BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE BILL NO: SB 1340 HEARING: 8/27/10 AUTHOR: Kehoe FISCAL: Yes VERSION: 8/23/10 CONSULTANT: Weinberger BENEFIT ASSESSMENTS FOR ELECTRIC CAR RECHARGING Background and Proposed Law To help electric vehicle owners pay for the costs of installing electric vehicle charging infrastructure, Senate Bill 1340 amends statutes governing three financing programs: I. Voluntary contractual assessments . A benefit assessment is an involuntary charge that property owners pay for a public improvement or service that provides a special benefit to their property. The amount of the assessment must be directly related to the amount of the benefit that the property receives. Benefit assessments can finance public projects like flood control, street improvement, streetlights, and public landscaping. As an alternative to benefit assessments, and only with the free and willing consent of affected property owners, public agencies can use "voluntary contractual assessments" to finance: Public improvements to developed parcels (SB 837, McQuorquodale, 1987). Renewable energy sources or energy efficiency improvements that are permanently fixed to real property (AB 811, Levine, 2008). Water efficiency improvements that are permanently fixed to real property (AB 474, Blumenfield, 2009). To use voluntary contractual assessments, a public agency's legislative body must adopt a resolution, which: Determines that it would be convenient, advantageous, and in the public interest to designate an area within which officials and property owners may enter into contractual assessments and make related financing arrangements. Identifies the kinds of public works which may be financed. Describes the area where contractual assessments may SB 1340 -- 8/23/10 -- Page 2 be used. Describes the proposed financing arrangements, including criteria for determining the creditworthiness of a property owner. States the time and place for a public hearing. Directs an official to prepare a detailed report about the contractual assessment program and consult with the county auditor and county controller regarding fees. The report on the proposed assessment program must contain: A map of the area where contractual assessments will be offered. A draft contract specifying the terms and conditions. A list of the types of facilities and improvements which may be financed. The official authorized to enter into contractual assessments on behalf of the county or city. The maximum aggregate dollar amount of contractual assessments. A method for prioritizing requests from property owners for financing. A plan for raising a capital amount required to pay for work performed pursuant to contractual assessments. Information about the county auditor's and county controller's fees. The legislative body must give written notice to all water or electricity providers within a proposed area where voluntary contractual assessments will be offered. After holding a public hearing, the legislative body may adopt a resolution confirming the program as detailed in the report, may confirm a modified version of the report, or may abandon the proceedings. The legislative body must designate an office to: Prepare the annual roll of assessment obligations on property subject to a voluntary contractual assessment. Establish procedures for responding to inquiries concerning estimated voluntary contractual assessment liabilities. The legislative body must provide for documents to be recorded with the county recorder, providing notice of a contractual assessment on real property. SB 1340 -- 8/23/10 -- Page 3 Senate Bill 1340 authorizes the use of contractual assessments to finance the installation of electric vehicle charging infrastructure that is permanently fixed to residential, commercial, industrial, agricultural, or other real property. Senate Bill 1340 prohibits a property owner from participating in a voluntary contractual assessment program if participation would result in the total amount of annual property taxes and assessments exceeding 5% of the property's market value, as determined at the time of approval of the owner's contractual assessment. Senate Bill 1340 requires a public agency to adopt a report containing a statement of policies that include a brief description of criteria for determining the underwriting requirements, and safeguards that will be used to ensure that the total annual property tax and assessments on the property will not exceed 5% of the property's market value, as determined at the time of approval for the owner's contractual assessment. The bill specifies that it does not void or otherwise release a property owner from voluntary contractual assessment obligations, particularly in the event that the total amount of annual property taxes and assessments exceeds 5% of a property's appraised value after a property owner has entered into a contractual assessment. Senate Bill 1340 specifies that, for financing the installation of electric vehicle charging infrastructure, "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. Senate Bill 1340 contains legislative findings and declarations regarding the need to finance electric vehicle charging infrastructure using contractual assessments. II. Property Assessed Clean Energy bond reserve program . The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), within the State Treasurer's Office, administers the Property Assessed Clean Energy (PACE) Bond Reserve Program (SB 77, Pavley, 2010). This new program allows CAEATFA to use a $50 SB 1340 -- 8/23/10 -- Page 4 million fund to finance reserves for PACE bonds, which are bonds secured by voluntary contractual assessments or voluntary special taxes to finance the installation of distributed generation of renewable energy sources or energy or water efficiency improvements. Additionally, CAEATFA can pool local PACE bonds by purchasing them from individual municipalities, combining them with other PACE bonds, and selling the pooled bonds through public or negotiated sales. Using the bond reserve fund and bond pooling, CAEATFA can lower the costs of both PACE bonds and the underlying PACE loans. Senate Bill 1340 makes bonds secured by voluntary contractual assessments or voluntary special taxes to finance electric vehicle charging infrastructure eligible for inclusion in the PACE Bond Reserve Program. III. Alternative and Renewable Fuel and Vehicle Technology Program . The California Energy Commission (CEC) administers the Alternative and Renewable Fuel and Vehicle Technology (ARFVT) Program (AB 118, Nu?ez, 2007). Upon appropriation by the Legislature, the ARFVT Program provides revolving loans, loan guarantees, loans, or other appropriate funding measures to specified entities to develop and commercialize technologies for renewable and nonpetroleum fuels that help to achieve the