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
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          BILL SUMMARY: SB 679 reappropriates up to $50 million for energy 
          conservation projects, from funds originally appropriated in SB 
          77 (Pavley, 2010).
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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           
          Energy efficiency loansUp to $50,000                    General 
          *

          * Renewable Resources Trust Fund.
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          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.