BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 77
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          (  Without Reference to File  )

          SENATE THIRD READING
          SB 77 (Pavley)
          As Amended  March 22, 2010
          2/3 vote.  Urgency

           SENATE VOTE  :   Vote not relevant

           APPROPRIATIONS      10-3                                        
           
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          |Ayes:|Fuentes, Ammiano,         |     |                          |
          |     |Bradford, Coto, De Leon,  |     |                          |
          |     |Hall, Nielsen, Skinner,   |     |                          |
          |     |Solorio, Torlakson        |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Conway, Miller, Norby     |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Creates a state Property Assessed Clean Energy (PACE)  
          Reserve program to assist local jurisdictions in financing the  
          installation of distributed generation of renewable energy  
          sources or energy or water efficiency improvements.   
          Specifically,  this bill  :

          1)Requires the California Alternative Energy and Advanced  
            Transportation Financing Authority (CAEATFA) to develop and  
            administer a PACE Reserve program.

          2)Specifies that the PACE Reserve program is to be used to  
            reduce the overall costs to property owners of PACE bonds  
            issued by a local jurisdiction.

          3)Defines PACE bond as a bond that is secured by voluntary  
            contractual assessment on a property or through a voluntary  
            special tax, which is levied through a charter city's charter  
            authority, for the purposes of financing the installation of  
            renewable energy sources, or energy or water efficiency  
            improvements.

          4)Establishes the following criteria for participation in the  









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            PACE Reserve program:

             a)   The interest rate on the PACE bond shall not exceed a  
               percentage as determined by the CAEATFA;

             b)   Minimum legal local structure and credit underwriting  
               criteria as determined by the CAEATFA are met; 

             c)   Proceeds of the PACE bonds are used to finance qualified  
               energy and water efficiency and clean energy improvements;  
               and,

             d)   The improvement financed is for a residential project of  
               three or fewer units, or a commercial project that costs  
               less than $25,000.

          5)Requires a local jurisdiction applicant to submit to CAEATFA  
            an application providing a detailed description of the PACE  
            program and a description of the transactional costs  
            associated with the PACE bond issuance, including  
            transactional costs.

          6)Requires CAEATFA to evaluate the following conditions when  
            determining eligibility of an applicant's PACE program:

             a)   Loan recipients are legal owners of underlying property;

             b)   Loan recipients are current on mortgage and property tax  
 
               payments;

             c)   Loan recipients are not in default or in bankruptcy  
 
               proceedings;

             d)   Loans are for less than 10% of the value of the  
 
               property;

             e)   The property is within the geographical boundaries of  
 
               the PACE program;










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             f)   The program offers financing for energy efficiency  
 
               improvements; and,

             g)   Improvements financed by the program follow applicable  
               standards for energy efficiency retrofit work, including  
               any guidelines adopted by the Energy Resources Conservation  
               and Development Commission.

          7)Requires CAEATFA to adopt best practices for the PACE program.

          8)Requires CAEATFA to consider the following factors when  
            evaluating an application:

             a)   The use of PACE best practices to qualify eligible  
               properties for participation in underwriting the PACE  
               program;

             b)   The cost efficiency of the local jurisdiction's PACE  
               program, including bond issuance;

             c)   The projected number of jobs created by the PACE  
               program;

             d)   The local jurisdiction's PACE program requirements for  
               quality assurance and consumer protection as related to  
               achieving efficiency and clean energy production;

             e)   The mechanism by which savings produced by this program  
               are passed onto the property owners; and,

             f)   Any other factors deemed appropriate by CAEATFA.

          9)Requires CAEATFA to review a local jurisdiction's PACE bond  
            issuance, including, but not limited to, indenture, trust  
            agreement, and bond documents.

          10)States that when CAEATFA is satisfied that the bond documents  
            are consistent with the requirements of the PACE Reserve  
            program, CAEATFA shall advance to the local jurisdiction  
            applicant or  the applicant's bond trustee the amount approved  
            by CAEATFA for use in the PACE bond reserve fund held by the  
            local jurisdiction.









