulate activity that occurred outside of state borders. As a result, the law violated the Dormant Commerce Clause of the Constitution.
The lawsuit was brought by various farm groups, ethanol producers, refiners and truckers. The California Air Resources Board has said it would appeal.
Court Finds HOAs Have More Rights to the Sun
“Court Finds That HOA Has More Rights Regarding Where Solar is Installed,” posted today on CleanEnergyAuthority.com, discusses the Tesoro V. Griffin case and the rights homeowners associations (HOAs) have under the California Solar Rights Act. See the full post in which Goodwin Procter Partner Doug Praw is quoted here.
GP ALERT: CA Supreme Court Upholds Legislation Disbanding Redevelopment Agencies
On December 29, 2011, the California Supreme Court upheld legislation that disbanded redevelopment agencies (RDAs) and allowed the State of California to take $1.7 billion in redevelopment funds, funneling it into the State’s General Fund. The court then struck down legislation that would have allowed redevelopment agencies to stay in business by paying a fee to the State. The combined effect of the ruling is that redevelopment agencies in California will no longer exist once the transition to successor agencies has been completed. RDA advocates have stated that this is the worst possible outcome for RDAs.
For more details and descriptions of the Redevelopment Bills at issue, view the full alert here.
Weekly Quick Hits
Fitch Releases 2012 Outlook for Energy Infrastructure Projects - Fitch Ratings’ Outlook for North American energy infrastructure projects in 2012 is Stable according to its report entitled, “2012 Outlook: Energy Infrastructure North America.” (MarketWatch)
Breakthrough Could Double Solar Output – A chemist at the University of Texas at Austin may have discovered a way to double the efficiency from solar cells. (Los Angeles Times)
Recovery Through High Speed Rail? - An opinion article looks at why building a high-speed rail system in the U.S. is a good way to revitalize America’s economy and reduce the use of foreign oil. (Bloomberg)
Transit’s Not Bleeding the Taxpayer Dry — Roads Are - A discussion of the real cost of maintaining roadway infrastructure. (DC.StreetsBlog)
Testing Limits of California Solar Act
This month, the California Court of Appeal clarified the limits of the California Solar Act by upholding a trial court ruling that homeowners improperly installed a solar energy facility on their home in contravention of the community’s governing documents referred to as covenants, conditions, and restrictions (CC&Rs). As the solar industry continues to grow and solar installations on single family residences become more affordable, it will be interesting to see whether this case is an exception or a bell-weather.
Background
In the case Tesoro v. Griffin, homeowner association Tesoro Corporation filed suit against homeowners Griffin for installing solar panels on their property in violation of the applicable CC&Rs. Specifically, Tesoro objected to the installation of solar panels on the roof of Griffin’s house, and on a slope outside the perimeter wall. According to Tesoro, Griffin had not received prior approval for the plans and, therefore, Tesoro had not been able to determine whether alternate locations had been considered or whether panels on the slope might alter the landscape and cause drainage problems. Tesoro filed its lawsuit after Griffin refused to return the slope to its original condition.
At trial, Griffin argued that Tesoro improperly denied their application for solar panels and that the denial violated their right to install a solar energy system under Section 714 of the California Solar Rights Act. The jury returned a special verdict for Tesoro, finding that Tesoro did not violate Section 714 with respect to the limits set forth by the CC&R’s. The appellate court agreed.
California Solar Rights Act – Section 714
Section 714 prohibits homeowner associations from imposing CC&R’s that effectively prohibit the installation of a solar energy system. However, CC&Rs may include provisions that impose reasonable restrictions on installations. “Reasonable” restrictions include those that:
- Do not significantly increase the cost of the solar system
- Do not significantly decrease the system’s efficiency or specified performance
- Allow for an alternative system of comparable cost, efficiency and benefits.
Section 714 further defines “significant” as those restrictions that increase the system’s cost, or decrease the system’s efficiency, by over 20% in each case.
The Court’s Holdings
Section 714 “Reasonableness” Standard is a Question of Fact.
The Court determined that whether or not restrictions on solar energy systems are “reasonable” under Section 714 is a question of fact for the jury.
Tesoro’s CC&R’s Imposed Reasonable Restrictions.
The Court noted that recorded use restrictions have a presumption of validity and are enforceable unless they are “wholly arbitrary, violate a fundamental public policy or impose a burden on the use of affected land that far outweighs any benefit.”
With respect to solar systems and Section 714, the Court held that, in cases where CC&R’s do not prohibit all solar units, but are instead formulated to promote the installation of such units that are comparable in cost and aesthetically reasonable, such CC&R’s do not violate Section 714’s “reasonable” standard. Furthermore, so long as the CC&R’s do not unreasonably increase cost or decrease efficiency, homeowners associations can consider the aesthetic impact of a solar energy system without violating Section 714.
In addition, the Court upheld Tesoro’s denial of the solar energy system because evidence at trial showed that the defendants could have installed the solar panels elsewhere on their property without significantly impacting cost or efficiency, while still being in compliance with Tesoro’s CC&R’s. The court also held that, under Section 714, Tesoro did not have the burden to propose the comparable alternative system at the time it denied defendant’s application.
According to the Court, nothing in Section 714 imposes such a burden on any homeowners association. Section 714 only requires that the denial of a solar energy system be communicated in writing and in a timely manner. As a result, because Tesoro’s concerns about location, safety and aesthetics were reasonable, the onus shifted to the defendants to propose an alternative solar system.
Greening the Work Environment
“Greening” the work environment has come to mean more than just obtaining LEED certification for a project. A recent study by the Department of Energy’s Pacific Northwest Laboratory has found that buildings designed with sustainability in mind cost an average of 19% less to run than other structures. The buildings included in the study had fewer maintenance costs, used substantially less energy and water, emitted less carbon dioxide, and generally housed happier occupants.
Nowhere are the benefits of green design more prominently featured than in the iconic and newly retrofitted Transamerica Pyramid in San Francisco, CA. Having recently achieved LEED Platinum status, the Transamerica building now sits in the top 2% of energy efficient buildings in the nation. An onsite cogeneration plant satisfies approximately 70% of the building’s energy needs, resulting in an overall savings of $700,000 per year. Also, through an aggressive recycling and composting program that has cut waste by 70%, the Transamerica building has realized a 73% reduction in waste collection costs over the past three years.
However, even the Transamerica building looks wasteful in comparison to the newly designed Bullitt Center in Seattle, WA. The Bullitt Center is expected to join only three other structures in the country to obtain the International Living Future Institute’s “Living Building Status.” The building will produce zero-net emissions, while using less than a quarter of the energy of a building of similar size. It will even supply and treat its own water, composting and sanitizing its raw sewage before shipping it offsite to become fertilizer. Such innovations will affect the bottom line – both of the building operators and of the the environment - for years to come.
