BILL ANALYSIS SB 1340 Page 1 SENATE THIRD READING SB 1340 (Kehoe) As Amended August 18, 2010 Majority vote SENATE VOTE :Vote not relevant LOCAL GOVERNMENT 7-2 TRANSPORTATION 11-1 ----------------------------------------------------------------- |Ayes:|Smyth, Caballero, |Ayes:|Jeffries, Bill Berryhill, | | |Arambula, Bradford, Coto, | |Blumenfield, Buchanan, | | |Davis, Solorio | |Eng, Furutani, Galgiani, | | | | |Hayashi, Miller, | | | | |Portantino, Solorio | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Knight, Logue |Nays:|Niello | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 12-5 ----------------------------------------------------------------- |Ayes:|Fuentes, Bradford, | | | | |Huffman, Coto, Davis, De | | | | |Leon, Gatto, Hall, | | | | |Skinner, Solorio, | | | | |Torlakson, Torrico | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Conway, Harkey, Miller, | | | | |Nielsen, Norby | | | ----------------------------------------------------------------- SUMMARY : Expands the use of the voluntary contractual assessment to finance electric vehicle charging infrastructure affixed on real property and would expand the Property Assessed Clean Energy (PACE) Reserve program to assist local jurisdictions in financing the installation of electric vehicle charging infrastructure. Specifically, this bill : 1)Expands the definition of PACE bond to include a bond that is secured by voluntary contractual assessment on a property or SB 1340 Page 2 through a voluntary special tax, which is levied through a charter city's charter authority, for the purposes of financing electric vehicle charging infrastructure. 2)Expands the criteria for participation in the PACE Reserve program to include that proceeds of the PACE bonds are used to finance qualified electric vehicle charging infrastructure. 3)Authorizes a public agency to enter into a contractual assessment with a willing property owner to finance electric vehicle charging infrastructure. 4)States that the Legislature finds that electric vehicle charging infrastructure is a necessary component to transitioning to increase electric vehicle usage. Electric vehicles and their electric charging infrastructure also address the issue of global climate change. 5)States that it is the intent of the Legislature that the authorization created by this bill should be used to finance electric vehicle charging infrastructure that is permanently fixed to residential, commercial, industrial, agricultural, or other real property. 6)Prohibits a public agency from permitting a property owner to participate in a contractual assessment program if the total amount of annual property tax and assessments exceeds 5% of the property's appraised market value. 7)Specifies that nothing in this measure shall be construed to void or otherwise release a property owner from the contractual obligations incurred by a contractual assessment on a property. Particularly in the event that the total amount of annual property taxes exceeds 5% of a property's appraised value after the property owner has entered into a contractual assessment. 8)Specifies that the costs of homeowners' electrical work needed to fuel electric vehicles are eligible for subsides under the California Energy Commission's (CEC) Alternative and Renewable Fuel and Vehicle Technology Program. 9)Contains chaptering-out provisions to avoid conflicts with AB 1106 (Fuentes) if that measure were to become law. SB 1340 Page 3 EXISTING LAW : 1)Creates a state PACE Reserve program to assist local jurisdictions in financing the installation of distributed generation of renewable energy sources or energy or water efficiency improvements. 2)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. 3)Establishes the following criteria for participation in the PACE Reserve program: a) The interest rate on the PACE bond shall not exceed a percentage as determined by the California Alternative Energy and Advanced Transportation Financing Authority (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. 4)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 SB 1340 Page 4 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; 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. 5)Requires CAEATFA to adopt best practices for the PACE program. 6)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. SB 1340 Page 5 7)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. 8)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, commercial, industrial, agricultural, and other real property. 9)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. 10)Prohibits the authorization from being used to finance the purchase or appliances or installations not fixed to real property. 11)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. 12)Declares that a public purpose will be served by a contractual assessment program that provides the legislative body of specified public agencies with the authority 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. 13)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 SB 1340 Page 6 finance the installation of distributed generation renewable energy sources or energy or water efficiency improvements that are fixed to the property. 14)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. 15)Requires that the resolution adopted by the governing body direct the appropriate city official to prepare a report including specified provisions. 16)Provides that, upon the written consent of an authorized city official, the proposed arrangements for financing the program pertaining to the installation of distributed generation renewable energy resources, energy or water efficiency improvements fixed to real property may authorize the property owner to purchase directly the related equipment and materials and to contract directly for the work on the property owner's residential, commercial, industrial, and other real property. 17)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. 18)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. 19)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. 20)Requires that a specified city official enter into consultations with the office of the county auditor or controller in order to reach agreement on what additional fees, if any, will be charged to the city or county for incorporating the proposed contractual assessments into the assessments of the general taxes of the city or county on real property, and to include a report on the results of these SB 1340 Page 7 consultations in the report to be submitted to the legislative body of the city. 21)Requires a legislative body to publish notice of a hearing regarding contractual assessments. 