state's climate change goals. The ARFVT Program can fund: Alternative and renewable fuel infrastructure, fueling stations, and equipment. Projects to develop and improve vehicle technology that provide for better fuel efficiency and lower greenhouse gas emissions. Alternative and renewable fuel projects to develop, improve, demonstrate, deploy, produce, and commercialize alternative and renewable fuels, plus reduce the overall carbon footprint of these fuels. Vehicle retrofit projects to create higher fuel efficiencies. Infrastructure projects that promote alternative and renewable fuel infrastructure development for existing fleets, public transit, and existing transportation corridors. Workforce training programs related to alternative fuels and vehicle technology. SB 1340 -- 8/23/10 -- Page 5 Block grants administered by not-for-profit technology consortia for specified purposes. Analyses and assessments performed by state agencies to determine the impacts of increasing the use of low-carbon transportation fuels and technologies. Senate Bill 1340 allows the ARFVT Program to fund a program that provides funding for homeowners who purchase an electric vehicle to offset costs associated with modifying electrical sources to include an in-home electric vehicle charging station. Senate Bill 1340 requires the CEC to consider funding criteria to maximize the public benefit of the program. Comments 1. Public benefits, public financing . Because transportation produces 38% of California's greenhouse gas emissions, replacing gasoline-fueled vehicles with electric vehicles is vital to improving air quality and achieving the state's greenhouse gas reduction goals. However, the costs of upgrading residential electrical systems and installing electric vehicle charging stations, which can range from a few hundred dollars to several thousand dollars, may deter consumers from buying electric vehicles. Because commercial loans for electrical upgrades can be expensive, local officials want to accelerate the installation of electric vehicle charging infrastructure by loaning money to private property owners at below-market rates. SB 1340 provides state and local officials with additional tools to help property owners pay for electrical upgrades and infrastructure that improve air quality and reduce greenhouse gas emissions. 2. Lien on me . 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. In a July 6, 2010 statement, the Federal Housing Finance Agency (FHFA) urged state and local governments to reconsider and suspend PACE financing programs because the liens "pose unusual and difficult risk management challenges for lenders, servicers, and mortgage SB 1340 -- 8/23/10 -- Page 6 securities investors." 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, SB 1340 authorizes financing for electric vehicle recharging infrastructure, which do not produce offsetting cost savings. The Committee may wish to consider whether, by authorizing voluntary contractual assessment financing for improvements that don't produce cost savings, SB 1340 invites greater scrutiny by federal regulators and mortgage lenders. 3. It's not your business . Despite the Legislature's approval of the Levine and Blumenfield bills, some critics still say that local governments should not be in the business of providing public financing for seismic projects on private property. If private property owners want to finance the large up-front costs of electrical system upgrades and infrastructure, they ought to rely on private sector lenders, just as they would finance roofs, decks, other types of property improvements. Tax-exempt financing, backed by priority government liens, to pay for electrical vehicle charging stations that primarily benefit private property is inconsistent with the fundamental purpose of issuing government debt. 4. Too much, too soon ? Many communities are just beginning to use voluntary contractual assessments for the energy and water improvements authorized by the Levine and Blumenfield bills. Legislators can anticipate additional proposals to expand voluntary contractual assessment financing in the future. Fire safety improvements or improvements to access for people with disabilities, for example, could also provide sufficient public benefits to justify financing using voluntary contractual assessments. The Committee may wish to consider waiting to evaluate local governments' experience financing energy and water improvements before further expanding the list of improvements that property owners can finance with voluntary contractual assessments. 5. Related legislation . At its June 30 hearing, the Senate Local Government Committee approved three other bills that expand the use of contractual assessments: AB 44 (Blakeslee), which lets local officials use contractual assessments to finance distributed SB 1340 -- 8/23/10 -- Page 7 generation renewable energy systems attached to real property pursuant to a power purchase agreement or lease. AB 2182 (Huffman), which lets local officials use contractual assessments to finance sewer and septic improvements. AB 1755 (Swanson), which lets local officials use contractual assessments to finance seismic strengthening improvements. 6. Assembly amendments . When the Senate passed SB 1340 on May 28, 2010, the bill authorized ARVFT Program funding for residential electric vehicle charging stations. The June 17 Assembly amendments allowed the use of contractual assessment financing for electric vehicle charging infrastructure and made that financing eligible for the PACE reserve program. Because this topic was never heard in the Senate, the Senate Rules Committee has referred the amended bill under Senate Rule 29.10 to the Senate Local Government Committee for a hearing on the Assembly's amendments. At its August 26 hearing, the Committee has four choices: Send the bill back to the Senate Floor, recommending concurrence. Send the bill back to the Senate Floor, recommending nonconcurrence. Send the bill back to the Senate Floor, without recommendation. Hold the bill. 7. Double-jointing . Both SB 1340 and AB 1106 (Fuentes) amend Health and Safety Code 44272, but in different ways. Both bills contain technical language to avoid one bill from chaptering-out the changes made by the other bill. Assembly Actions Assembly Transportation Committee: 11-1 Assembly Local Government Committee: 7-2 Assembly Appropriations Committee: 12-5 Assembly Floor: 51-26 Support and Opposition (8/27/10) SB 1340 -- 8/23/10 -- Page 8 Support : American Lung Association, Bay Area Quality Management District, California Air Pollution Control Officer's Association, Electric Transportation Coalition, Nissan North America, Pacific Gas and Electric, Sacramento Municipal Utility District, Sierra Club California, Southern California Edison, Union of Concerned Scientists. Opposition : Unknown.