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.