BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 1340 (Kehoe)
          As Amended  August 20, 2010
          Majority vote

           SENATE VOTE  :Vote not relevant  
           
           LOCAL GOVERNMENT    7-2         TRANSPORTATION      11-1        
           
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          |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  
            through a voluntary special tax, which is levied through a  








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            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.  

           EXISTING LAW  :








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          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  
 
               proceedings;









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             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.

          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  








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            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  
            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"  








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            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  
            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.








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          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  
            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  








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          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  
          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  








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          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,  
          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  








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          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


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