22)Defines "city" for purposes of these sections as a city, county, or city and county. 23)Defines "water district" as any district or other political subdivision, other than a city or county, a primary function of which is the irrigation, reclamation, or drainage of land or the diversion, storage, management, or distribution of water primarily for domestic, municipal, agricultural, industrial, recreation, fish and wildlife enhancement, flood control, or power production purposes. 24)Specifies for the purpose of financing the installation of distributed generation renewable energy sources or energy efficiency improvements, "public agency" means a county, city, city and county, or a municipal utility district, an irrigation district, or public utility district that owns and operates an electric distribution system. 25)Establishes the Alternative and Renewable Fuel and Vehicle Technology Program, administered by the California Energy Commission (CEC), that provides grants, revolving loans, loan guarantees, loans, or other appropriate funding measures to public agencies, vehicle consortia, businesses, consumers, recreational boaters, and academic institutions to develop and deploy innovative technologies that transform California fuel and vehicle types to help attain the state's climate change policies. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Negligible costs to CEC to include residential plug-in electric vehicle charging stations among the types of projects eligible for AB 118 funding. 2)Cost pressure of an unknown amount, potentially in the millions of dollars, resulting from expansion of the types of SB 1340 Page 8 projects eligible for funding from these programs. COMMENTS : According to the author, "the Alternative and Renewable fuel and Vehicle Technology Program currently is not specifically set up to address the needs of plug-in electric vehicle (PEVs) or plug-in hybrid electric vehicle (PHEVs) owners who will have to have their homes (garage to power-box) upgraded to handle the additional power needs of these vehicles to properly and safely charge them. Additionally, there are other financing programs, like PACE, that currently exist that should also include electric vehicle charging infrastructure into their programs. The use of electrically-fueled vehicles will lead to greenhouse gas emission reductions as more and more consumers swap out their petroleum-fueled vehicles with electric ones. However, public perception and confidence in these vehicles will quickly erode if PEV and PHEV vehicle owners have to confront costly in-home electrical issues in order to operate these vehicles. As a solution, this bill specifically requires the CEC to administer a program that will provide funding for homeowners who purchase a plug-in electric vehicle to offset costs associated with modifying electrical sources to include residential electric vehicle charging stations. This bill's recent amendment allows electric vehicle charging infrastructure into the PACE program." 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 SB 1340 Page 9 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 owners can voluntarily participate and repay improvements through a special property tax assessment. Earlier this year the Legislature passed SB 77 (Pavley), Chapter 15, Statutes of 2010, which created a state PACE Reserve program to assist local jurisdictions in financing the installation of distributed generation of renewable energy sources or energy or water efficiency improvements. SB 77 authorizes CAEAFTA to purchase locally-issued PACE bonds, which 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. Some federal housing finance regulators worry that voluntary contractual assessment programs may overburden property owners with debt, raising risks of default. Mortgage lenders and regulators are concerned because voluntary contractual assessment financing is secured with a tax lien that has superior priority over first mortgages. PACE Program advocates respond that financing energy and water improvements may pose less risk of default than traditional public financing because lower utility bills offset a property owner's financing costs. However, this bill authorizes financing for electric vehicle charging infrastructure, which does not produce offsetting cost savings. The Legislature may wish to consider whether, by authorizing voluntary contractual assessment financing for improvements that does not produce cost savings directly to the property, this bill invites greater scrutiny by federal regulators and mortgage lenders. Support Arguments: The author points out that major auto manufacturers will be introducing new electric vehicles and plug-in electric vehicles in the fall of 2010 and early 2011, SB 1340 Page 10 and as consumers seek to purchase these vehicles, many will require electrical improvements at their homes. Costs for these improvements can range from a few hundred dollars to several thousand dollars. Despite the air quality and energy efficiency benefits of the technology, many potential electric vehicle purchasers may be dissuaded from buying an electric-drive vehicle if it additionally requires hundreds of dollars of initial costs at their homes. This bill gives clear legislative authority for the CEC to design an Alternative and Renewable Fuel and Vehicle Technology program that helps to off-set these costs as well as expanding the PACE program for clean vehicle purposes. Opposition Arguments: Opposition could argue that this measure adds yet another improvement to the laundry list of improvements that a local government can finance through contractual assessments; the Legislature may wish to consider whether it is prudent to continue to authorize local governments to become a glorified bank to help pay for on-site property improvements. Moreover, the contractual assessments stay with the property and any subsequent owner would be subject to the assessment. In regards to the installation of an EV charging system, the new property owner would be faced with paying the assessment regardless of ownership of an EV. The financing of improvements such as solar panels or water efficiencies could be of benefit to any subsequent property owner, but the assessment upon a new property owner who does not own an EV may not be as beneficial. This bill is similar to AB 1755 (Swanson) and AB 2182 (Huffman), which are currently pending in the Senate. Analysis Prepared by : Katie Kolitsos / L. GOV. / (916) 319-3958 FN: 0006323