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          11)Requires CAEATFA to enter into an agreement with the local  
            jurisdiction applicant regarding the creation and operation of  
            the reserve fund, including the manner in which the Authority  
            will be repaid for the moneys disbursed.

          12)Appropriates $50 million through January 1, 2015, from the  
            Renewable Resource Trust Fund to fund the program.

          13)Specifies that the moneys appropriated shall remain in the  
            Renewable Resources Trust Fund until the funds are needed by  
            CAEATFA. 

          14)Authorizes up to $300,000 to be used by CAEATFA to cover  
            administrative costs.

          15)Specifies that all repayments of money disbursed shall be  
            deposited to the Renewable Resources Trust Fund.

          16)Requires CAEATFA to report back to the Legislature annually  
            on the progress of the PACE Reserve fund program.

          17)Authorizes CAEATFA to purchase, with proceeds of its bonds or  
            its revenue, PACE bonds issued by a local jurisdiction.

          18)Specifies that bonds purchased by CAEATFA may be held by  
            CAEATFA or sold off to other public or private entities.

          19)Contains an urgency clause allowing this bill to take effect  
            immediately.

           EXISTING LAW  :

          1)Authorizes public agencies, as defined, in California to  
            designate areas within which legislative bodies and willing  
            property owners may enter into contractual assessments to  
            finance the installation of distributed generation renewable  
            energy sources or energy or water efficiency improvements.

          2)States legislative intent that the authorization listed above  
            should be used to finance the installation of distributed  
            generation renewable energy sources and energy or water  
            efficiency improvements that are fixed to residential,  









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            commercial, industrial, agricultural, and other real property.

          3)States that for the purpose of financing the installation of  
            water efficiency improvements, "public agency" means a city,  
            county, city and county, municipal utility district, community  
            services district, sanitary district, sanitation district, or  
            water district.

          4)Prohibits the authorization from being used to finance the  
            purchase or appliances or installations not fixed to real  
            property.

          5)Makes findings and declarations concerning the need for energy  
            and water efficiency improvements in order to address global  
            climate change, the deterrent effect of high up-front costs on  
            making those improvements, and the need to authorize an  
            alternative procedure for authorizing assessments to finance  
            the cost of energy efficiency improvements in order to make  
            them more affordable and promote their installation.

          6)Declares that a public purpose will be served by a contractual  
            assessment program that provides the legislative body of  
            specified public agencies with CAEATFA to finance the  
            installation of distributed generation renewable energy  
            sources or energy or water efficiency improvements to  
            residential, commercial, industrial, agricultural and other  
            real property.

          7)Authorizes the legislative body to determine that it would be  
            convenient, advantageous, and in the public interest to  
            designate an area within the public agencies jurisdiction,  
            which may encompass the entire jurisdiction or a lesser  
            portion, within which authorized legislative body officials  
            and property owners may enter into contractual assessments to  
            finance the installation of distributed generation renewable  
            energy sources or energy or water efficiency improvements that  
            are fixed to the property.

          8)States that the term "energy efficient improvements" includes,  
            but is not limited to:  the installation of distributed  
            generation renewable energy resources; and, that any energy  
            efficiency improvement must be fixed to the real property.










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          9)Specifies that assessments may be levied 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.

          10)States that 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.

          11)Specifies that the collection of assessments in the same  
            manner and at the same time as the general taxes of the city  
            on real property are payable.

          12)Creates CAEATFA for the purpose of promoting the development  
            and utilization of alternative energy sources and the  
            development and commercialization of advanced transportation  
            technologies.  It is authorized to issue up to $1 billion in  
            revenue or prepayment bonds to fund projects.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1)Appropriates $50 million from the Renewable Resources Trust  
            Fund [special fund] for the PACE Reserve program [special  
            fund].

