BILL ANALYSIS Ó AB 1131 Page 1 ASSEMBLY THIRD READING AB 1131 (Skinner) As Amended April 22, 2013 2/3 vote NATURAL RESOURCES 9-0 APPROPRIATIONS 16-1 ----------------------------------------------------------------- |Ayes:|Chesbro, Grove, Bigelow, |Ayes:|Gatto, Harkey, Bigelow, | | |Garcia, Muratsuchi, | |Bocanegra, Bradford, Ian | | |Patterson, Skinner, | |Calderon, Campos, Eggman, | | |Stone, Williams | |Gomez, Hall, Ammiano, | | | | |Linder, Pan, Quirk, | | | | |Wagner, Weber | | | | | | |-----+--------------------------+-----+--------------------------| | | |Nays:|Donnelly | | | | | | ----------------------------------------------------------------- SUMMARY : Revises and extends the Clean Energy Upgrade Program (CEUP) administered by the California Alternative Energy and Advanced Transportation Financing Authority (Authority), which offers assistance to financial institutions for privately-issued loans for real property projects, including energy and water efficiency improvements and renewable distributed generation. Specifically, this bill: 1)Extends the appropriation to support the CEUP from the Renewable Resource Trust Fund (RRTF) for two years, until January 1, 2017. 2)Repeals a limit on CEUP loans of 10% of property value. 3)Expands eligible residential properties to include residential projects four units or fewer and mobilehomes. EXISTING LAW : 1)Creates the Authority within the State Treasurer's Office for the purpose of promoting the development and utilization of alternative energy sources and the development and commercialization of advanced transportation technologies. The Authority is authorized to issue up to $1 billion in revenue or prepayment bonds to fund projects. AB 1131 Page 2 2)Requires the Authority to develop and administer the Property Assessed Clean Energy (PACE) Reserve program, to be used to reduce the overall costs to property owners of PACE bonds issued by a local jurisdiction, by providing a reserve of no more than 10 percent of the initial principal amount of the PACE bond. Defines PACE bond as a bond that is secured by voluntary contractual assessment on a property or through a voluntary special tax for the purposes of financing the installation of renewable energy sources, or energy or water efficiency improvements. 3)Requires the Authority to administer the CEUP as an alternative to the PACE Reserve Program. The purpose of the CEUP is to reduce overall costs to property owners of a loan provided by a financial institution to finance the installation of distributed generation renewable energy sources or energy or water efficiency improvements on real property by providing a reserve or other financial assistance at a level to be determined by the California Energy Commission (CEC) and the Authority. 4)Appropriates up to $50 million, until January 1, 2015, from the RRTF to be used by the Authority for purposes of the PACE Reserve and CEUP Programs, and authorizes the Authority to spend up to $550,000 for its administrative costs. FISCAL EFFECT : According to the Assembly Appropriations Committee, this bill would likely make RRTF funds unavailable for the New Solar Homes Partnership (NSHP). This bill redirects the remainder of the funds in the RRTF appropriated for the CEUP and other programs, approximately $25 million that under current law would revert to the NSHP, also administered by the CEC COMMENTS : The Authority consists of five members: the Director of Finance, the Chairman of the CEC, the President of the Public Utilities Commission, the State Controller, and the State Treasurer. Its current mission is to provide financing for facilities that use alternative energy sources and technologies, and develop and commercialize advanced transportation technologies that conserve energy, reduce air pollution, and promote economic development and jobs. Under the PACE program, local governments provide funds to AB 1131 Page 3 participating homeowners to install energy upgrades, which are paid back over time in the form of a special assessment on the property tax. Payments are typically secured by a lien on the property that gives local governments priority of repayment if the home goes into foreclosure. PACE removes many of the barriers of energy efficiency and renewable energy retrofits that otherwise exist for residential homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings. Berkeley was the first city in the nation to launch a PACE program, using 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. SB 77 (Pavley), Chapter 15, Statutes of 2010, sought to lower the costs to local governments and property owners in the financing of PACE bonds by authorizing the Authority to tap up to $50 million from the RRTF to fund the PACE Reserve Program. Prior to SB 77, the primary purpose of the RRTF had been to fund a new solar home rebate program pursuant to the California Solar Initiative. However, given the steep decline in new home construction in California, the RRTF accumulated a balance (approximately $170 million) that exceeded the near term demand for solar rebates. A smaller proportion of RRTF monies (20% or less) are devoted to production incentives for a handful of existing biomass and solar thermal power plants. In 2010, PACE programs were dealt a setback when the Federal Housing Finance Agency (FHFA), which oversees the nation's largest mortgage finance companies Fannie Mae and Freddie Mac, issued a statement objecting to local governments holding the first lien on PACE homes, calling it a significant risk to the mortgage financier. This caused the mortgage lenders to stop underwriting loans on properties with PACE assessments and tighten lending standards in communities with PACE programs. Efforts by the California Attorney General and others to overturn the FHFA directives have been unsuccessful. Meanwhile, the FHFA's action has sidetracked implementation of PACE programs, including the Authority's PACE Reserve Program. In the wake of the FHFA action, the CEC adopted Energy Upgrade California using federal stimulus funds to support residential and commercial energy improvements, without relying on the PACE mechanism. AB 14 X1 (Skinner), Chapter 9, Statutes of 2011-12 AB 1131 Page 4 First Extraordinary Session, repurposed the Authority's program along the same lines. According to the author, in the initial phase of implementing AB 14 X1, the Authority has established a program to provide financial assistance to participating financial institutions making loans to property owners for energy efficiency and renewable energy improvements to their homes. The program is set to expire on January 1, 2015. Extending the program may encourage additional financial institutions to participate in the program, thereby providing more loans to homeowners and furthering the state's energy efficiency goals. This bill extends the program expiration date to January 1, 2017. Currently, when considering the amounts of loans, the law says that loans cannot be for more than 10% of the value of the property. In California, property valuations are based on the value of the property when it was purchased. But for people who bought their homes before 1975, the value of their home is the 1975 value plus a small annual increase. Given that housing prices have risen dramatically in the last couple of decades, the requirement for loans to be less than 10% of the property value excludes many homeowners who would otherwise be eligible for energy retrofit loans. This bill removes the requirement that loan amounts be less than 10% of the property value. Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0000981