BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 679 (Pavley) Hearing Date: 05/09/2011 Amended: As introduced Consultant: Brendan McCarthy Policy Vote: EU&C 10-0 _________________________________________________________________ ____ BILL SUMMARY: SB 679 reappropriates up to $50 million for energy conservation projects, from funds originally appropriated in SB 77 (Pavley, 2010). _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Energy efficiency loansUp to $50,000 General * * Renewable Resources Trust Fund. _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. Under current law, funds in the Energy Conservation Assistance Account are used to provide loans to schools, hospitals, and local governments. The loans are used to finance energy conservation projects. The savings generated by the energy conservation projects are used to repay the loan, typically over ten years. After that, the borrower keeps the savings. Also under current law, local governments are authorized to create Property Assessed Clean Energy (PACE) programs. In a PACE program, commercial or residential property owners borrow money from a local government entity to pay for energy efficiency improvements or renewable energy projects (such as rooftop solar systems). The debt service associated with the loan is attached to the property tax bill. Typically, local governments that operate PACE projects sell municipal bonds to finance the loans made to property owners and the bonds are paid off with the debt service payments made by property owners via their property tax bills. SB 679 (Pavley) Page 1 SB 77 (Pavley, 2010) established a PACE reserve program, to be implemented by the California Alternative Energy and Advanced Transportation Financing Authority (Authority). The Authority is authorized to provide a reserve up to ten percent of any PACE bond issued by the local government. The reserve provided by the Authority would be held in an escrow account against any possible default by a property owner that might interrupt debt service payments by the local government agency. SB 77 also appropriated $50 million from the Renewable Resource Trust Fund (a fund used by the Energy Commission to support the use of renewable energy) to the new account. In July 2010, the federal Housing Finance Authority issued a directive to the federal residential lending agencies (such as Fannie May) prohibiting them from lending on properties encumbered by PACE loans. The concern of federal regulators is that PACE loans, because they are attached to property tax bills, have priority over loans secured against the property. The directive effectively halted all PACE financing activity in the state. SB 679 appropriates all unencumbered funds originally appropriated in SB 77 to the Energy Conservation Assistance Account. Because PACE programs were effectively halted shortly after enactment of SB 77, almost all of the $50 million appropriation (less minor administrative costs incurred before the program was halted) is available for reappropriation. Staff notes that the Energy Conservation Assistance Account is set to sunset on January 1, 2013, and it is not clear whether the Energy Commission will be able to expend all of the funds appropriated in this bill before then.