          2)CAEATFA estimates annual costs of $300,000 to administer the  
            program.  Initial costs would be funded from the Renewable  
            Resources Trust Fund and ongoing costs would be recovered from  
            fees paid by municipalities participating in the reserve  
            program.

           COMMENTS  :  CAEATFA was originally created in 1980 with an  
          authorization of $200 million in revenue bonds to finance  
          projects utilizing alternative sources of energy, such as  
          cogeneration, wind and geothermal power.  In 1994 its charge was  
          expanded to include the financing of "advanced transportation"  
          technologies.

          During the energy crisis of 2001, CAEATFA's authority was again  
          expanded, this time to provide financial assistance to public  
          power entities, independent generators, and others for new and  









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          renewable energy sources, and to develop clean distributed  
          generation.

          CAEATFA consists of five members:  the Director of Finance, the  
          Chairman of the California Energy Commission, the President of  
          the Public Utilities Commission, the State Controller, and the  
          State Treasurer.  Its current mission is to provide financing  
          for facilities that use alternative energy sources and  
          technologies.  CAEATFA also provides financing for facilities  
          needed to develop and commercialize advanced transportation  
          technologies that conserve energy, reduce air pollution, and  
          promote economic development and jobs.

          AB 811 (Levine), Chapter 159, Statutes of 2008, proposed to  
          further the public interest of addressing climate change through  
          energy conservation efforts by authorizing cities to provide  
          up-front financing to property owners to install solar or other  
          renewable energy-generating devices or make specified energy  
          efficiency improvements to their properties through a system of  
          contractual assessments.  Prior to AB 811, contractual  
          assessments were only authorized for certain types of public  
          works projects.  Under contractual assessments, the property  
          owner or owners within a designated area choose to assess  
          themselves for the cost of energy efficiency improvements or  
          public works projects (i.e., under grounding of power lines or  
          installation of streetlights).  The local government then  
          provides the up-front funds for the project, and the property  
          owners pay an annual assessment until those funds, plus  
          interest, are repaid.  The underlying purpose is to create a  
          means by which a project that provides both a public benefit and  
          an incidental benefit to particular property owners can be  
          financed without imposing the cost on property owners in other  
          parts of the city who derive no benefit.

          AB 474 (Blumenfield), Chapter 444, Statutes of 2009, added water  
          efficiency improvements to the list of improvements that can be  
          paid for through a contractual assessment between a willing  
          property owner and a public agency.

          Charter cities have broad authority to create special assessment  
          districts.  Berkeley was the first city in the nation to launch  
          a PACE program and used a special assessment district to  
          establish a financing mechanism in which individual property  









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          owners can voluntarily participate and repay improvements  
          through a special property tax assessment.

          According to the author's office, the goal of this measure is to  
          lower the costs to local governments and property owners in the  
          financing of PACE bonds.  The author also believes that the bill  
          will enhance receptivity of the PACE bonds for the investors and  
          the attractiveness of PACE improvements to home and business  
          owners by creating a state program to standardize the programs  
          and lower financing costs.

          This bill would allow CAEAFTA to purchase locally-issued PACE  
          bonds.  This will allow local jurisdictions to sell bonds to  
          CAEAFTA at a lower rate and then CAEAFTA could pool all the  
          bonds together and sell those out into the market at lower  
          rates.  

          This bill appropriates $50 million from the Renewable Resources  
          Trust Fund (Fund) to CAEAFTA to fund the PACE Reserve Program.   
          Currently the Fund provides funding for placing solar panels on  
          new home construction projects.  However, given the steep  
          decline in new home construction in California this Fund has sat  
          stagnant for the past few years.  Under statute this Fund is set  
          to sunset in 2012.  The Fund receives its revenues from payments  
          received from utility users.  

           
          Analysis Prepared by  :    Katie Kolitsos / L. GOV. / (916)  
          319-3958                                               FN:  
          0003842